vacation rentals

What You Need to Know if You Want 
to Invest in a Vacation Rental

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A vacation rental is a great way to make money and expand your property portfolio, especially in popular vacation destinations. However, it’s not as easy as buying a nice home and sticking it on a few listing websites. The Alfriend Group can help you navigate this challenge so you can enjoy a profitable venture, starting with the following tips. 

Location Matters (Even More)

“Location, location, location” is a mantra in real estate, but it is especially important for a vacation rental. Generally speaking, vacationers are trending toward places and properties off the beaten path. Steering clear of crowded cities, exploring lesser known locations and enjoying the great outdoors are options tempting vacationers. 

Consider, for instance, a hunting and fishing getaway, an off-the-grid retreat or a riverfront property. Getting away from it all, enjoying peace and quiet, savoring fresh air and sunshine are all concepts guests are searching for these days. You can offer peace and recreation to visitors while ensuring an income-producing venture for yourself.  

Not All Loans Are Suitable

There are certain regulations around which loans you can use for a vacation rental, and getting a loan for a property you don’t intend to make your primary residence can be challenging. Lenders tend to be more strict on investment properties, so do your homework and make sure your credit is in top shape before you apply. 

As an example, FHA home loans are great for first-time homeowners with little credit history and limited funds for a deposit, but they cannot be used for an investment property. A conventional loan will be more suitable since there are no restrictions on what you can do with the property. Most lenders will require a more substantial down payment, and you’ll need more substantial padding in your cash reserves than when purchasing a personal home. 

Should Your Business Make the Investment?

You might want to establish an LLC (limited liability company) to purchase your investment property. As MillionAcres points out, there are times this move makes the best sense. An LLC offers certain advantages to investors, such as scalability and tax benefits. Of course, it also helps protect your personal assets. Setting up an LLC is a simple process, too. 

It Takes Time

All investment properties involve some work, but a vacation rental is especially time-consuming. As a rough estimate, it will take you 27 to 52 hours to set up your rental, plus up to 20 hours per booking. You need to be both fully prepared and in the right mindset to take this on.

There Are Many Support Options

If you do decide to get help, there are many choices out there. Take your time researching property management companies and get all the information you need. Make sure to ask the right questions at this stage, such as whether they operate locally or nationally, what their services are, and how they make the experience exceptional for the guests. 

You can get support from having the right tech for your rental business, as well. This can help you manage your employees and business operations more efficiently. If you’re managing a mid- to large-sized business, for instance, a quality system should be in place for EERP: efficient enterprise resource planning. With features like integrated marketing and accounting functions (invoicing, time tracking, payroll, etc.) and field service management, you can save a good deal of time and money.

Some Cities Are Rejecting Rentals

Condé Nast explains that many cities around the world are cracking down on vacation rental sites like Airbnb. While this is not necessarily likely to happen in all areas, it is important to acknowledge that these crackdowns do happen when cities become saturated with vacation rentals, so it is useful to stay abreast of industry trends. 

Dot Your i’s and Cross Your t’s

You will need to keep detailed records, from new towels to the fee you pay to the property management company, in order to use these as deductions. Since record keeping is both critical and tricky, many vacation rental property owners find it helpful to include specialized accounting software in their startup kit. It can walk you through many of the ins and outs of various expense categories and even guide you on tax-related decisions. 

Insurance Will Cost You More

If you are buying a rental property, you should bear in mind that insurance may be expensive. A rental is considered an investment, which is automatically a risk. The insurance on your primary residence is likely lower since it is an asset and is cared for by the occupant and rarely left unattended. 

You Have Heavy Competition

Remember that, as a rental property owner, you are not just competing against other rental properties. You’re in the hospitality market, and every hotel, motel, and B&B in town is competition. Do research by looking at listings within your price range on booking sites like TripAdvisor. This will show you what the competition is offering, and where you can stand out. 

None of these facts should put you off investing in a vacation property. It is a strong investment and a growing market, so it’s a great time to get involved. Knowing exactly what you’re getting yourself into will help you avoid mistakes and make your vacation rental property a success. Of course, finding the perfect property is also a must, so work with The Alfriend Group to help you in your search!

3,743 thoughts on “What You Need to Know if You Want 
to Invest in a Vacation Rental”

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