Are Vacation Rentals a Good Investment?
Are vacation rentals a good investment for you? Vacation Rentals can be an excellent investment for real estate investors because they allow you to have a quick return on your finances. Vacation rentals operate under a completely different set of rules when compared to average rental properties, and thus help generate income at a quicker pace. Websites such as Airbnb have allowed tourists all over the world to stay in luxurious homes and apartments over the usual hotel room, making their stay ever-more comfortable and worthwhile. For beginner investors, vacation rentals provide excellent opportunities for portfolio growth without long-term risks.
What Makes Vacation Rentals Unique?
Real estate investors that begin with short-term properties and landlord responsibilities typically face intimidating factors such as evictions, tenant screenings, and long-term agreements with tenants. Vacation rentals, as previously stated, operate on a completely different set of rules. Vacation rentals have a considerable amount of benefits behind them, making them an excellent commodity to have when starting.
1. Multiple Use Property – Having a property with multiple uses makes it a fantastic commodity to have. It means that while during the tourist season, you have had a rotating cycle of tenants come through every thirty days, and during off seasons, you can rent out the getaway home for yourself or with another tenant.
2. Real Estate Appreciation – If you ever decide to sell the investment property, your property will have a much higher chance of having an increased appreciation value than most homes and apartments will. This rise in appreciation value is due to how vacation rentals are always in demand, and once sold, you can take the financial profit and do as you wish.
3. Easy Management – For inexperienced real estate investors, managing a rental home can be an overwhelming experience due to all of the financial details. Vacation rentals allow investors to hire vacation rental management services, allowing you to have relief over the duties you have as an investor.
4. No Tenant Scanning – Airbnb and HomeAway take away the hassle of finding the perfect tenant, as those who typically apply for vacation rentals will act as guests rather than tenants. Airbnb also has security benefits for investors and rental owners on the website, allowing for out to invest in rental insurance and have a middleman when situations don’t work out.
5. More Income – With vacation rentals, you have a more substantial opportunity to make more money in a shorter time, then you would invest in a short-term house flipping project. Vacation homes are attractive to the tourists who want to experience the place they’re in rather than worry about their hotel accommodations. You’ll be able to charge your guests higher rental rates than with regular rental apartments.
So, are vacation rentals a good investment? Yes, but as any smart real estate investor should be aware, all investments have their side effects. What are those side effects? Let’s look at the cons of vacation rentals, and what you should be aware of before you buy.
Reasons To Not Purchase A Vacation Rental
Vacation rental, no matter if they’re near a sunny beach or in a metropolis city, all have their down moments. Vacation homes are still homes, which comes with property taxes, utility bills, potential renovations, and other expenses that many don’t consider. If you’re asking yourself, “are vacation rentals a good investment?” and want the whole truth, then here are some of the disadvantages you should be aware of before investing.
1. Price Trends – Vacation rentals bring in a considerable amount of equity. Still, if you’re a real estate investor looking to make your future retirement from this avenue, then you’ll be more subjected to the highs and lows of the tourism industry. You may not be able to access your equity when you need to, and your investments may not be able to provide the sustainable income you need due to uncontrollable factors such as weather and crime rates.
2. High Payments -Down payments on vacation rentals typically hurt investors, as the majority of those investments are usually paid out of pocket. To even attain a vacation rental, you have to have good credit and multiple income streams to support the vacation rental’s expenses.
3. Allocating Expenses – Alongside needing multiple income rentals, you’ll need to recommend the vacation rental when the tourist season is off. If you don’t live at the apartment you own, then you’ll need to support not just one house, but two or more depending on your portfolio.
4. Picky Bank Loans – Banks tend to be more stringent on vacation rentals and investment properties overall. All of this is based on the assumption that your rental income will go towards the mortgage. Depending on the location of the home, you’ll have to face strict tax laws. In the U.S., for instance, you’ll have 14 days per year not to have taxes be taken out of the rental income generated.
5. Long-term Commitment – In the end, the best return for these investments comes from long-term commitment and steady finances, to begin with. Investors who plan on having the home for themselves will find themselves in for the long haul, as the stage of life, you and your family’s in will be a determining factor in how much you value the home. Most investors have the vacation rental for at least six to eight years before reselling it.
How to Invest in Vacation Rentals
If you’ve decided that vacation rental is a good investment, then you need a plan to know where and how to start. Our step-by-step guide will show you what you need to do to begin your investment portfolio and make quick revenue in no time. All of these steps do not have to be in this order, depending on where you’re at financially, but all will help give you a centralized focus on what you need to do to get a return on your investments.
Step 1: Preparing an Investment Plan
Investment plans help organize your objectives for a year, the next five years, or even the next ten if you’re ambitious. Understanding your assets, your credit score, and other factors will determine your ability to purchase, put a down payment on, and manage your dream vacation rental. These will be the key strategies you build to create a professional investment portfolio and manage your finances ultimately.
Step 2: Choosing a Property
Choosing a property is a tricky step, as it involves a careful examination of the current trends across the United States or world if your international and see where people are going and how often they’ll come back. The tourism industry’s similar to the stock market, where you’ll have to look at the fluctuations of how well that area has been doing over two to five years. Beach cities always have an advantage due to their tropical climates. Still, other places, such as major cities like New York City or Los Angeles, will always be popular destinations due to their expansive reputations. When choosing a vacation rental, this is where you need to choose wisely.
Step 3: Calculating Costs
Next comes the most tedious, confusing part of real estate investing: finances. Whether you’ve made estimated calculations or have decided on your dream vacation rental, understanding the costs of your investment will help you determine whether or not it’s the right choice. Found a home in the perfect location, but needs extensive repairs? Found a cheap apartment for purchase, but is ideally situated in the heart of the city? The costs of your property will depend on the location, and the ability to get the property depends on the income you currently have.
Step 4: Get Financing
If you don’t have the finances to cover your home, then your most immediate solution to getting money is to start with loans. If you’re new to investing, this means you’ll be acquiring thousands of dollars in debt alongside your mortgage. Depending on your personal financial history, you may not always be able to get the loans you need, and if you do, it may come at a high cost to you and your investments. If you find yourself unable to apply, then check out our loans at Neal Business Funding.
Step 5: Managing the Property
Even after all of these steps, one of the most significant factors you should pay attention to as a real estate investor is how you’ll manage your property over months and years. If you’ve already established yourself or are brand new to investing, then your investment plan should be able to outline what you need. However, the most crucial aspect of managing properties is the discipline and dedication to keeping track of all your finances and all of your home properties.
How Neal Business Funding Can Help
At Neal Business Funding, we help real estate investors get the finances they need to build up an attractive portfolio and get the returns they desire from their investments. If you’re wondering “are vacation rentals a good investment?” then we say yes, because we’ll help you attain the finances you need to succeed.