The major benefit of purchasing a vacation rental property is the potential rental income you can gain by leasing out your investment. Websites such as Airbnb, VRBO, and HomeAway have revolutionized the way people take vacations. Investing in vacation rentals is an excellent way to make passive income if you do thorough market research and come prepared. A vacation rental property that can generate enough rental income to cover its own costs is a great starting point if you're interested in investing in real estate.
Buying a vacation home can be a smart long-term investment if you buy at the right time. But to capitalize on your investment, you must make money from renting or selling. Are you really buying a vacation property for a better lifestyle, or are you just buying an investment property to make money? I hope you can do both. In general, a “good capitalization rate” (or a good ROI) really depends on the vacation destination you're looking at based on factors such as demand, home prices, and property types.
Even if you rent your vacation home for part of the year (and it's not your main home), it's still considered a personal residence in the eyes of the IRS if you use it yourself often enough. The occupancy rate for a vacation rental is calculated by dividing the number of nights the property is booked by the number of nights available. We all know that real estate is all about location, location, and the same goes for vacation rentals. Lenders are much stricter with mortgages for vacation and investment properties because they assume that you need rental income to pay the mortgage.
If you're still unsure of the opportunity, here are six main advantages of investing in vacation rentals that demonstrate why it's your best option as a homebuyer. Vacation rental properties are usually located in areas with high and low seasons with varying levels of demand throughout the year. The best part of investing in vacation rentals is that good guest reviews make your home more profitable over time. Since it's a vacation home and you'll be operating it remotely, it's best to go with a maintenance-free community that takes care of common items and land.
That said, predicting rental property income is difficult and predicting vacation rental income is even more difficult. Factors such as the number of bedrooms and bathrooms, the size of the home, amenities, and proximity to outdoor attractions can help investors keep the occupancy level of a vacation rental high. If you plan to rent your vacation home, another advantage is the possibility of earning more income, but you'll want to consider the downsides, such as marketing your home to guests (which can be a lot of work) and navigating complex local short-term rental regulations. Some investors prefer to buy vacation rentals with an existing guest list and a proven track record of success, while others decide to buy a home and try to convert it into a vacation rental.
One of the challenges of investing in vacation rentals is finding the right property in the right location and at the right price. Every time I checked the ROI numbers, it always makes more sense to invest in a long-term local rental and then pay out of pocket for a vacation.