Owning a vacation rental can be one of the most profitable forms of real estate investing if it’s done correctly. These properties can produce a high monthly revenue, especially when fully booked, which a standard long-term rental property cannot match. After all of the hype surrounding them in recent years, you may be looking to invest in a vacation rental for your next real estate venture. You will not want to go in blind though: there are a few things you should know beforehand that can increase your chances of success with this type of real estate. Continue reading to learn about these items and become better-informed before getting into vacation rental property.
Location is key
Most people know that location is a very important factor when it comes to real estate, but this is even more true with vacation rental property. That’s because a good location is the difference between plenty of business and no business. Guests will be looking for a stay in an area with plenty of recreational activities, whether that’s a beach in warmer climates or a ski resort in colder ones. Properties that are closer to these activities will be sure to fetch higher prices, and so will those that include great amenities or scenic views. While these homes will definitely be in higher demand, you can also expect great returns in the form of more and higher-priced bookings.
Consider all the costs
You will definitely want to do some calculations to get a rough idea of the income you can expect from your rental property. To find a property’s nightly rate, you should look at similar vacation rentals as well as those in the same area. As for expenses, there will be the usual maintenance and monthly costs of owning real estate for starters. You will also want to make sure the home has amenities like a Smart TV and Wi-Fi, since these amenities are much appreciated by guests, and will put your listing into a higher tier on rental listing services.
You will need to take care of tasks like landscaping regularly, as well as cleaning in preparation for each stay, which will require paying professional services if you choose not to handle them yourself. You should also restock the property with some basics for each stay. Things like coffee, paper towels, spices, and toilet paper seem minor, but the costs do add up after a year of bookings. Finally, you’ll want to consider purchasing premium rental insurance to cover any major incidents that may occur while guests are staying at the property.
Tax benefits and regulations
There are many tax benefits that come with owning a vacation rental business. Most of your business expenses, as well as your mortgage and maintenance costs can be written off. You can also perform a cost segregation study to benefit from depreciation on your property. It may be a good idea to work with an accountant or tax professional to maximize your savings. Also, you will also want to check state and local regulations with regards to operating a rental property. It may just require a trip to your local town hall to fill out paperwork, but it is worth taking care of beforehand.
Demand and seasonality
It’s important to understand that many vacation rentals see a degree of seasonality when it comes to bookings. For example, rental properties near ski resorts will definitely see more guests and bookings in the winter season. You should prepare the rental property before these seasons, and understand that more time and effort will be required to manage all the extra bookings during this time. That’s not to say you won’t be seeing any guests in the off-seasons, and many vacation rentals see consistent demand throughout the year. If your vacation rental does experience off-seasons however, you would do well to take this time and renovate the property which can increase your rental revenue even further.
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 a vacation rental property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.