If you’re thinking about investing in short term and vacation rental property, you may be wondering how to pick the perfect home. You’ll want to choose a property that can generate good revenue but that doesn’t mean you need to break the bank with your purchase either. More importantly, you’ll want your property to be in a place that people will actually visit. Of course, there are a number of factors that can determine whether a certain home will make a good rental property. Let’s go over some of these things to help you decide how to choose your next vacation rental home.
Location is key
Location is always a factor when it comes to real estate investing, and this is even more true when it comes to vacation rentals. While a bad location might mean a lower sale price with traditional real estate, with short-term rental properties it means no revenue at all. Simply put: if your home is in a place nobody wants to visit, you won’t make any money renting the property out. Instead, you should look to buy property in places people frequent on vacation. That means beach and lake houses in warmer climates, and cozy cabins for winter retreats. Essentially, think about places you would want to visit on a vacation. It’s also important to realize that rental properties tend to have seasonal demand, so don’t be too worried if your beachfront property sees less traffic in the winter months.
It will need to be good looking too
Everyone wants to make their home visually appealing, but for short-term rentals it’s especially important. That’s because appearances have a huge role in determining which property a renter will choose. Most prospective renters will judge your property based on the photos in the listing, so a house with solid curb appeal and good photos will attract more potential guests. A house that’s in high demand means you’ll be able to charge higher rates too. You might want to hire a professional home photographer for this reason. You may even want to consider investing in external updates for your property; a fresh coat of paint goes a long way in these situations.
Choose homes that renters look for
You need to know your audience when you’re deciding what type of property to purchase for vacation rentals. What we’re saying is, you need to choose a home with features that renters want. The most obvious of these will be a home with many bedrooms, or at least space for converting into bedrooms. In most cases your nightly rate will go up as more guests are staying at the property, and having a home with multiple bedrooms means you can actually host these larger groups. You’ll also want to consider a property with room for amenities. Things like hot tubs and working grills can increase your nightly rates, so you should buy a home with space for installing these items. You’re even better off if the property includes them already.
Calculate the ROI for the property
If you really want to see whether a home will be profitable or not, you can always crunch the numbers. To calculate the Return on Investment (ROI) for a given property, first you’ll need to determine the potential annual rental income. Then you’ll need to assess cash flow, and find the costs and expenses associated with the property. The annual rental income minus these costs/expenses will equal the net income for the year. Finally, take the net income and divide it by the total initial investment to find the Return on Investment. A good ROI will be somewhere in the 5-10% range, and you can then take this number and compare it to other properties to see which is more profitable.
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and vacation rental financing for real estate investors. If you’re looking to finance your next vacation rental property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.