Despite the ongoing pandemic, many agents and investors have hailed 2021 as one of the best years for real estate due to the mass migrations that saw people slowly returning to major cities and destinations after spending the start of the pandemic in low-key towns and quiet suburbs. As the lines between home and the workplace become more blurred, individuals are now looking for multi-functional spaces that can serve their needs for work, play, and rest. The demand for real estate has positively shifted due to a change in consumer values.
Vacation rental homes are becoming more popular as these serve both as an income opportunity and as the perfect respite for a much-needed break. Investing in a vacation rental home can indeed be a lucrative venture once you get all the factors right.
To help you decide, here are some pertinent questions you must ask yourself when choosing a property to invest in:
Where will it be located and what is its purpose?
Determining the location is one of the primary and most crucial factors that should be considered when investing in a property. Not only is location one of the highest determiners of the value, but it is also one of the only things you ultimately will never be able to change.
As an investor and future owner, you must decide on the type of landscape that will fit your vision: do you see yourself owning an abode amid an urban jungle, a homey suburban town, atop a lush mountain, or perhaps along a sunny, tropical beach?
Deciding on the location is not solely about the preference of the owner. The property should be located on a destination that appeals to potential renters as well. Are you trying to appeal to vacationers looking for an escape from their busy lives? Or perhaps you’re looking to cater to businessmen looking for a place to stay in the city during a conference or a business event? Determining the purpose of the rental home goes hand in hand with identifying the potential location for your vacation rental home.
Is there a demand for it and how much will I earn?
Once you have identified an ideal location for your property, it is now time to assess if the demand in the area will give you the optimal ROI and income. Seasonality is one of the most important factors to consider. Properties located near water attractions such as beaches, rivers, and lakes have huge potential during summer, while those located near ski mountains will be more popular during winter. Properties located in major cities or those near business districts will be more likely to get bookings throughout the year, particularly in areas that cater to meetings, incentives, conventions, and exhibition (MICE) events.
It is also important to identify how much income you are expecting to gain from the property. Is it something that you only plan to invest in for extra income or will it be your primary source of income? If creating a steady flow of income is your top priority, consider investing in properties located in top vacation rental markets rather than those that only appeal to a specific niche.
Consider using services that provide analytic tools for short-term rentals like AirDNA and AllTheRooms. Analyzing the market and tracking competition will allow you to position yourself for better returns.
What are the expenses that I need to consider?
More than just thinking about how much you can potentially earn, it is also important to understand how much you will spend to run a vacation rental. Aside from the expense incurred from purchasing the property, you should also take into account recurring expenses such as a mortgage, insurance, maintenance and repairs, utility bills, supplies, and other incidentals. It is important to make sure that the income generated from the property should be able to cover monthly and emergency expenses even during low seasons. It is also imperative to note that different states, countries, and government agencies have different policies when it comes to taxes.
Aside from operational expenses, also make sure to take your marketing expenses into account. Things like listing platform fees and commissions, advertising, professional photography and others can quickly add up and take you by surprise if not accounted for.
Not only does identifying your expenses help you stay on top of your expenses more efficiently, it will also help you formulate possible cost-cutting measures to maximize your profit.
Lastly, while non-monetary, consider the value of your time. How much time are you willing to spend on managing your rental and is it worth it? This leads us to the next point…
How will I manage and market the property?
Owning a vacation rental home is a dream many have, but let’s admit that managing one is not going to be a walk in the park. Some of the management tasks involved in running a vacation rental home include overseeing cleaning and maintenance of the property, responding to guest queries, and handling check-in and check out.
You also need to take into consideration the marketing campaigns that you plan to implement to attract your ideal market and eventually get them to book. You should identify the appropriate and the most effective property rental platforms where you can post your property listings.
Additionally, having your own official website will allow you to funnel your marketing efforts into one place. Aside from the complete freedom to showcase your rental with your own branding, having a website will also allow you to accept bookings and payments with ease and without any 3rd-party commissions. Meanwhile, you can also utilize social media platforms like Facebook, Instagram, and Pinterest to share interesting content that will attract your target customers.
If all these sound a bit too overwhelming to do on your own, there is always the option of hiring a property management company or property manager who can handle these tasks for you. Aside from taking the weight off your shoulders, this will also help ensure that a professional is handling the property on your behalf.
How far is it and is it accessible?
Proximity to the property from your place of residence is a significant factor to consider, especially if you plan to manage the property on your own or if you plan to visit often. One of the perks of having your own vacation home is that you can use it for a getaway for special holidays or whenever you feel like taking a step back from your daily routine. Its proximity will help determine if a frequent visit will be feasible.
Additionally, it is also important to check on the accessibility of the property both for the owner and the customer. Transportation facilities and road conditions should be considered, especially for properties that are located far from cities and major thoroughfares.
What other opportunities are available for me if I buy the property?
Aside from the income potential from utilizing the property as a vacation rental home, you should also be able to enjoy the property for your personal use whether for a getaway or as your future retirement home. This investment also serves as a great asset with a value that increases over time (especially if it is located in a prime location), which can potentially be leased out or resold in the future.
Investing in real estate can be exciting and daunting at the same time, but once you have found a property that ticks all the right boxes, there’s no stopping the boundless opportunities that come from owning your very own vacation rental home.
Planning to invest in a property for rental income? Check out our collection of the most exclusive luxury real estate properties in the most sought-after destinations.