Owing to the popularity of sites like Airbnb & VRBO, vacation rentals as a real estate investment options are really heating up. The upshot is that many investors are now making it a point to include vacation rentals in their property portfolios. This market, however, is still developing and is likely to change markedly over the next few years as more companies and local governments get involved. So let’s take a look at buying vacation rentals for investment, both the pros and the process.
The Pros of Vacation Rentals for Investment
The pros of vacation rentals are numerous, from higher income potential to certain tax benefits. There are two pros, though, that stand out above the rest . . .
One of the chief pros of vacation rentals for investment over standard rental properties is that rents are significantly higher. Although the rental periods are shorter (which actually works in your favor), the amount of income per rental period is much higher for several reasons.
Since the rental period is fairly short, tenants don’t receive the volume discount measured in time that standard tenants receive. In addition, tenants are vacationing so they expect and are willing to pay rent more in line with hotel and vacation pricing. Also, vacation rentals are furnished and, as a result, command higher rents.
READY TO SELL
The other main advantage of vacation rentals for investment discovers itself if you ever need to sell the property. It is already furnished and staged, so it takes very little work to make it sale-ready. And you can get a higher price and sell much more quickly.
The Process of Buying Vacation Rentals for Investment
The process of buying vacation rentals is much like that for buying other kinds of investment properties. It’s just that there are a few aspects that require a closer look . . .
The first of these is location. A profitable vacation rental absolutely must be in a desirable location where both short-term market rental rates and local occupancy rates are relatively high. The vacation rental property must be in an area that draws plenty of tourists to its nearby attractions and amenities. Some examples are Las Vegas with its casinos, Orlando with nearby Disneyworld, and Nashville with its musical appeal.
INCOME AND COST POTENTIAL
Once you locate a potential property in the right area, you need to do a cost-benefit analysis. And one of the important things to be figured into this analysis are vacancies, which will be more common with a vacation rental property. You simply have to determine whether the projected realistic rental income will provide sufficient cash flow to meet all expenses and yield a profit. And don’t forget to factor into the analysis the fees you’ll have to pay to online sites for booking your rentals.
Once you’ve found a property in the right location with the necessary attractions and if the cost-benefit analysis yields the right results, then you need to actually pay for the property. Because vacation rental properties may cost more than standard rentals, financing often takes different forms. Vacation rentals for investment are often financed through portfolio loans, conforming loans, or, in some instances, short-term loans like bridge loans or hard-money loans.
The time to take advantage of vacation rentals for investment is right now – before prices rise dramatically and the regulatory burden increases. Buying vacation rentals can certainly be a good investment – if, that is, you have just a little assistance from an expert or two.