If you love traveling, then you will have no doubt considered the idea of buying a vacation rental home. These second properties provide you with a place to go whenever you want to get away from it all, plus they give you an income, allowing you to make money passively.
But is buying a vacation rental home still worth it? Given recent events, you may be wondering whether now is the right time.
We don’t know precisely what will happen in the future or how governments will respond to future pandemics. However, what we do know is that prices for vacation homes are in a temporary lull. Therefore, now might be the perfect time to buy. As always with investments, it’s not “timing the market” that matters, but “time in the market.” Any vacation rental you purchase now will provide you with an income for years to come.
Before you take the plunge, though, there are a range of things that you’ll need to consider. Ask yourself the following questions before parting with any cash:
Do You Have The Required Capital?
If you want to buy a vacation home, you’ll first need to raise the required capital. Usually, this is substantially higher than it is for a first property. Most lenders will ask for a 25 percent down payment, so if you’re looking to invest in a $1 million beachfront property, you’ll need to put down $250,000.
Also, before you invest, think about how else you might use that capital. Could you get a higher return by renting out regular properties or investing in Airbnb units? Will the stock market allow you to grow your money faster?
Do You Have The Emotional Fortitude To Buy?
Purchasing a property as an investment is always a risky proposition. Emotions can often run high, particularly if you’ve never done it before.
Vacation rentals can incur all sorts of problems for their owners. Holidaymakers may leave them in a bad state, you may have to pay property fees in the destination country, and you may not be able to visit the actual property for years at a time.
To make a success of it, you’ll need to work with a trusted agent on the ground. You want somebody who will go the extra mile to keep you informed and maintain the property to a high standard. Be prepared to spend a lot of time on the phone.
Do You Have Money Set Aside For Unexpected Expenses?
Don’t be naive in believing that your vacation property will be free to run. It won’t. Instead, you’ll regularly incur unexpected expenses, just as you do on your regular property.
To combat this, you’ll want to set aside spare cash to cover your costs. Typically, owners allocate around one to two percent of the property’s value every year. This is usually enough to cover things like broken down boilers and rotting window frames.
If you want your costs to be consistent, you can take out a home warranty in addition to regular insurance. This covers all of your appliances, even if they are out of the manufacturer’s warranty period.
Do You Fully Understand Local Regulations?
When it comes to letting vacation properties, different countries have different rules. In some places, you’re not allowed to rent out a vacation home to holidaymakers more than a certain number of nights per year. You may also have to pay additional taxes to cover the expense of hosting tourists in the region.
Rules and regulations can seem daunting at first, but once you understand them, your business model should fall into place. Granted, some regions offer higher margins than others, but regulations typically allow you to make a profit anywhere in the world.
Do You Know The Location?
Approaching vacation rentals purely as a calculated investor sounds like a great idea in theory, but it doesn’t always work in practice. That might sound like a strange thing to say, but there is a certain logic behind it. If you haven’t been to the location itself, you don’t really know whether it is attractive or not. You can only ever read about it and look at photos – and that’s not quite the same as being there.
Staying in the location you want to buy a rental property gives you all sorts of information. It tells you whether it is popular among tourists, whether there are amenities locally that vacationers can use, and if there are any worthwhile attractions nearby.
If the area is interesting, it will naturally attract tourists. If it’s dull, then it won’t.
Is The Location The Right One?
When it comes to vacation rentals, choosing the right location is essential. As pointed out above, location is everything.
But what makes a good location for a vacation rental? That’s actually a tricky question and, in many cases, it’s the opposite of what makes a good location for a regular home.
For instance, vacation rentals close to busy transport hubs tend to fill up quickly. They’re particularly popular among tourists wanting city breaks.
Vacation rentals next to stadiums and sports grounds also tend to do well. Visitors want to be close to entertainment options.
However, isolated rentals can also be exceptionally appealing. Remember, a lot of vacationers just want to get away from it all, so accommodation alongside remote lakes or in the heart of National Parks are popular.
You might also want to consider targeting the work travel market. Again, these individuals want high-quality accommodation close to major transit links.
Lastly in this section, you want to pick a location that you would want to stay in yourself. After all, one of the perks of owning a vacation home is that you don’t need to pay for accommodation out of pocket. You simply use it for a couple of weeks every year – or whenever you want it.
Do You Have The Skills To Market Your Rental?
If you want people to actually come and live in your vacation rental home, you’ll need to market it online. Marketing involves things like posting pictures, signing up to holiday sites and posting rental opportunities on Airbnb.
Marketing your vacation rental can be quite time-consuming – particularly at the start. But once you get your business up and running (usually after a year or so), inquiries start flooding in and there’s less work to be done on your part.
Is It Private Or Shared?
These days, owners are increasingly buying vacation rental accommodation for shared use. But why?
It’s all to do with returns. If you rent out a vacation home to a single family, you get a single stream of income. However, if you create a facility that can accommodate multiple families or groups, then you can double or triple your income.
Such setups tend to be popular among those looking to go on budget vacations. Typically, owners take a large building in a popular location, and then transform it into several individual maisonettes.
Will Somebody Clean The Property For You?
Lastly, you’ll also have to consider whether you want somebody to clean the property for you, or whether you will do it yourself. Getting a professional company or agency to do the cleaning between tenancies reduces your chores, but it will eat into your returns.
Likewise, doing it yourself is an option. However, you’ll need to live close by for it to be worthwhile.
So, after reading this, is buying a vacation rental home still worth it for you? When considering taking the plunge, think about the total return on your investment, including your personal enjoyment from using the property.