The Ins and Outs of Investing in a Vacation Rental

The Ins and Outs of Investing in a Vacation Rental

Investing in a vacation rental home has gained a lot of popularity over the last few years. Vacation rentals are an alternative to hotels that are generally rented out between a couple of days to a month. Due to increased activity of using the internet and social media to find vacation lodging, opportunities have opened for real estate investors. If you are interested in investing in a vacation property, get in touch with broker associate Eileen Kedersha of ONE Sotheby’s International Realty, and look to the below information to help get you started.

Getting Started

When considering where to buy a second home, you’ll want to find a place that will attract guests more than a couple of months out of the year. For instance, vacationers are drawn to Fort Lauderdale for a variety of reasons, according to Turnkey, including easy access to the beach or inland waterways. A waterfront condo or townhouse are a hot commodity and should be relatively easy to rent out.

Find a vacation rental that can start out as a dual-use property. This means a vacation rental where you can stay for a portion of the year and rent to guests for the rest. Not only will you get the tax benefits for the time you’re using it, but the house will be continuously occupied. Continue reading “The Ins and Outs of Investing in a Vacation Rental”

Buying a Vacation Rental, Read this First!

Things You Should Know Before Buying a Vacation Rental

While the vacation rental industry is no longer the new kid on the block, it continues to grow at a steady pace with vacation rentals expected to surpass hotels in 2020. It’s not too late to start earning money in the vacation rental marketplace, but before buying a vacation rental property, there are a few things you need to know about finding and buying short-term rentals.

Why do you want to buy a vacation rental?

There are two main reasons people buy vacation rentals:

  1. To generate profit.
  2. To subsidize a vacation home.

Your reason for buying a vacation rental has a big impact on your approach. While investment buyers are looking for the property that offers the most for their money, second-home owners need to balance price and rentability with their own list of wants.

Buying for investment

Investment buyers should carefully assess an area’s affordability before purchasing a vacation property. However, when it comes to real estate investing, affordability is relative

While popular travel destinations like Fort Lauderdale have high home prices (see graph) — the median Home Value & Sales Price in Fort Lauderdale — they also command higher rents. According to data from Evolve, Fort Lauderdale vacation rentals average a daily rate of $92 in the high season, with larger rentals coming in as high as $531 nightly. Investors should use neighborhood-level data to calculate a property’s cash flow potential before buying.

BUYING FOR PLEASURE (AND PROFIT)

Buyers in search of a vacation home have a different set of priorities. Second-home buyers need

properties that they can comfortably afford with or without rental income. Staying within budget is especially important for these buyers because personal use during the high season limits the property’s earning potential. Nonetheless, it’s important for second-home buyers to consider a property’s appeal if renting is part of their plan. While a quiet residential neighborhood may be a lovely place to retreat, it may not attract the rental traffic you’re after.

Should you buy a fixer-upper?

Buying properties that need work is a smart strategy for investment buyers who have the capital and flexibility to renovate a property before listing on vacation rental marketplaces. As long as a property is structurally sound and doesn’t require cost-prohibitive repairs, it only takes a few cosmetic fixes to convert a fixer-upper into a desirable vacation rental.

Second-home buyers, on the other hand, tend to live too far away to oversee renovations. And while DIY might sound appealing to budget-conscious buyers, no one wants to spend their vacation remodeling a kitchen. In this case, it’s most prudent to buy a turnkey property.

What makes a great vacation rental?

Besides a top-notch location, what should buyers look for in a vacation rental? These are signs that a property would make a good vacation rental:

  • A low-maintenance exterior. While beautiful, maintaining expansive grounds is a major expense (lawn care services in Fort Lauderdale average $65 per visit). Look for properties that have a livable, but small outdoor space.
  • Open floor plans for easy entertaining and accessibility.
  • The right number of bedrooms and bathrooms. If marketing a multi-bedroom property to groups, make sure it has enough bathrooms to keep everyone comfortable. Avoid properties with exceedingly small bedrooms.
  • Air conditioning. A stuffy property is a guaranteed way to get bad reviews. Avoid properties without air conditioning or that only have a window unit.
  • Parking is important to guests, and they’ll pay more to get it.

Finally, make sure the law is on your side before investing in a vacation rental. While the vacation rental industry continues to boom, some areas are cracking down on short-term rentals and making it harder for buyers to keep their properties booked. Understand local codes regarding short-term rentals and comply with licenses and taxes to keep your property legal. When it comes to running a profitable vacation rental, it pays to do it right.

Image via Unsplash | Article Written by:Henry Moore, Guest Contributor

 

Eileen Kedersha, Broker Associate One Sotheby’s International Realty – Kedersha Group 954-561-4100 EKedersha@OneSothebysRealty.com