Owning a vacation rental property can increase your income, make a second home affordable, and open the door to real estate investing. The key to success lies in your preparation before purchasing a vacation home. Buying a house for vacation rental means you'll be running a business. Work through these six steps to learn what it takes to buy and manage short-term rental properties.
#1- Weigh the pros and cons of vacation rental investing
The income-generating potential attracts people into buying a vacation rental property. Well-managed short-term rentals can generate more revenue than leasing to a long-term tenant. Additional income benefits include real estate appreciation potential and possible tax relief from mortgage interest payments.
Is a vacation home a good investment for you? That depends on your goals and willingness to run a vacation rental business. Buying a property with the purpose of renting it out involves time spent in industry research, finding the right location and property type, and making a strategic purchase to get the most profit.
Buying the property is only the start. Vacation rentals require continuous management. Make sure to factor in additional expenses such as cleaning and regular maintenance costs, utilities, supplies, renovations, etc.
Moreover, to maintain a continuous influx of bookings and revenue, it’s crucial to earn five-star reviews. This will also require lots of your time and effort and respond to queries.
Finally, you may be looking at financing when buying a vacation rental property. Any mortgage comes with risk. Can you float the property expenses if it is vacant for an extended time?
#2- Learn your local vacation rental regulations
Municipalities, counties, and states vary in their regulations and requirements concerning short-term rentals. They may have specific laws on licensing and operations. Before buying a rental property, learn the rules so you purchase a rental in a compliant area.
#3- Determine your vacation rental purchase budget
Set a budget for buying a rental property. Factor in the closing costs, plus any upfront costs such as property renovations or repairs and furniture purchases. When creating your budget, estimate your expected monthly management expenses, including monthly mortgage payments, marketing costs, and property cleaning fees. Make sure you can cover these expenses in the event of a slow month.
Other budget considerations include taxes and insurance. Second homes often have a higher property tax, and you may pay a hospitality tax on revenue. Insurance is necessary to cover liabilities specific to vacation rental management.
#4- What to consider when buying a vacation rental
Maximize your chances for vacation rental profit with a smart property purchase. A few suggestions for buying a vacation rental:
- Identify a Hot Market: Identify locations that attract travelers all year round. Be careful of overpriced real estate markets, though. Ideally, look for vacation properties for sale near tourism attractions with fair pricing.
- Analyze Vacation Rental Potential. Look beyond the size, condition, and price. When buying a vacation rental, use data to evaluate the property, considering estimated income and overhead costs.
- Assess Convenience and Safety. Assess the proximity to amenities like transportation and groceries. Guests want access to essentials while feeling safe moving around the property and neighborhood.
- Evaluate the Property’s Condition and Easiness of Maintenance: Is the property in good condition, and will it be easy to maintain? Keep the property in top shape to earn five-star guest reviews—plan for regular maintenance and guest emergencies.
#5- Learn what to expect from buying a vacation rental
As a vacation rental homeowner, you are also a business owner who is engaged in property oversight and management. Expect to spend time:
- Managing Expenses: Be ready with extras of everything, from cleaning supplies to bedsheets. Expect occasional upgrades in common areas, as vacation rentals have more wear and tear.
- Accounting and bookkeeping: Renting your vacation home means earning income. Depending on how you set up your vacation rental business and how it performs, you could owe taxes.
- Protecting your investment: Take steps to ensure the property is well-maintained and safe for your renters. Choose durable furnishings that will withstand frequent guest turnovers. Buy insurance coverage to protect your assets should an incident occur at your vacation home.
- Improving Your Occupancy Rate: The more your vacation rental property is booked, the more revenue you generate. It's essential to have high occupancy. Set a competitive rental rate that attracts guests and generates profit. Using vacation rental software makes this task easier as it automates communication with guests, prevents double bookings, helps to ensure on-time cleanings, eliminates human error, and much more...
- Effective Marketing: Keeping your property booked means marketing your property on vacation rental platforms like Airbnb and Vrbo. You'll need compelling vacation rental photos and an optimized property description to get more bookings.
- Testing Assumptions: The bookings may challenge your expectations about the vacation rental market and who is renting. Your guest profile may fluctuate and change throughout the year. Be ready to respond to the market and make changes.
#6- Consider the pandemic's long-term impact on the vacation home experience
Demand for vacation homes is increasing as people begin to travel again. People believe it is easier to control their environment and reduce exposure risk with a short-term rental property.
Increase customer confidence by embracing industry changes shaped by the pandemic. For example, share directly in your listing measures that you’ve implemented to prevent the spread of the virus. Updates could include contactless key exchange, keyless entry, using a digital welcome book, a comfortable workspace, and enhanced cleaning procedures.
Renting your vacation home
Running a vacation rental home isn't a guarantee of income. Be smart when buying a vacation rental. Do some research about the industry and local market. Treat purchasing a vacation rental as a business, and you'll set yourself up for success.
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