What to Know About Buying Vacation Rental Property: Part 1
Investing in real estate is a tried and true way to build your wealth and increase your financial potential. Purchasing your primary residence is a great start, but you can invest further into the real estate market by purchasing additional properties, like a vacation rental. Vacation rentals are excellent investment properties as they provide both regular income and long-term equity growth. If you’re interested in growing your wealth through vacation rental real estate, we’ve written a series of articles that walk you through what to know about buying vacation rental property.
Let’s begin with answering the critical question: what makes a good vacation rental property?
What Makes a Good Vacation Rental Property?
We’re answering this question straight away because we want to empower you to take the first step into purchasing your vacation rental property: selecting the investment property. We will also cover financing, insurance, and other topics in our “What to Know About Buying Vacation Rental Property” series. However, knowing what makes a good vacation rental will help you recognize a vacation property with high-profit potential and get the ball rolling.
Without further ado, here’s what makes a good vacation rental property that you’ll want to invest in:
Desirable Vacation Location
What are popular vacation spots in the region you’re looking to buy the property? Choose a vacation property close to whatever attractions and amenities you think your desired clientele will enjoy (but remember to stay within your budget!).
Mobile, Alabama, is an excellent example of an attractive and affordable vacation spot. For vacationers, Mobile is a bustling city with a thriving arts and entertainment industry and home to America's oldest Mardi Gras carnival. Just a short drive from downtown Mobile is over 32 miles of white beaches and warm gulf waves. For real estate investors, property taxes in Alabama are among the lowest in the country, at just a quarter of the national average.
An appealing vacation destination with affordable real estate costs is a great example of what makes a good vacation rental location.
Priced Below the Market and Minimal (If Any) Repairs
It’s tempting to buy a property with flipping potential, but resist the urge! Unless you’ve done this many times before and have a fine-tuned, cost-effective renovation strategy in place, flipping will take more money than a rental property is worth. Purchase a vocational rental property that needs minimal repairs (or, ideally, none!), so you can get it up and running to make money fast.
Low Chance of Unexpected Costs
Unexpected costs are, by definition, difficult to anticipate. However, you can do your due diligence by getting a property inspection before purchasing. Ensure the previous owner maintained the roof correctly, the HVAC is in good shape, etc. If there’s anything that is soon due for replacement, request a reduction in the price to account for it. Other unexpected costs might be damage due to extreme weather conditions (for example, if it’s on or near a beach, you might need to account for hurricane insurance and repair costs) or loss of income in slower rental months if the vacation spot is seasonal.
Finally, Look for a Vacation Rental Property That Offers a Healthy Return on Investment
Is the location desirable and the residence comfortable enough to charge profitable rent rates? Who is your target clientele and what rental costs can they afford? Crunch the numbers and make sure you'll make a profit. Even if it’s not that much at first, that’s okay.
A 6% return in your first year as a landlord is considered healthy, especially because that number should rise over time. - Investopedia
Any Questions About What Makes a Good Vacation Rental Property?
We’re here to provide answers! Feel free to ask us any questions, and don’t hesitate to request our assistance in guiding you through the process of choosing a vacation rental property. Our goal is to help you build your wealth and unlock your legacy potential through real estate investment; if that’s a goal you’re interested in, we welcome you to contact us!