Vacation rentals are some of the best investment vehicles today. Read on to learn how to buy a vacation rental property for optimum returns.
Table of Contents
- The Benefits of Buying a Vacation Rental Property
- How to Buy Vacation Rental Property in 5 Easy Steps
- Where to Find Profitable Vacation Rental Properties
Buying a vacation rental property can be a highly profitable approach to real estate investing. The high rental income that these investment properties generate makes them the perfect option for real estate investors looking for positive cash flow.
Given the lifting of travel restrictions and people’s eagerness to travel again after having been stuck at home for the past couple of years, vacation rental properties have risen in popularity. Consequently, it has led to an increase in demand for short-term rentals in hot markets like Florida, California, and New York, among others.
So how to buy vacation rental property? And what should you keep in mind when purchasing a vacation rental investment property? In this article, we will outline the process of buying a vacation rental property with the help of real estate website Mashvisor. To ensure your success, we will also share some valuable tips.
Knowing how to buy a vacation rental property (and where to look for one) is an advantage you would want to have as an investor.
Related: Buying a Vacation Rental Property: Is It a Good Idea?
The Benefits of Buying a Vacation Rental Property
Buying vacation rental properties offers many advantages to real estate investors. Regardless of your level of experience, operating vacation rentals can be a great way to generate high cash flow.
Here are some of the other benefits that you can expect from buying a vacation rental property:
- Buying a vacation rental property gives you access to a second home you can use for your own vacations.
- The rental income that these investment properties generate is substantially higher than what you get from traditional rentals.
- A vacation rental investment property can be a source of passive income as you can opt to hire a professional property manager.
- You can benefit from a wide range of tax deductions.
- Buying a vacation home to rent out provides a low-risk entry into real estate investing as it can be easily converted into a long-term rental.
Now that you know the benefits of buying a vacation rental property, let’s look into how to buy vacation rental property.
How to Buy Vacation Rental Property in 5 Easy Steps
Buying an income property is a significant financial commitment. It is important to abide by certain guidelines when you are looking for vacation rental properties for sale. Keep reading as we break down how to buy vacation rental property.
1. Pick the Type of Rental Property That You Want to Invest in
Before delving into how to buy vacation rental property, you must first identify the type of vacation rental property that you want to buy. As you would expect, there are pros and cons to each property type. Here is a brief overview of some of the options that are available to you:
- Condos: These are the most popular type of investment property for real estate investors. The amenities in condo buildings make them the preferred option of many vacationers. On the flip side, investing in condos involves dealing with HOA guidelines and fees.
- Multi-family property: This type of property contain multiple units. The rental income generated by multi-family properties is fairly high. However, managing them is relatively difficult, especially for novice investors. It’s best to start with small multi-family homes of two to four units.
- Cottages: This is a small home located in a rural area. Cottages are designed to accommodate vacationers who prefer the serenity of the woods or the calmness of the beach. They are easy to manage, but their occupancy rate may be lower than other types of vacation rentals.
It is important to note that your options are not limited to the three types of properties above when you’re investing in vacation rental properties. Other investments that are worth considering include bungalows, villas, and studios.
2. Get Your Financing in Order
The next step of the process should focus on exploring your options when it comes to financing a vacation home. Having a clear understanding of what each option offers will allow you to pick a method that fits your financial standing.
Here are some of the investment property financing options that you should consider:
- Conventional loans: These are the standard loans that fall under Fannie Mae and Freddie Mac regulations. When buying a vacation home, you will generally be expected to make a down payment of 10% to 20% and have a credit score of at least 680 points.
- Home Equity Line of Credit: This is a financing method that enables you to leverage the existing equity in your primary residence. In fact, a HELOC loan allows real estate investors to tap into up to 90% of their home equity.
- Alternative mortgage solutions: If you have a high credit score and a good working relationship with a local bank, you might be able to apply for a personalized loan that fits your real estate investment objectives. Since these loans are kept in the bank’s portfolio, the terms can be extremely flexible.
3. Pick a Good Location
Location is everything in real estate. In fact, the location of a real estate investment is what determines its profitability and long-term viability. Naturally, you should focus on areas that boast a booming tourism sector as well as a high average rental income.
Other factors to consider when looking for the ideal location include the economy’s overall health, short-term rental laws, quality of weather, employment rate, and proximity to essential amenities.
A wide range of online real estate investment tools can help you zero in on the perfect location to invest in. The best example of this is Mashvisor’s real estate heatmap. This amazing tool employs a combination of rental property data and visual cues, which makes finding the best places to buy a vacation home a simple and intuitive process.
Mashvisor Real Estate Heatmap
Mashvisor’s users can easily perform rental market analysis using its heatmap. All you need to do is enter a location (city, neighborhood, or zip code) on the home page’s search bar. It will then take you to a page with a map and a sidebar with the tabs Investment, Airbnb, and Traditional.
The map functions as a heatmap by tweaking the settings on the dropdown menu in the upper left corner. You can set the heatmap to show you which areas are performing well (represented by the green color), which ones are not (shown in red), and everything else in between. You can choose any of the filters below:
- Traditional Cash on Cash Return
- Airbnb Cash on Cash Return
- Airbnb Rental Income
- Traditional Rental Income
- Listing Price
- Airbnb Occupancy Rate
Related: Buying a Vacation Rental Property: How to Choose the Right Location
4. Narrow the Search Down to Profitable Investment Properties
Identifying a vacation rental property for sale that can yield a good return on investment is one of the most critical steps of the process. Once you’ve settled on a location, start looking at investment properties that match what you are looking for.
The simplest way to do so is to use Mashvisor’s Property Finder. The tool uses the latest AI technology and comes with several convenient filters that enable you to narrow the search down to your exact criteria.
Moreover, the Property Finder grants you access to each property’s rental property calculator. It gives you the chance to explore a host of valuable vacation rental data and get an accurate ROI estimate.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo today.
5. Get a Home Inspection and Appraisal
Getting a professional inspection is crucial when making an offer. In fact, it is the only way to ensure the structural integrity of the vacation rental property.
Additionally, the results of the inspection might reveal some minor issues, which could tilt the negotiations in your favor and force the seller to accept a lower offer.
As for the appraisal, it helps determine the real value of the property and protects you from overpaying when you are buying a vacation home.
Related: What Are Prepaid Costs When Buying A Home?
Where to Find Profitable Vacation Rental Properties
The key to a successful vacation rental property investment is in finding the right location. The usual hotspots include Florida, California, and New York.
The said states see a constant influx of tourists year in and year out, with the exception of the pandemic, of course. Florida, in particular, remains one of the hottest real estate markets in the country, regardless of the season.
The real estate market is very dynamic, and data tends to change significantly. As an investor, you should keep yourself updated with the latest market developments and trends.
It helps to have access to a real estate website, especially Mashvisor. This platform has a massive and highly accurate database of almost every real estate market in the country. Having access to this information will lead to smarter decisions.
According to Mashvisor’s latest data on the short-term rental market, here are the top locations for Airbnb rentals. This list is ranked by places with the highest to the lowest cash on cash return rates. We also chose places with median property prices below $1 million and an above-50% occupancy rate for optimum investment returns.
1. Delhi Twp, OH
- Median Property Price: $235,156
- Average Price per Square Foot: $148
- Days on Market: 27
- Monthly Airbnb Rental Income: $3,142
- Airbnb Cash on Cash Return: 8.09%
- Airbnb Cap Rate: 8.37%
- Airbnb Daily Rate: $115
- Airbnb Occupancy Rate: 55%
- Walk Score: 57
Investing in a vacation rental in Delhi Township in Ohio might just be the break you need. It may be a small town, but it offers a lot to visitors. With new developments taking place, expect the township to blow up as a vacation destination in the region soon.
2. Rio Grande, NJ
- Median Property Price: $318,900
- Average Price per Square Foot: $245
- Days on Market: 52
- Monthly Airbnb Rental Income: $3,965
- Airbnb Cash on Cash Return: 8.00%
- Airbnb Cap Rate: 8.21%
- Airbnb Daily Rate: $301
- Airbnb Occupancy Rate: 52%
- Walk Score: 52
If you’re looking for a place to invest in a vacation rental property with excellent income potential, look no further than New Jersey’s Rio Grande. This NJ community commands a lower mortgage rate of 5.09% (30-year fixed) than the national average of 5.52%. It makes investing in a vacation property in the area well within reach.
3. Warr Acres, OK
- Median Property Price: $123,574
- Average Price per Square Foot: $90
- Days on Market: 36
- Monthly Airbnb Rental Income: $1,751
- Airbnb Cash on Cash Return: 7.68%
- Airbnb Cap Rate: 8.47%
- Airbnb Daily Rate: $111
- Airbnb Occupancy Rate: 55%
- Walk Score: 56
Warr Acres is one of Oklahoma’s largest suburbs. Investors prefer Warr Acres not just for its impressive selection of vacation attractions but also for its affordable property prices and mortgage rates.
Currently, properties in the city attract a mortgage rate of 5.27% (30-year fixed), which is still slightly below the national average.
4. Reading, OH
- Median Property Price: $214,940
- Average Price per Square Foot: $148
- Days on Market: 33
- Monthly Airbnb Rental Income: $2,761
- Airbnb Cash on Cash Return: 7.66%
- Airbnb Cap Rate: 7.95%
- Airbnb Daily Rate: $101
- Airbnb Occupancy Rate: 59%
- Walk Score: 80
According to Realtor.com, mortgage rates in Reading, OH are around 4.91% for 30-year fixed loans. In addition, the economy is growing and generating plenty of jobs. If you’re considering getting a vacation rental property in Reading, just make sure to read up on its regulations for vacation rentals.
5. Nashville, IN
- Median Property Price: $495,964
- Average Price per Square Foot: $202
- Days on Market: 35
- Monthly Airbnb Rental Income: $4,965
- Airbnb Cash on Cash Return: 7.58%
- Airbnb Cap Rate: 7.73%
- Airbnb Daily Rate: $260
- Airbnb Occupancy Rate: 55%
- Walk Score: 56
Nashville, IN is one of those places where you can enjoy a nice weekend getaway with lots of cool shops and great dining options. It is why people flock to it for quick weekend trips.
A vacation rental property in Nashville is an excellent investment, with new housing projects in the area expected to attract more residents and visitors.
6. Sweetwater, FL
- Median Property Price: $554,607
- Average Price per Square Foot: $358
- Days on Market: 61
- Monthly Airbnb Rental Income: $4,332
- Airbnb Cash on Cash Return: 7.37%
- Airbnb Cap Rate: 7.54%
- Airbnb Daily Rate: $180
- Airbnb Occupancy Rate: 51%
- Walk Score: 82
Sunny Florida has always been a top vacation destination in the US. Despite the higher property prices in Sweetwater, it offers investors a lower 4.91% mortgage rate for a 30-year fixed loan. Buying a property in the city is a great investment strategy for both the short term and the long term.
7. Inverness, FL
- Median Property Price: $317,326
- Average Price per Square Foot: $197
- Days on Market: 46
- Monthly Airbnb Rental Income: $2,762
- Airbnb Cash on Cash Return: 5.52%
- Airbnb Cap Rate: 5.69%
- Airbnb Daily Rate: $173
- Airbnb Occupancy Rate: 54%
- Walk Score: 34
While the current mortgage rate of 5% in Inverness is higher compared to some FL states, it is still well below the national average. Investing in an Inverness property can be quite profitable, given its bustling economy.
8. Fern Park, FL
- Median Property Price: $267,130
- Average Price per Square Foot: $180
- Days on Market: 51
- Monthly Airbnb Rental Income: $2,875
- Airbnb Cash on Cash Return: 5.18%
- Airbnb Cap Rate: 5.38%
- Airbnb Daily Rate: $154
- Airbnb Occupancy Rate: 62%
- Walk Score: 57
The higher mortgage rates in Fern Park, FL (5%, 30-year fixed) compared to other Florida locations may deter some investors. However, considering the affordability of housing in the area, it is still a great place to invest in. It also helps that theme parks and resorts, like Universal Studios and Walt Disney World, are easily accessible.
9. Palm Harbor, FL
- Median Property Price: $528,342
- Average Price per Square Foot: $289
- Days on Market: 42
- Monthly Airbnb Rental Income: $4,486
- Airbnb Cash on Cash Return: 5.09%
- Airbnb Cap Rate: 5.19%
- Airbnb Daily Rate: $213
- Airbnb Occupancy Rate: 60%
- Walk Score: 64
Despite Palm Harbor, FL being a small community, it is known as one of the best places to live and visit in Florida. It offers tourists and visitors a lot by way of resorts, parks, and beaches. The weather is pleasant all year round, making it an ideal vacation destination and an excellent investment location.
10. Seminole, FL
- Median Property Price: $478,225
- Average Price per Square Foot: $307
- Days on Market: 44
- Monthly Airbnb Rental Income: $3,955
- Airbnb Cash on Cash Return: 5.06%
- Airbnb Cap Rate: 5.18%
- Airbnb Daily Rate: $279
- Airbnb Occupancy Rate: 57%
- Walk Score: 80
People flock to Seminole because of its beautiful parks and historic water tower. Investors, on the other hand, buy investment properties because of its healthy tourism industry.
Even if the median property price for Seminole is more than half a million dollars, its current 5% mortgage rate (30-year fixed) is enough incentive for an investor to buy a property in Florida.
The Bottom Line
As an investor, knowing how to buy a vacation rental property and where to buy it makes all the difference. Investing in vacation rentals is not easy. You need to fully understand how it works so you can get the most optimum investment return.
Buying a vacation rental property is an evergreen real estate investment strategy that will continue to yield good returns and beyond. Going over the guidelines above should give you a clear idea of how the purchase process works. To ensure that everything goes smoothly, work with a real estate agent who specializes in vacation rentals.
But more than working with a reputable agent, it also helps when you use a real estate platform like Mashvisor. With its extensive database, you can access information and data from almost every real estate market in the US.
The platform’s investment tools, such as the real estate heatmap, help find the most profitable property easier. Using its investment property calculator helps save time and energy for crunching the numbers and making sure the math checks out.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.