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5 Vacation Rental Investment Tips

By Mike Wheatley | February 5, 2020

With the rise of the internet, customers no longer need to rely on travel agencies and hotel accommodation. Instead, they can make their own travel plans and rent out vacation homes for a fraction of the price. Because the demand is so high, investing in the right vacation rental home can be a brilliant choice. However, this decision shouldn’t be taken so lightly. If not done correctly, such a significant investment can have a devastating impact on your finances. Here are all critical aspects you should consider before making a vacation rental investment:

Vacation Property
Vacation Property by the Beach

 1. Figure Out the Financials

First and foremost, you have to check your finances and see whether everything is in order. It is essential to know whether you’re able to afford such an investment. That also includes thinking about different payment options, such as lending money or mortgage payments. After all, this is a large investment that can make or break your credit report. When you’re thinking of buying a vacation home and using it for short term rental business, it is always great to start with confidence and knowledge that this goal is attainable. Also, you need to be sure that you will be able to afford such a vacation rental investment.

 2. Select the Best Location

The location is probably one of the most important factors to consider when buying a vacation rental. Moreover, guests are always looking for accessible locations that are within walking distance of certain conveniences such as bus stops, metro stations, shops, etc. It is important not to rush your decision. Conduct an in-depth analysis of the city and neighborhood, and check the following information:

  • Occupancy rates in nearby vacation rentals
  • Nearby attractions
  • Market conditions
  • Crime rate
  • Seasonality
  • The average nightly rates of competitive properties. 

 3. Be Aware of the Risks

Every vacation rental investment comes with certain benefits and risks. It is very important to research and be aware of all the risks before investing in a vacation home. These are the hidden risks that all real estate investors should take into consideration before deciding on an investment property:

  • Market Seasonality

Owning vacation rental properties doesn’t necessarily mean that your rental income will always be stable. The holiday rental industry is very seasonal, and just like in any other seasonal industry, there are high and low seasons. By being aware of the low seasons, property managers can calculate the exact amount of money they would need to earn every month to remain profitable. Important factors to include in your calculations are seasonal pricing fluctuations in conjunction with regular property expenses.

  • Different Housing Regulations and Illegal Short-Term Rentals. 

Different cities, areas, and neighborhoods have different regulations. Even though it might seem like a good idea to purchase a property in a hot area, there might be some rules and regulations that can make or break your purchase. Many areas don’t allow short-term rentals, while others require permits and charge occupancy taxes.

  • Unforeseen Events. 

Unforeseen events such as bad weather, health hazards, crimes, or geopolitical concerns can have a great impact on your vacation rental investment. This is especially crucial if you’re thinking about purchasing a vacation home abroad, in countries that are currently unstable. One way to remedy these risks is to purchase decent business insurance.

4. Conduct an In-Depth Market and Competitive Analysis

A market analysis is one of the most important aspects of every investment strategy. Explore the current environment, average price ranges, and other short- and long-term rental properties in the neighborhood. That will be a great indicator of how much money you should pay for a home and how much you should charge for a stay. There are many useful apps that will automate the whole process and provide you with an in-depth market and competitive analysis in a matter of minutes.

5. Calculate Your Expected Income and Expenses

Lastly, when it comes to real estate investment, it is important to estimate expected income and expenses before making a final decision. Being profitable should be your goal, and you shouldn’t settle for anything less. You want to set prices that will make everything worth your while, but those prices shouldn’t be too high because that will put off the guests. It is vital to find a middle ground, which will allow you to remain profitable while having a steady flow of customers. 

However, a business is not all about profits, so make sure to take into account potential expenses too. They will include furniture, amenities, utilities, cleaning services, insurance, etc. Another expense that you should consider is hiring a property management company to take care of the property. However, you don’t necessarily need to use its services. So, if you think that you can do everything on your own, then go for it!

Investing in vacation rental properties has become a popular way of making passive income. That isn’t a coincidence, though. Vacation rental investments have proven to be very profitable because traveling has never been more accessible. However, it is important to be serious about it and do the proper research before making any rash decisions. Approach the matter conscientiously and diligently, and this investment might be the best decision you’ve ever made.

Photo by Mohamed Ali on Unsplash

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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