8 Considerations When Investing In Vacation Rentals

Considerations When Investing In Vacation Rentals

Today, you might have heard about vacation rentals making a buzz in the real estate industry. Taking your chances by spending on vacation rental properties is an excellent tactic to earn in the real estate market. With the help of vacation rental websites, earning money with vacation rentals is now a hassle-free process than it was in the past. If you are considering taking a step into this venture, there are considerations to bear in mind.  

For those who are eager to experience what the real estate industry is all about while earning at the same time, you should learn more about vacation rentals. It is important to note that vacation home rentals are a type of real estate investment under short-term rental properties. Generally, vacation rentals are an alternative to hotels that are available for rent for less than 30 days. 

With the Internet’s help, there has been a continuing increase in the preference for vacation rentals, and many tourists are selecting rental properties over hotels. The increasing popularity opens up new opportunities for real estate investors.  

Are Vacation Rentals Ideal for Beginners? 

When you are eager to establish a good start in real estate investing, you might be having second thoughts since it can be terrifying, especially if you are going to start spending on conventional rental properties. You have to manage various tasks such as screening of potential tenants, handling long-term tenants, and even eviction, which can be burdensome for first-time landlords. With this in mind, if you are starting in real estate, it might be easier to go for a short-term rental property. 

Vacation rentals are a suitable choice for those who are starting in real estate investing. It might come as a surprise, but there are several benefits of buying a vacation rental property. If you want to have a second place to call your home in a far-flung location, it is possible and a dream for many. 

Luckily, you can achieve this and start earning money in real estate by investing in vacation rentals. Remember that once you own a vacation rental property, it can provide you with a good start in real estate. When it is your first attempt at investing in real estate, and you need a guiding hand, there are several reputable property management services, including Teton Valley Property Management, where you can learn more about handling your property. 

Considerations When Investing In Vacation Rentals

What Are the Considerations When Investing in Vacation Rentals? 

Although vacation rentals can generate income, there are several considerations to think of before buying a vacation rental. Let’s check out these considerations below: 

1. Finances 

If you have the financial capability to buy a vacation rental, you can readily take the next step, but it is not easy for those who do not have enough. A second mortgage for a new property can be tough to handle and might require a significant down payment.  

In such instances, there might be a requirement to show that you have adequate finances to cover both the mortgage for your primary house and the second property mortgage. Remember that you should be ready for this even if you have a well-studied business strategy for leasing your vacation rental as an income-generating property. Until the property has tenants for weeks on end, you cannot determine the income it will generate. 

2. Insurance 

The insurance for rental properties is different than the insurance for owner-occupied houses. It might be best to look around and get in touch with your attorney about the terms you should be certain are covered in rental property insurance.

3. Internet Access and Connectivity 

Even if a particular location is desirable, it might have weak or spotty Internet service and no cell phone signal at all. Although you might initially believe that tourists need a break from their phones, they still need good Internet connectivity, especially if teenagers are coming along.  

4. Local Laws and Regulations 

If you plan to buy a vacation rental property, it is essential to check if rental homes are allowed in the location where you plan to buy. Several locations might have restrictions on short-term rentals. There are also vacation areas that thrive on rental homes. Still, there are also protocols on safety, maximum occupancy, and public or association facilities such as pools and beaches by non-residents. Some areas are also susceptible to drought and have water restrictions in place.  

5. Maintenance Costs  

Depending on the rental property type you will invest in, proper maintenance, and care are necessary. A wooden deck will require cleaning and rescaling regularly, along with the septic systems. It’s important to note that areas with wildlife might be exposed to unwanted pests when the property is closed for the season. The summer destinations that endure harsh winters might require a caretaker to ensure that the pipes will not freeze.  

6. Marketing 

Looking for tenants for your vacation rental will require effort on your part. Make sure that you will decide on how to market your rental property before buying it. In case you find this task challenging or do not have enough time for it, a property management service can tackle this aspect for you.  

7. Pricing and Competition 

Similar to any property investment, carefully decide on the proper pricing for your vacation rental so that it will make a striking difference in terms of profitability. You should conduct a market analysis to determine if your expectations for your vacation rental are realistic enough. 

8. Seasonality 

The seasons are also an important consideration. Ideally, your vacation rental should be in a location with four-season interest. Generally, the majority of vacation rentals present themselves as suitable for one season of the year. Coastal properties are at peak season during summer, while properties in woody, mountainous areas provide lush fall foliage and possible skiing opportunities. Be ready with a plan and budget for the number of weeks per year to attract more clients to your property.

What Are the Advantages and Drawbacks of Vacation Rentals? 

As part of knowing the considerations when investing in vacation rentals, you should also be familiar with the advantages and drawbacks.  

Advantages  

  • Dual-use property. The idea of having a dual-use property can be appealing for anyone, whether you are a beginner or a seasoned one in real estate investing. When you have a vacation home rental, you can utilize the investment property to spend your vacations in while putting it up for rent for the rest of the year.  
  • Real estate appreciation. Another advantage of having a vacation rental is the value you can gain in the long run if you come to the conclusion to sell the property in the future. It is important to note that vacation rentals are always popular and in-demand, which clearly shows that their values will continue to rise. Once the time comes where you will make the choice to sell the property, you can gain a good profit and use it to invest in another property.
  • Increased rental income. One of the main advantages of investing in vacation rentals is allowing you to gain more rental income as a beginner in real estate investing. As long as you select a prime location, vacation homes are likely to attract many tourists and travelers during the area’s peak season. During these times, you have the privilege of charging a higher rental rate due to the increasing demand. It is important to note that the rental income you will collect will allow you to pay the mortgage and other investment-related expenses along the way. 
  • Room for growth. When you own a vacation rental, it is an excellent opportunity for you to learn more about real estate investing while having enough room for growth or mistakes along the way. Due to the high tenant turnover, you can quickly learn more about property management issues and find the right solutions with the next booking. Remember that the experience you will gain will contribute to your career as a full-time real estate investor in the long run.  
  • Easy to find guests. With the help of vacation rental websites and applications, it is now easier to find guests for your vacation rental property. Make it a priority to learn how to attract guests to improve the occupancy rate in no time significantly. 
  • Hiring a professional property management service. For those who lack experience, the management of a vacation rental can be an issue of concern. Not all have the time to oversee a vacation rental and prepare it for the next occupants several times in a month. If you cannot cope with the management task, you can always opt for a vacation rental management service to oversee these time-consuming tasks.  

Drawbacks 

  • Property expenses. The property expenses that come along when you own a vacation rental property are among the main drawbacks. Although this should not discourage you from investing in vacation homes, be ready for several expenses along the way. Considering the costs from your vacation rental from the start can help you estimate the overall operating income and return on investment. Some of the expenses that you should be ready for include utilities, property management fees, property taxes, mortgage payments, property insurance, and other vacation rental websites. Being familiar with these expenses will make sure that you are ready to manage them efficiently. 
  • Investment risks. Once you decide to get a vacation rental property, you are going to face two significant risks. The first one is no other than the financial risk of the real estate market, in which it might take on a downward spiral with property values dropping. Essentially, vacation rentals can be sensitive to any economic downturns, leaving real estate investors at risk. The second risk that comes along when owning a vacation rental property is the occurrence of natural disasters. As a good example, there is an increasing demand for vacation homes with waterfront locations, and you might be eager to tap into this market. Sadly, investment property in coastal areas can be at risk for severe weather conditions such as flooding and hurricanes. In such scenarios, the best move you will make is to get insurance covering any losses from such conditions.
  • Short-term rental regulations. In recent years, several cities and states are starting to regulate short-term rental properties. In most cities that are popular among vacation rental websites, there are no limitations or heavy protocols when it comes to managing a short-term rental property. Nevertheless, there are locations where a real estate investor has to face strict laws that can disrupt you from gaining total earning capacity from the property. Since vacation rental properties are for rent on a short-term basis, it might be best to avoid investing in areas where that can be an issue.   
  • Unforeseen costs. When you own a vacation rental property, you will face several expenses. You will always have to deal with any unforeseen expenses due to tenants’ high turnover, especially during the peak season. The best approach is to set aside 10% of your monthly rental income as emergency funding to cover these unplanned expenses.  

Conclusion 

For each reason to invest in a vacation rental property, there are also drawbacks to consider. The market for vacation rentals can fluctuate wildly during peak times and drop significantly during challenging economic times. Nevertheless, vacation rentals have their share of minimal risks since it is an asset that will continue to grow in worth over time, as a rental property that can produce income on a long-term basis and as a retirement haven where you can stay.

Vacation rental properties can be a great way to earn continuous income and establish long-term wealth. However, you should be ready to deal with several expenses and drawbacks. 

Before you will take the plunge and invest in a rental property, make sure that you will carefully study the local rental policies, learn more about the audience and market you are buying in, and double check if you have the time and resources. Doing so will help ensure the success of your investment over time. Remember that the more you prepare for this investing endeavor, the faster you will see the results once your rental property is up and running.