In 2019, a number of studies came out documenting how Americans tend to not take vacations or even use all of their allotted vacation time at work. After more than a year of lockdowns, social distancing, and working from home, many Americans are changing their tune.
One study found that 67% of Americans were planning on traveling during the summer of 2021. People seem to be most drawn to locations where they can get some fresh air or where they can have some fun in the sun in a warm location.
With the growth of the short-term rental market in recent years, many people are wondering whether or not they should get into real estate investing in hot vacation locations.
For this reason, we’ve created a real estate investing guide to help you decide whether vacation rental property is right for you.
Vacation Rental Investment Opportunities: Are They a Good Idea?
When you have a clear plan of action and a defined business model, a vacation rental investment can be a great way to pull in some extra income. That being said, there are a number of unique challenges that come along with owning vacation properties, so you’ll want to learn as much about the world of real estate investing as possible before jumping in.
When you purchase rental properties in a popular vacation destination, you are dealing in the world of short-term rentals. It’s possible to make more money from short-term rentals, however, the income might not be as consistent or stable.
How to Invest in Vacation Rentals
There’s a lot of work to be done if you are going to start looking for investment opportunities in tourist hotspots. Let’s take a look at what you should know.
You’ll want to consider a variety of factors when choosing a vacation rental property. You will want to pick a location where you believe the property can succeed as a short-term vacation rental. You’ll also want to think about whether you want to have an urban, small town, or country rental.
Vacation rental demand is also an essential thing to look at. It’s important to understand that a place that has high residential housing demand doesn’t necessarily have high vacation rental demand.
The high and low season is worth considering as well. Some vacation locations have year-round visitors, while others might peak in certain seasons only to be a ghost town the rest of the year.
Of course, you’ll also want to run the numbers on how much money you will have to invest and what your ROI will be.
Check the Data
There are a number of useful analytical software tools that can help you find the property that is perfect as your next investment. Softwares lik AirDNA, Mashvisor, and AlltheRooms give you valuable information about potential ROI, average occupancy rate, and so much more when it comes to neighborhoods and areas around the country.
(Would you just rather buy a timeshare for your personal use rather than dealing with investment vacation properties? If so, check out these listings for DVC.)
Create a Business Plan
Drafting a business plan that takes a look at every nook and cranny of your business will help you succeed with your investment. You will want to first answer a few questions to help you outline what your goals are in the short and long term, including:
- Where are you hoping the business will go in the future?
- How many investment properties are you interested in owning and at what speed do you want to obtain them?
- Are you going to hire property management or deal with the business yourself?
Answering these questions will help you with the next steps of business planning.
There are a number of different ways people commonly finance investment properties. These include:
- Cash-out refinance
- Reverse mortgage
- Home equity line of credit
- Traditional financing
There are pros and cons to each of these avenues. The most conventional path to acquiring the financing for a property is to get it from a lender at a credit union or bank. This might require making a larger down payment than if you were purchasing a house to be your primary residence.
What Are the Pros and Cons of Owning Vacation Properties as an Investment?
There are both benefits and drawbacks to buying a vacation rental, as there is with any investment you make. Understanding the potential risks and benefits is essential before jumping in.
As far as pros go, you can make more income in the case of vacation rentals than you can with longer-term rentals in some instances. However, remember that your rental location and other factors like amenities will determine how much you can earn.
Another awesome pro is that you can always use the vacation rental for your own personal use whenever you please.
There are also tax benefits to renting out your property. If your property is rented out for at least two weeks every year, then you can write off expenses related to your property because it is considered a business.
Your rental property will also grow in value over time, leave you the option to either use it in the future as a retirement home or cash out your investment.
On the flip side, there’s a number of negative potentials when it comes to rentals. These include:
- Dealing with maintenance and cleaning
- It can be more expensive than you expect
- You have to work to continuously market your rental
- Your income might not be steady
Some people have a lot of success going this route, while others might find it to be a nightmare. This is why researching and making an informed decision is key to help ensure you are pleased with your investment.
Real Estate Investing: Is It Right For You?
Vacation rental properties can be a lucrative business, but it can also be a risky endeavor. Doing your research ahead of time can help you know what you’re getting into before you take the plunge.
Did you find this article about real estate investing with rental properties helpful? If so, be sure to check out the rest of our blog!
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