When it comes to vacation rental investing, just like real-estate, you have likely heard that location, location, and location are three of the most important factors. After all, there is nothing that could be more significant regarding real estate investing after the Covid. The kinds of places suitable for short-term and vacation rentals have shifted. The choice of your location is extremely important to the success of your short-term rental. Check out my post on “Starting a Vacation Rental Business” if you have not yet started your company.
To launch a profitable short-term rental or vacation rental business, you need to do more than merely advertise your home on an online marketplace like Airbnb or VRBO. Take a look at our page titled “How to Start a Vacation Rental Business!” if you are interested in an overview of the 10 stages involved in the process.
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Your management style in vacation rental investing
Three management styles
Wait, what does this have to do with choosing a location? What does a management style even mean? Before we dive into finding the perfect place, we need to determine how you plan to manage the place. See our future “Managing Your Rental” post for an in-depth discussion. In short, are you planning to turn the management over to a company? Are you going to be the property manager, manage the listing, work with a cleaning crew, and find on-site maintenance? Or, are you going to be managing the listing, doing the cleaning, and maintenance yourself? Each of these three styles has pros and cons. They will greatly affect the maximum distance away to purchase a place.
Hiring some of the work out
When you work with a management firm, you have limitless options at your disposal. You do not need to worry about anything because everything will be handled for you, and you are more than welcome to spend some time at your home whenever you choose. If you are the management, you’ll want to choose a location that’s convenient for you. It is quite possible that you will be required to make at least a few trips there each year. You will also be expected to be present if there is a catastrophe. This is the form of management utilized at Relaxing Condos. Our maximum distance was around twelve hours of driving time for us.
Doing all yourself
If you want to engage in all managing, cleaning, and upkeep, you will need the property to be located relatively nearby. People frequently Check-out and Check-in at our property on the same day, resulting in the cleaning company/you being extremely busy. You will also be expected to respond immediately if an unexpected emergency happens, such as a blocked toilet. You will, in essence, be purchasing right in your own backyard. Therefore, what are your plans for the administration of your property? By the way, receiving a phone call during the night due to a blocked toilet is not as common as you think.
What locations work for the post-Covid vacation rental investing?
The vacation rental investing has undergone significant change. Historically, the best places to invest in real estate were college towns and business districts with a lot of foot traffic. People are more cautious about traveling and going to areas with many people. When searching for potential sites to buy, we recommend concentrating on areas that appeal to tourists for more than one reason or do not rely on a single feature as their primary selling point.
Additionally, it is essential to search into Covid marketplaces that are traveler-friendly. This is challenging since attempting to predict what will occur in the future concerning Covid is similar to constructing something on the sand. During the course of the past few years, a few patterns have developed. For instance, Disney World and Universal Studios are the only drivers of economic activity in the Orlando, Florida area. The extent to which they are open for business and the procedures they follow significantly impact the local rental market.
Other locations, such as beaches and, to a lesser extent, national parks, have continued to be popular destinations for those looking to rent vacation homes. In addition, the rules that states have about Covid significantly impact companies and rents in those states. Ask yourself, “Is this somewhere people are going to travel despite what is going on with Covid?” whenever you consider a site. On the other hand, some of the real estate markets that have been hit particularly hard by Covid have fantastic bargains to offer. Depending on your willingness to take risks, any of these might be excellent places to invest for the future.
Determining a location’s value
How to figure out revenue
In vacation rental investing, the amount of revenue that a piece of property will bring in is one of the aspects of a new property that might be one of the most difficult to estimate. In the subsequent post titled “Valuing a Property,” we will detail the expenses and the return on investment. For the moment, you are attempting to run some gross figures to determine whether or not the market is oversold. I strongly suggest that you make use of a website such as Mashvisor. They offer specific historical rental information that has been mined from short-term rentals on AirBnB and VRBO. After looking at a few dozen properties for sale, you will start to get a sense of what the neighborhood is like. Is there potential for profit in the local real estate market here?
Using a MashVisor, what is the lowest and highest annual amount that the different properties in the neighborhood are bringing in, respectively? It is of the utmost importance to comprehend that these figures represent gross sales, which include all of the taxes and levies that were collected.
Determining rough annual costs/expenditures
To give you an idea of what your annual expenditures might be, including the mortgage payment, fee, taxes, etc , a decent rule of thumb is that they should be somewhere between 15 and 20 percent of the price you paid for the house. In the following piece titled “Valuing a Property,” we will go through how to calculate more precise expenses and how much you ought to spend for the property. You are only attempting to acquire a feel for the market at this point in time.
The occupancy rate is one of the things that is the most difficult to analyze. It will have a significant impact on the total revenue. The information that may be obtained through websites such as MashVisor is comprised of occupancy rates each month, booking lead times, and market saturation. You should now have the location limited down to no more than three distinct places at this time. Choosing just one location is the best option.
Did I find the right location for vacation rental investing?
You now know roughly how much you can gross from a location. Can you find a couple of profitable properties in that location? This is not about picking your exact property. It is about seeing if you can make the numbers work. As the housing prices continue to grow, it is becoming more difficult to find properties for short-term rentals. I would suggest you pick at least 5 different properties and run some rough numbers to see if the property’s cost is worth the investment.
Hopefully, this gets you thinking about possible vacation rental investing locations. To see how to narrow a location down to a property, see our next post, “Valuing a Property” As always, feel free to post your questions or comments below. Furthermore, look at our post on “How to Start a Vacation Rental Business!” if you want an overview of the 10 steps involved in the process.
Recall that Relaxing Condos offers Business Coaching Services to help you get started with any of your vacation rental business needs if this all seems overwhelming. Please use the buttons below to spread the word about this article if you found it useful. Join our mailing list so we can deliver our free cost estimation guide and a monthly newsletter with special headlines on our latest articles, blog posts, and news tips to your inbox.
— Jake
