The idea of owning a vacation rental property has become very popular in recent years, especially with the rise in popularity of sites like AirBNB. This kind of investment has become popular for a reason. The rise in the private accommodation sector has made it easier for families to afford vacations, so there is a higher demand for vacation rentals.
Despite what a lot of investors think, owning a vacation rental property isn’t the same as traditional real estate investing. If you’re going to buy a vacation property, whether you’re looking for homes for sale abroad or are shopping in Beverly Hills, you will need an understanding of the local market and your potential revenue. Remember too that unlike a traditional buy and gold property, buying a vacation rental will mean that you are adding a property to your portfolio that will have vacancies throughout the year.
Here are a few things that any potential vacation rental buyer ought to know before starting the process of buying a vacation rental property.
Steps For Investing
Before you even start looking for a vacation rental property to buy, there are a few things that you will need to work out. This is because buying a vacation rental will require a more specialized strategy than buying other property.
Luckily, it isn’t as difficult to start investing in vacation rental properties as many people would think it is. In fact, you can break down the whole process into quite simple steps that anyone who has a good work ethic and a head for revenue will be able to understand and follow. As with any kind of real estate investment, the first step must be doing plenty of research before you go any further.
Do Your Research
We all know the golden rule of real estate; location, location, location. The location of the property is the most important factor and is the one thing you can’t really change about the property you buy. It shouldn’t come as a surprise that the first step of buying a property as a vacation rental is to decide on a location. You will need to choose a city or are to buy in, but a region within that city. The more specific you get, the better. Do your due diligence and take into consideration all the things that matter most; the market conditions, employment rate, weather, proximity to amenities, demand, and some other factors. You will need to consider the more tangible financial side of a potential property, you also can’t forget the fact that your investment needs to be a pleasant, accessible and desirable location if you’re going to attract guests.
Carry Out In-Depth Market Analysis
When you’ve narrowed down your search to one or two locations, it’s now time to examine the market and demand in more detail. Keep in mind that vacation rental demand is very different from residential demand. Ask yourself if you would want to vacation in the area yourself.
Think about practical details, like what attractions are nearby and how popular these attractions are at different times of the year. Is there enough consistent demand for your investment to be sustainable all year round? Is there as much demand as winter as there is in the summer? Look at vacation trends, as well as property types, that are influencing the areas that you’re thinking about.
As well as looking at vacation trends, you will need to take into account different property types and the local market. Once you have decided what kind of property you want to invest in, you can make some market comparisons. These properties will let you have an inside look into how the market is performing for a certain type of property asset. You can use free listing sites like VRBO or Airbnb to start compiling market data. As well as familiarizing yourself with the area, you can also easily find a rental price range and start to work out the income you could reasonably expect from the property that you want to buy.
Understand The Rhythm Of Vacation Rentals
You should take a closer look at the ebbs and flows of demand for vacation rentals. Vacation properties are very different from traditional rentals in that the income that they generate can be very dependant on the season. A house near the water will always attract more interest in the summer, whereas a house near a ski resort will be in higher demand during the winter. You will need to know when the peak and off seasons are and what to expect from them. You should also know what the monthly expenses of the property will be. Don’t forget to factor in furnishing the property and having it cleaned on a regular basis. Your property insurance may be higher, and there may be extras for some properties, like flood insurance. If you plan to buy a property, you will need at least a 25 per cent down payment and can expect a higher interest rate.
Calculate Your Expected Income And Expenses
You can start digging a little deeper if your selected market shows demand and the numbers that you have worked out show a good promise of consistent cash flow.
Rental income will definitely be dependant on the area that you decide to buy in, but most landlords should expect to set the weekly rental rate at around 10 to 20 percent higher than the monthly mortgage payments. However, remember that, in today’s market, in some high-demand areas you can get away with asking for even more. This is just one good reason to do your market research! Remember that you want to make money every month, but you don’t want to put off prospective renters. You need to find a middle ground.
As well as adjusting your income to cover more than your mortgage, factor in the inevitable downtime that your property will probably have. Most vacation rentals are seasonal. You can expect a lot of demand during peak seasons, but this demand needs to be lucrative enough to offset the less busy months. Factor in at least a 25 percent vacancy rate, to account for times when the property is empty. You will also need to factor in other costs, such as condo fees, HOA fees, routine maintenance, and so on.
You will also need to account for the property management fee. You can of course act as your own landlord, but using the services of a property manager is highly recommended, especially if you don’t live in the area that you have decided to invest in. With the help of a property manager, even an average property can be a great one, all with no more work for you than collecting the profits.
At this stage, you should have a clear idea of how much you can expect your investment to make in rental income and the expenses of running it. As long as the balance works out in your favor, you could have a deal!
Advertise Your Property
When you have invested in your vacation rental, it’s time to start marketing your property so you can fill up your calendar with as many bookings as possible. There are lots of inexpensive booking sites that allow vacation property owners to get as many pairs of eyes on their property as possible.
This is probably the best-known vacation rental listing site. This platform has no annual fee and is best for city rentals and properties in high demand destinations. Do a search in your area first though, as if there isn’t much site traffic, you’d be better off listing elsewhere. The platform has a mobile-friendly interface, low fees for listing, and is a very popular service.
- VRBO and HomeAway
HomeAway isn’t just only one site but is in fact three sites containing millions of listings around the world. That boost in exposure also comes with high competition among vacation rental owners, and with a large annual fee. This option is best for properties in high-traffic areas owned by people looking to rent consistently.
- Rent Like A Champion
Do you live in a college town or in a rural area that hosts annual events? Rent Like a Champion could be the perfect choice to fill your vacant home for those who are traveling to a big game. This site is helpful if you already own a vacation rental in more niche areas.
Your Own Website
Why should you have to rely on the major vacation rental listing sites to generate leads for you and provide information to would-be tenants? Platforms like Airbnb and VRBO provide a lot of very convenient services, for both the tenant and renter, but that doesn’t mean you can’t set up a dedicated website that gives all kinds of information, including video and pictures, that will give prospective renters a much more detailed look at why your property is the right choice for them. You can also link to your vacation rental website within your listing service profiles and use it on other marketing channels like YouTube videos and Facebook posts.