5 Reasons Investors Buy Vacation Rentals
Many people who have been interested in buy and hold investments have found interest in corporate rentals, Airbnb or VRBO type rentals. While vacation rentals have only been around a short time, more and more people have gained interest in investing in places they like to visit. There are a number of reasons that make this so appealing.
Why Vacation Rentals Have Gained Popularity
· Tax Deduct Your Travels: When you turn what you love to do such as travel into a need such as checking up on your investment you are able to turn your passions into a tax-deductible event.
· Higher Cash Flow: rentals for weekly and or monthly rentals are higher, often much higher. Travelers who want a short-term stay may stay in a hotel but when people travel for weeks or months at a time they prefer to stay away from the inner city and stay in an environment that is homier such as condo or a house, or perhaps even a room within a house. When travelers compare the cost of staying in a homier location versus the cost of a hotel, they find it more economical and more desirable to stay in home. With hotels charging $100+ per night the monthly rental starts at $3000 for a month. Compare that to staying in a home and the value rapidly appears to the traveler which of course is great for the vacation rental investor.
I just helped an investor who desired the Vacation rental style investment. She just bought a 3 bed 3 bath pool home near the beeches in Florida. This home has a great layout. It is an L shape pool home and the heart of the home is in the center portion of the house. On both ends of the house is large master ensuites each with their own separate exterior entrance. These rooms are large enough to have microwave and coffee pots and they each have access to the swimming pool and barbecue grill making for highly desirable monthly rentals. When rented out monthly they are well within compliance with local and state rental ordinances. (These ordinances may change by location so check with your municipality to these regulations. Each unit is capable of creating enough income to pay the mortgage. With a total of 3 spaces to rent out this property is easy able to generate income 3 times that of the expense it takes to operate it. For the right person, someone could buy a property like this and essentially live here for free. Pretty clever investment.
· Stronger Appreciation. The properties that are in high demand that bring in these higher rents are needless to say in higher demand areas and these areas tend to appreciate in value at a faster pace than average.
· Happier (Less Problematic) Tenants. These tenants are typically on vacation and therefore spending less time in the property and when they are there they are just happy or tired and sleeping. these make for great trouble-free tenants.
· All Done For You: Airbnb and VRBO take care of all the screening of tenants, they do all the marketing of the property, collect the rents in advance and provide insurance for possible damages as well
Things to Consider When Investing in Vacation Rentals:
With all the benefits of vacation rentals how are they different from a regular buy and hold investment. To every benefit there are of course things to consider. Vacation rentals demand such high returns because the tenants are renting not just a home but also the furnishings.
· These properties must be furnished so you will want to consider the cost of furnishings in your acquisition costs. More turnover: this may be both a benefit and challenge.
· The tenants move in and out more often but as you own the furnishings they tend to just come with a suitcase so their move out is not damaging to the property such as a tenant moving furniture in and out all the time. It is moving furniture which is hard on property.
· Higher management cost, while regular property managers charge typically around 10% of collect rents. Vacation rental companies charge up to 25% plus fees.
· Not every property is suitable for short term rentals. Check how vacation rental friendly the municipality, neighbors and home owner associations are. Some cities are cracking down on Airbnb’s that do not follow rules.
· Just like with any investment, there are true expenses involved. Do not fall in the trap of underestimating actual costs when considering vacation rental investments. Calculate true incomes and expenses prior to acquisition and you will be much more comfortable once you are the owner.
· Consider the “sellability” of the property. There are much fewer buyers for a “condotel” for example, than a single family home. Consider how easily you can exit the property before you buy. You will thank yourself later.
As with any investment you want to consider if the increase rents offset the increased expenses. Considering rents can often be 2 to 3 times that of regular rents often the overall investment can be more profitable as well.
Yes, we work vacation investment markets. Contact us directly for a personal strategy appointment.