If you’re considering entering vacation rental for the first time and you haven’t yet bought that second home, you probably have one critical question:
What kind of property should I buy?
The answer, as you might imagine, is “it varies” – but that doesn’t mean we can’t give you some essential factors to consider. We look at location, type and size of property, and other factors that can make or break your vacation rental investment.
If you’re thinking of this vacation rental purely as an investment, you might not care where it’s located as long as it’s a popular destination with a likely chance of profit.
You can find tons of lists on up-and-coming vacation rental markets online, but we actually recommend picking a location you personally like and would enjoy visiting.
There are a few reasons for this. One is simply that part of the joy of owning another property is the chance to use it yourself. If you already go to Hawaii once a year, why not save yourself the cost of lodging every time you go?
The other reason is more pragmatic:
Vacation rentals are more successful when they are equipped with amenities that make it easy for guests to enjoy the local area – and it’s hard to do that when you don’t know the area or enjoy visiting it yourself.
A Florida vacation rental might stock the same type of pool toys that all the kids use in that area. A lakefront vacation rental might have canoes and life jackets. A Tahoe vacation rental might have the numbers of local ski shops posted on the fridge.
If you’re going to invest, invest in a location that you enjoy. You’ll be much more capable of making your vacation rental appealing to travelers if you know what appeals to frequent visitors to that area.
The type of property will be dictated to some degree by your budget. If you have a smaller amount of money to invest, a condo or apartment may be a better fit. If you have a million to spend, a large 5-bedroom home might be a better pick.
That said: we’ve yet to see one type of property stand out as a clear winner in terms of bookability.
Condos aren’t inherently more bookable than houses, and enormous mansions aren’t inherently more bookable than small apartments. It all comes down to what sort of traveler is coming to that destination, and what budget they have for the trip.
There’s a certain amount of status involved – most people prefer a “condo” over an “apartment” and a “villa” over a “house” – but most people will simply choose the best property they can find within their budget.
And there are travelers with every imaginable budget.
However, we highly recommend checking out the local laws and HOAs before making a purchase on any type of property. In some areas, it’s not legal to rent a condo for a short-term stay, but it is to rent a house. These local laws can dictate what property type makes a good investment.
Your budget will also dictate the size of the property you can afford, but if you have some flexibility, we recommend breaking out a pen and paper and calculating some costs.
Check out the average nightly rates for various sizes of property in the area along with the local taxes for vacation rentals. Then write down the costs of owning a home of that size (taxes, mortgage payments, maintenance costs). Finally, calculate how many nights you would need to book your property to offset the costs of owning it.
You may find that a smaller property is a more manageable prospect.
The right property size can also depend heavily on area. Romantic destinations like Hawaii tend to see their 1-bedrooms and studios fill up quickly, since couples travel there alone. Family-friendly destinations like Florida prefer 3- and 4-bedrooms to accommodate a larger party.
Factor in what types of people most frequently visit your chosen destination, couple that with your budget, and you’ll find an investment property that is both bookable and profitable.
In general, we don’t recommend buying a fixer-upper for a vacation rental property.
Even if the property is rentable as-is and can only be improved by your hard work, it’s very difficult to rent while improving because of the unpredictability of both contractors and travelers.
For example, you might have two weeks in August that you block off so that you can tear out the kitchen and put in a shiny new one. But if you have guests coming in the week following, just imagine how difficult it will be to resolve the situation if the contractor runs into an unexpected snag and can’t have the property ready in time.
If you’re prepared to make the repairs up-front, then combining a 5-year flip with a vacation rental can be a great idea. But we wouldn’t recommend trying to make ongoing repairs and renovations on a property you’re actively renting.
Renovate first; rent later.
While you’re evaluating the quality of a property, it’s also worth considering its unique features. It’s harder to make a cookie-cutter condo stand out from the crowd; it’s much easier to convince a traveler to book a unique property with beautiful features they want to enjoy.
You can provide some uniqueness with decor, but it’s worth considering whether this property can introduce longing into the heart of your would-be guest. Rental decisions have been made on the strength of a pretty window seat or a gorgeous arched window; think about what will convince travelers that your property is unmissable.
It can be well worth paying a little more to get a property with a desirable amenity. In popular lake destinations, having a dock or water access is well worth the extra cost, because most travelers want that specific amenity and properties that can provide it get booked quickly.
Ski-in, ski-out condos are popular in skiing destinations. Properties with pools or access to a pool are a must in Southern California, Arizona, and Florida. Central air conditioning is essential in Texas.
Some amenities can be added after the purchase, such as installing a hot tub, but access comes with a property purchase. Research your chosen area and find out what’s “essential” for travelers coming to the area to save yourself from a disappointing investment.
You could have the nicest imaginable property just half a mile from the beach – but if travelers are only searching for properties right on the shore, you’ll have a difficult time renting.
Bookings are essential to making your investment profitable, so it’s rarely worth it to save on upfront cost while dismissing an area-essential amenity. Invest in the right property and you’ll recoup your upfront costs when the bookings roll in.
What Do You Think?
What have I missed? If you’re an owner who purchased your vacation rental as an investment, what other factors did you consider before making your purchase? Love to have your input in the comments.
Considering a vacation rental investment, but feel uncertain about whether you can market it effectively enough to turn a profit? We work with first-time owners all the time and help them make remarkable first-year profits. Click here to learn all about our services, call a Homeowner Consultant at 877.818.1014 (x2) or check out a case study to see how we helped this first-time owner’s investment pay off.