With the stock marketing incredibly volatile this year, some people are moving more money into property. There are many options for this area of investing, such as single-family houses or units, blocks of apartments, duplexes, commercial property, and vacation rentals.
If the latter idea appeals to you, perhaps you want to try a new strategy or are interested in buying a home now, which you can rent out until you’re ready to move into yourself. No matter your thinking process or situation, it’s time to start researching, thinking, and planning. Here are some tips to help you be strategic as you investigate this investing option.
Know Your Goals
Work out your goals for investing in a vacation rental property upfront. Get clearer on your desired outcomes than simply “making more money.” Know if you’re looking to increase annual income, boost capital gains, invest in an area you want to live in later on in life, buy a home you can pass down to your children, find a property you can live in part-time, etc.
Everyone has slightly different investment goals with different timeframes involved. As such, understanding what you’re looking to achieve will make it easier to choose and manage a property and make it more likely that you make your goals a reality.
Research is crucial, too. Spend plenty of time checking out different areas and potential vacation homes. Use your goals, as mentioned above, to help you know what to look for and then start conducting an in-depth market analysis.
Examine local market trends and current demand in your top location options, and locate information that helps you to determine potential growth for an area. Learn about new developments happening in the area that could affect vacation rental demand positively or negatively. Also, consider potential issues such as flood, landslide, or hurricane risks, and accessibility via airports and other transport.
Don’t forget that vacation rental demand is very different from traditional residential demand. Think about practical things when researching locations and properties, such as reasons why people would want to take a trip to this part of the world, nearby attractions, and the level of activity and popularity during different seasons.
Choose a location that appeals to vacationers for multiple reasons. While it’s vital to look for a home in a popular travel hot-spot, or that boasts close proximity to the coast, a lakefront, ski field, national park, theme park, popular casino, etc., also look for other pluses. For instance, consider locations with good shopping, restaurant and bar facilities, excellent weather, proximity to a big city, and low crime rate.
It’s wise, too, to determine whether you’ll get enough demand to ensure the investment will remain sustainable year-long. Find out what kinds of prices you might be able to charge at different periods, as only receiving good income for three months of the year isn’t likely to lead to a profitable long-term investment.
Run the Investment Like a Business
If you want to make money from your investment consistently over the years, try to take emotion out of it and concentrate on real numbers and other factors. Before you buy a property, analyze the upfront and ongoing costs, as well as likely income, to see if the cashflow will work for you.
When calculating the numbers, factor in everything that could play a part. For example, unless buying the property outright, you’ll need to pay monthly mortgage costs. There are also annual taxes, property insurance charges, home warranty fees, maintenance and repair expenses, and possibly condo or homeowner association fees.
Plus, you’ll have to pay for utility charges, property management fees, and for initial and replacement furniture over time if you rent the home furnished. Also, factor in legal and accountancy fees, and costs for advice from any other consultants. Don’t forget expenses related to advertising the property online or elsewhere, and paying for it to be cleaned in between tenancies if you go down a short-term management plan.
When it comes to likely annual income, you might get a good idea of this if the property you’re interested in is used as a vacation rental right now, or if past records are available. Otherwise, ask local real estate agents or property managers, or seek out published statistics or other sources of information that tell you average occupancy rates for a vacation rental in the suburb.
When doing the numbers, factor in the inevitable downtimes when your property sits empty, too. Most vacation rentals are seasonal, after all. Make sure you can afford to pay costs on the property even when it’s vacant. Give yourself a buffer in case occupancy ends up lower than expected.
Buying a vacation rental property can yield excellent results over the years so long as you buy the right home and manage it effectively. Take your time learning everything you need to, and you’re more likely to enjoy success.