With platforms like Airbnb increasing in popularity, especially with pandemic restrictions lifted, investors of all kinds are making record profits. Airbnb alone has over 4 million hosts renting on their platform in the US, and there are plenty more elsewhere!
The opportunity is ready and waiting for you to jump on board, and experience the adventure and relaxation that renting a vacation property offers. The question is, with so many properties available all over the world, how do you find the vacation rental that’s best for your investment strategy? Here’s a helpful guide on buying a vacation rental and maximizing the benefits!
Find the Right Market
The first step in any real estate investment is market research, and buying vacation rentals is no different. You will need to give considerable thought to the long-term prospects for a short-term rental. Not all vacation areas are suitable for year-round profits.
For example, if you want to buy a property in New England, then a vacation home on Cape Cod or in Bar Harbor may sound logical. However, the peak season for tourists will only last for 2 months out of the year. Yes, you can charge more for each night than you could in other destinations, but you will still have to pay your mortgage during the other 10 months of the year.
However, long winters don’t mean it isn’t worth it. Other places in the area have plenty of popular ski destinations, snowmobile tours, and other popular winter sports. Every market is unique, so it’s essential to do your research.
You could talk to other investors nearby, research the tourism industry in the area, or continue your search elsewhere. If you decide to buy in a market that isn’t suitable for year-round tourism, you’ll need a plan. A couple of popular strategies include longer-term, off-season rentals at a discounted rate.
Assess Your Needs
What kind of property are you looking for exactly? Different investors will have different needs, so here are some factors to consider before searching for properties to help you narrow your search.
Living On the Property
Do you intend to live on the property? If so, you may need to buy a home with an accessory dwelling unit (ADU), a two-family unit, or some construction materials. Privacy sells, so always aim for separated units if you intend to live on the property.
More than 1.4 million properties in the US have ADUs on them, and not all of them are hooked up to anything. There are also plenty of off-grid homes for sale, so make sure you understand the property and narrow your search according to your needs.
After conducting some initial market research, try to determine your maximum price range. Just remember to consider any additional purchases you’ll need for your investment, including furniture, grid needs, amenities, and more. This will help you determine what kind of property you can afford and how much you can put into that property before launching your rental business.
However, keep in mind that stretching your price range may pay out in the long run. If you spend a little more to buy in the right location or property with the right amenities, then you could charge more. Of course, there’s only a limit to how much you can “stretch” up front.
Once you have all of these needs assessed, it will be much easier to narrow your search. If you’re looking for Orlando vacation homes for sale, you can easily apply filters on price, amenities, accessibility, and more!
Choose the Right Property
The property is the most important decision you will make with this investment, so it’s important to get it right. The more amenities, the better. However, the more amenities, the more thorough of an inspection you will need.
For example, if the property has a pool, you will need an inspector to check it out. Always get a thorough inspection of the property and account for any repairs or renovations you will need to make before renting. Other than that, here’s what you need to pay attention to.
The Most Important Three Words
Location, location, location. The local market isn’t the only important factor in determining the right location. A property with easy access to certain attractions, nice views, or otherwise desirable location will book quicker and potentially offer more money.
Keep in mind that you will most likely have to pay for such a location. If something seems too good to be true in a high-traffic area, it just might be.
Choose the Right Amenities
Some amenities require too much maintenance for too little payout. For example, pools are great, but what if you’re in Minnesota? Your guests will only be able to use the pool for a few weeks out of the year comfortably, so what’s the point of spending money to maintain it.
You can apply this logic to plenty of potential amenities, styles, or liabilities that come with any home. Always account for these ongoing costs and weigh them with the estimated benefits before making any decisions.
Understand Your Buying Power
Every new business venture needs to establish their funding and purchase power. Will you take outside investments, mortgage loans, bridge loans, or something else? Keep in mind that loans and out-of-pocket expenses will result in the most equity, which means a greater share of the profits!
Find Ways to Save
Before purchasing the property, it’s critical to look for ways to save money. Buying vacation rental properties is expensive, and you want to save as much as you can, especially if you want to expand your business. Luckily, there are plenty of ways to save without sacrificing too much.
For example, buying a condo in an existing building could offer a much more affordable purchase price with plenty of amenities. Just make sure it doesn’t have a homeowner’s association, as they likely won’t allow short-term rentals year-round, but you can always check!
There are plenty of large buildings that offer amenities like indoor pools, guest services, security, and more. This could give you the right location, the right view, and the right amenities for the best price possible.
Still, there are plenty of other ways to save. Negotiation, a strong real estate agent, shopping around for the right loan, and DIY renovations can save a lot of upfront expenses.
Purchasing the rental property is half of the battle, now it’s time to learn how to save money in the long run. Frugality is critical for long-term success, so try to save money on amenities, marketing, and maintenance as much as you can. You can start by purchasing offered items in bulk and learning skills on your own.
Of course, you can always save money with one-stop-shop management. This way, you won’t have to hire a marketer, cleaning person, and accountant. That is unless you plan on handling all of the day-to-day tasks throughout the year with so many guests!
Also, with interest rates soaring, most mortgage rates are exceeding 6.25% at the moment, and they are expected to continue rising for a couple of years. Fortunately, that doesn’t have to harm you as an investor. We strongly recommend waiting to refinance later on when interest rates cool off to save a small fortune on interest!
Stand Out From the Competition
There are many strategies you can use to stand out from your competitors and potentially charge more for it. You can try creating themes, buying a desirable (or otherwise unique) property, offering the most amenities, or anything else. For example, you would expect a newly-constructed Orlando home with a princess theme located right next to Disney World to rent for more than an ADU on the other side of Orlando.
Whatever property you choose, it’s important to highlight its best features and show potential guests why your property is better. Many guests are willing to pay more for the best vacation rental, so it’s important to find what makes your property unique and go with it.
No matter what unique features you offer, try to highlight them in the first pictures and at the top of your descriptions on your listings. This could potentially attract more viewers, guests, and shares on social media. Free marketing is the best marketing!
You can choose to look for these unique features when buying a vacation rental investment, or you can add them yourself.
Calculate Potential ROI
We don’t want to dream too big when we do this. We want to understand the high range and the low range estimates, and we need to accept both of them. Otherwise, you may be setting yourself up for disappointment.
Let’s say that Airbnb hosts with similar amenities and features to your prospective vacation investment property are renting for $200 a night. You can estimate $150 to $220 as your range and aim for between 10 and 25 nights per month. That adds up to $1,500 to $5,500 per month of gross income per unit.
Either way, it’s higher than a long-term rental property in most areas! In that case, your vacation investment property will need to balance out its ongoing expenses and liabilities. Let’s say you spend $1,200 on your insurance, mortgage, and property taxes.
If so, you’re at least breaking even when you consider the cost of smaller amenities (shampoo, soap, etc.) and maintenance costs. You can use a rental property calculator to play around with estimates, but remember the keyword is “estimates”. There is no such thing as a guaranteed return, even in real estate.
Find the Right Management
The right property management services can save you money on your investment, find the right guests, balance your budget, and maximize your profits. They can handle your marketing on various distribution channels, conduct guest screenings, handle routine maintenance, and so much more. All of these services come for only a small portion of your rental income.
On top of that, they can offer industry experience and expertise to help you buy vacation rental property and get the most out of it.
However, the right property manager will also help you set the right prices and maximize your profits. This can quickly lead to more money in your pocket, even after the management fee!
This will offer you all of the freedom you need to do what you want. If you want to retire, work full-time, or travel, you won’t need to waste time managing your property.
Start Buying a Vacation Rental Property Today
Now that you have a helpful guide for buying a vacation rental, there’s no time like the present to start. Buying vacation rentals doesn’t have to be too tricky. With the right help, you can maximize your investment and earn money from anywhere in the world.
Stay up to date with our latest real estate news, and feel free to contact us with any questions or for help with your vacation investment property!