5 Things to Know When Buying a Vacation Rental Property
Buying a vacation home is a way to grow your income stream. Whether you are real estate investing or looking to offset the cost of a second home, vacation rental properties are businesses and must be treated as such. You probably wouldn’t buy a car without doing some research; the same is true when purchasing a vacation rental property. Buying the right property could make or break your investment goals. Make a smart purchase by doing these things first.
1) Before Starting a Vacation Property Search
Purchasing a property is one of the last steps in buying a vacation rental property; the process starts with research. When investing in a vacation home, it’s essential to read about different factors that directly influence keeping the property booked, producing income, and reducing operating expenses.
For starters, choose a top location. Look at places people want to go and where they want to go when they get there. For example, people vacation in New York City, but where do they go when they’re visiting? Likely destinations like Broadway, Times Square, and Central Park. A short-term rental near these amenities will attract a higher amount of booking interest.
Another factor is your rental plan. How do you want the home to be occupied: by short-term rentals or long-term rentals? The local municipality, county, or state may have restrictions on where your vacation home can be located. Additional requirements may be levied for taxes, the type of business entity, and legal issues. Research these to avoid buying a vacation home in an area you can’t rent.
Understanding your local required licensing fees and taxes rounds your picture of the essential operating costs. This is vital for setting up a vacation rental business budget. Estimate all expenditures, including mortgage payments, maintenance, and marketing. Know how much rental income you’ll need to produce each year to break even.
Finally, consider the property’s cleaning and maintenance. How will you handle marketing, guest management, turnover, and restocking supplies? Hiring a management company or property manager smooths the process and provides peace of mind, but the extra cost impacts your rental revenue.
2) Features to Find When Buying a Vacation Rental Property
Occupancy rates matter to your bottom line. The most successful vacation rental properties stay booked. With this in mind, it may be worth spending more to purchase a home closer to desirable amenities to keep the property rented.
Another factor is the property size and number of bedrooms. Create an ideal vacation renter persona. What would this renter want in their vacation? Families may want more space than business travelers. A long-term rental may desire a more spacious kitchen, closet space, or yard.
Think about the potential cost of renovations and the additions of unique amenities. Spending too much on expensive upgrades will impact your bottom line. On the other hand, some upgrades may attract specific travelers. Reflect on your ideal renter and target their needs within your budget.
Besides the physical rental property, factor in its proximity to local amenities. These lure short- and long-term guests to a vacation rental. Once vacation renters arrive on site, they’re interested in seeing the sites. Time spent driving to their end destination or the grocery store is time wasted.
3) Search for Properties Thoroughly and Conduct Careful Analysis
Buying a vacation rental property is not a process to rush. You’re not just investing in a vacation, This is a business and it needs an investment strategy. Keep the end goals for the vacation rental in mind, even if your intent is to offset the expenses of a second home. Have a target number in mind.
Vet the properties carefully. Be willing to wait for the right property and the right deal. Don’t decide to “make it work” because the process is taking longer than anticipated.
4) Work with an Agent
A local real estate agent is an asset, especially one with experience working with real estate investors who buy vacation rental properties. They know the amenities and attractions that drive visitors. They’ll also be on the lookout for smart deals for a vacation property and leverage their network to get you in ahead of the game.
5) Use Real Estate Investment Tools and Big Data
Let data drive your real estate investing for smart decisions. Today’s real estate investment property tools use thousands of data points to monitor market trends. Specialized software tracks these patterns. Some tools provide suggestions for setting rental rates and maximizing potential income.
Investing in Short-Term Vacation Rentals
Approach buying a vacation rental property with an investment strategy. Research the short-term and long-term rental market before diving into the home search. Make sure your vacation rental is legal before purchasing the home. Know what kind of property is most likely to attract guests in your target market. Set your vacation rental business up for success by combining a solid strategy with the market knowledge and smart management.
Inna Shevchenko, Chief Marketing Officer at iGMS, has over 12 years of experience in marketing and content writing specifically. Currently, she is the CMO at iGMS, a short-term rental management software company.