Buying and owning a property is already a huge responsibility. It will eat up a huge chunk of your budget and make a major dent in your finances. The thought of adding another one may seem impractical. Or is it?
Depending on how you approach it, buying a vacation rental property may seem like an added expense but it can also be a very lucrative investment. Vacation rental properties are actually one of the best ways real estate investors can earn additional income. It will really depend on how you go about it.
If you’re considering investing in real estate via the vacation homes route, you might want to consider looking into the Texas housing market. Here’s why we think buying a vacation home in Texas is one of the most practical things a real estate investor can do.
Important Things Investors Should Know When Buying a Vacation Home in Texas
When it comes to buying a vacation home in Texas, a serious investor should know certain things and pay closer attention to some finer details before making a decision. Owning one property is no joke, let alone two. The idea may seem romantic and promising to investors, sure, but it is also not without challenges.
What Are the Advantages of Buying a Vacation Home?
Any investment has its own set of pros and cons. And while investing in real estate may require a lot of time and money, it has very strong upsides that make it highly attractive to both new and veteran investors. Here are the top reasons why one should consider this type of investment vehicle:
You Have a Vacation Home to Use Any Time You Want To
When you own a rental property in a city you like taking trips to, you no longer have to worry about housing for the duration of your trip. You can offer it to your family and friends when they go on vacations for a minimal fee or even for free. However, to truly maximize the property’s profitability, we recommend scheduling your trips during the off-season. It can also serve as your retirement home when the time comes.
You Can Turn It Into a Good Side Income
There is money to be made in real estate as long as you’re in the right market. Rental properties, in particular, can give investors exceptional returns on investment. And while traditional rental properties offer more stability, going with a short-term rental strategy is historically known to yield greater returns.
Investing in a vacation home gives property owners a few opportunities to earn a good side income, especially if they have their houses registered on vacation home rental platforms like Airbnb. Depending on the market the property is in, operators and hosts can potentially earn thousands of dollars worth of Airbnb rental income monthly.
You Can Deduct Your Rental Business Expenses From Your Taxes
If you intend to make your vacation property a short-term rental business, you can write off certain business-related expenses as tax deductions, such as housekeeping and property management service fees, among others.
There Is Great Potential for the Property’s Value to Go Up
On top of having a place to stay for vacations or business trips, tax deductions, and outstanding Airbnb return on investment, there is always the huge possibility of the property value going up. Real estate is known to be one of the best and safest investments because it serves as a hedge against inflation given it has a very low correlation with the stock market. It is a physical and tangible asset that serves as a great alternative investment because of its natural tendency to appreciate substantially over time.
What Are Some of Its Disadvantages?
Where there are positives, the negatives aren’t too far behind. Here are a few reasons that make buying vacation rental homes something investors have to really think about:
Maintenance Can Be Such Very Costly and Time-Consuming
The thought of having an income-generating property may be attractive but once the reality of operating one sinks in, investors may end up being exhausted and burned out. It is not as easy as it seems, especially if you’re an out-of-state investor.
One of the best solutions to this is to look for a trusted property management team to help run things for you. However, that will also come at an extra cost. But that’s just how business goes. Making money in real estate comes with certain sacrifices.
You Spend More Than You Want to Regularly
Despite the handsome potential Airbnb income, it will cost more to own two properties. From startup expenses to the regular costs of running an Airbnb rental home, investors should be prepared to shell out more money monthly.
The rules are slightly different for vacation rental homes. While you can get a loan with a 3 to 5% down payment for a regular single-family residential property, you might have to spend a little more for a short-term rental property, with rates going as high as 30%. And that’s just part of the startup costs. If you intend to run a full-time vacation rental business, the daily upkeep will have a significant impact on your monthly finances.
Expect to Pay More Taxes and Fees
Even if Texas does not require payments for personal income tax, investors will still have to pay for additional fees and charges imposed by the state laws. At this point, it is best to consult with a tax expert who’s knowledgeable about Texas tax and housing regulations.
Why Should You Consider Buying a Vacation Home in Texas?
Someone who is looking at buying a vacation home in Texas will never regret making that decision because:
It Is a Landlord-Friendly State.
If you don’t have the law on your side as an investor, you might want to rethink your strategy. The great thing about Texas is it is known to be one of the most landlord-friendly states in the country today. With favorable eviction procedures, better rent control, great tax and insurance rates, and protected landlord rights, no investor will ever regret buying a vacation home in Texas.
It Has a High Demand for Rental Properties.
Over the past few years, the state’s population growth rate has been steadily increasing, especially during the pandemic as in-migration has significantly picked up. Because of the number of inhabitants, the demand for rental properties continues to grow as well. According to a 2021 Texas Relocation Report by Texas Realtors, the state has welcomed well over half a million people for the seventh straight year. The growing population is a clear indication that the high demand for affordable rental properties is not going away any time soon.
It Has a Thriving Economy.
One of the things folks choose to move to Texas is its booming economy. Despite the present global health crisis, Texas has maintained its economic growth and has continued to provide job opportunities in stable companies, including several Fortune 500 companies that call the state their home. The job and financial stability make Texans great tenants for landlords.
It Charges No Personal Income Taxes.
Texas is one of the very few states that have no individual income taxes. For investors, this means that there is a potential for a greater ROI since no income taxes will be taken from their profits.
Housing Prices Are Very Affordable in the State.
The Lone Star State is known to have one of the most affordable housing costs in the entire U.S. of A. On top of not having to pay any state income taxes, the low cost of living in Texas has a direct effect on housing costs and affordability. Texans can easily afford to buy or rent a property since the state prices are significantly lower than the national average.
It is easy to locate an affordable property even in a hot Texas real estate market. Investors can take advantage of sites like Mashvisor to help them find highly profitable properties for their rental business goals.
They can utilize the platform’s tools, like the Property Finder and the Real Estate Heatmap to see which areas offer the best possible returns on investment.
The Property Finder helps users to locate potential Airbnb properties that match their investing criteria and preferences. This is a huge help, especially for out-of-state buyers. They no longer have to fly in and search manually for potential investment properties. They can easily shop around for the ideal houses that align with their goals in the comfort of their homes.
The Real Estate Heatmap, on the other hand, shows users which markets are doing exceptionally well and which ones are to be avoided because of poor performance. It allows investors to zero in on specific profitable markets and access highly accurate and updated data such as listing prices, rental incomes, cash on cash returns, occupancy rates, and other important details. Having this kind of information that’s easily accessible can help vacation home buyers make the most confident investment decisions.
What Are the Top Places to Buy Vacation Rental Properties in Texas?
Before buying a vacation home in Texas, investors should pay closer attention to certain data, especially if they plan to have the property registered with Airbnb. On top of the actual selling price and mortgage rates, investors should also take a look at the market’s occupancy rates, cash on cash returns, and potential average income. Based on these stats, here are some of the top markets that prospective rental property investors can look into:
1. Abilene, Taylor
- Median Property Price: $291,176
- Average Price per Square Foot: $142.86
- Days on Market: 30
- Listings: 143
- Airbnb Occupancy Rate: 55.29%
- Airbnb Rental Income: $2,822.47
- Airbnb Daily Rate: $179
- Airbnb Cash-on-Cash Return: 5.97%
- Price-to-Rent Ratio: 8.6 (low)
- Walk Score: 30.4
2. Austin, Travis
- Median Property Price: $830,650
- Average Price per Square Foot: $453.2
- Days on Market: 85
- Listings: 2,628
- Airbnb Occupancy Rate: 58.23%
- Airbnb Rental Income: $3.870.25
- Airbnb Daily Rate: $234
- Airbnb Cash-on-Cash Return: 2.3%
- Price-to-Rent Ratio: 17.89 (medium)
- Walk Score: 50.03
3. Fredericksburg, Gillespie
- Median Property Price: $835,087
- Average Price per Square Foot: $387.91
- Days on Market: 148
- Listings: 658
- Airbnb Occupancy Rate: 53.5%
- Airbnb Rental Income: $4,915.31
- Airbnb Daily Rate: $289
- Airbnb Cash-on-Cash Return: 4.51%
- Price-to-Rent Ratio: 14.16 (low)
- Walk Score: 69
4. Granbury, Hood
- Median Property Price: $423,459
- Average Price per Square Foot: $202.18
- Days on Market: 7
- Listings: 165
- Airbnb Occupancy Rate: 53.41%
- Airbnb Rental Income: $3,666.81
- Airbnb Daily Rate: $245
- Airbnb Cash-on-Cash Return: 5.13%
- Price-to-Rent Ratio: 9.62 (low)
- Walk Score: 51
5. Lubbock, Lubbock
- Median Property Price: $306,163
- Average Price per Square Foot: $141.84
- Days on Market: 47
- Listings: 388
- Airbnb Occupancy Rate: 56.6%
- Airbnb Rental Income: $2.595.18
- Airbnb Daily Rate: $161
- Airbnb Cash-on-Cash Return: 4.69%
- Price-to-Rent Ratio: 9.83 (low)
- Walk Score: 32.96
6. New Braunfels, Comal
- Median Property Price: $560,193
- Average Price per Square Foot: $243.74
- Days on Market: 112
- Listings: 407
- Airbnb Occupancy Rate: 54.77%
- Airbnb Rental Income: $5.021.92
- Airbnb Daily Rate: $260
- Airbnb Cash-on-Cash Return: 6.01%
- Price-to-Rent Ratio: 9.3 (high)
- Walk Score: 74
7. South Padre Island, Cameron
- Median Property Price: $886,952
- Average Price per Square Foot: $436.43
- Days on Market: 55
- Listings: 507
- Airbnb Occupancy Rate: 50.25%
- Airbnb Rental Income: $3,729.08
- Airbnb Daily Rate: $233
- Airbnb Cash-on-Cash Return: 2.08%
- Price-to-Rent Ratio: 19.82 (medium)
- Walk Score: 51
8. Waco, McLennan
- Median Property Price: $404,564
- Average Price per Square Foot: $184.16
- Days on Market: 92
- Listings: 411
- Airbnb Occupancy Rate: 58.57%
- Airbnb Rental Income: $3,413.43
- Airbnb Daily Rate: $196
- Airbnb Cash-on-Cash Return: 6.23%
- Price-to-Rent Ratio: 9.88 (medium)
- Walk Score: 33.38
9. Wichita Falls, Wichita
- Median Property Price: $324,108
- Average Price per Square Foot: $136.77
- Days on Market: 57
- Listings: 107
- Airbnb Occupancy Rate: 69.5%
- Airbnb Rental Income: $2,807.67
- Airbnb Daily Rate: $125
- Airbnb Cash-on-Cash Return: 5.4%
- Price-to-Rent Ratio: 9.62 (low)
- Walk Score: 61
10. Wimberley, Hays
- Median Property Price: $785,200
- Average Price per Square Foot: $338.26
- Days on Market: 75
- Listings: 242
- Airbnb Occupancy Rate: 64.06%
- Airbnb Rental Income: $5,518
- Airbnb Daily Rate: $231
- Airbnb Cash-on-Cash Return: 4.34%
- Price-to-Rent Ratio: 11.86 (low)
- Walk Score: 50
What Are Some of the Things Investors Should Seriously Consider Before Buying a Vacation Rental Property?
Now that we’ve deduced which housing markets are the best for buying a vacation home in Texas, serious investors need to ask themselves a few important questions first before making a final decision.
1. Will You Truly Get Your Money’s Worth?
Before anything else, investors should always have clear goals in mind when buying a vacation home in Texas, or any state for that matter. Would you like to rent it out full-time and just adjust your trips according to the bookings? Or do you prefer to have more control over the house’s availability and just rent them out low-key? What time frame are you giving yourself to recover your investment?
If you plan to use it mostly as a vacation or secondary home, you need to factor in the costs of travel and how often you will use it.
2. Can You Afford All the Additional Expenses That Go With Having an Extra Property to Manage and Maintain?
Owning a vacation home will very likely double your monthly housing expenses, perhaps even more. In light of the previous consideration, if you intend to use it more as a secondary home, can you afford its upkeep and maintenance given that it won’t generate as much income as a full-on short-term rental property?
If you’re an out-of-state investor, how do you plan to go about with the management of the property? It is highly recommended for out-of-towners to hire a property management team to facilitate and operate the vacation home on the owner’s behalf. And getting a good team will cost you a pretty penny.
3. How Familiar Are You With the Location?
How often do you visit the location? Are you a regular visitor or do you go there once or twice a year? If so, do you have any idea what the place offers tourists during the months you don’t go? What’s the weather like? What local events, activities, and festivities will attract enough tourists to give your rental property high occupancy rates?
The Bottom Line
Buying a vacation home in Texas has certain benefits and offers very promising returns but investors still need to do their homework. A wise investor will always make sure he or she has all the bases covered and will crunch the numbers repeatedly to make sure the math checks out. Going in half-cocked will not ensure successful business and investment ventures.
Let Mashvisor help you make the best investment decisions that align with your goals. Sign up now to discover all the helpful features thousands of successful investors are already enjoying today.