While real estate has always been one of the most accessible as well as lucrative modes of investment, the industry has expanded itself to new lengths.
Rental property investment has been on a meteoric rise and is a reflection of the consumer’s shift of preference from homogenized hotels to vacation homes.
To elaborate on the market shift, the last decade or so has seen travelers opting to stay in rental properties over hotels for a multitude of reasons. For instance, it is more cost-effective for tourists to stay in rental properties, freeing up their purses for other indulgences.
Not only the frequent but also the immersive traveler will prefer a rental property, as it gives them a non-homogenized feel of the city.
Most hotels are built on massive properties that often feel alienating from the vibrance and particular character of the destination, whereas rental properties can be strategically located in the best neighborhoods of the city.
Tourists also enjoy the freedom they get in a rental property with respect to using the household amenities instead of relying on hotel staff.
There are plenty of reasons why you should invest in rental properties. Read on to learn a few tips on how you can start your own vacation rental business from scratch and build it up to success.
Finding a Vacation Real Estate to Invest In
If you are flexible with regards to basing your business away from your city of residence, you can take a look at the numerous real estate markets around the United States, then compare and tally return rates on investment to get started.
Ideally, you should look for cities near tourist locations, attractions, and busy airports, as that would maximize your profits.
Choose a location
Once you have zeroed in on a city where you’d like to base your operations, you need to conduct market research of existing vacation real estate businesses in the area before you locate vacation rental property for sale.
This will help you understand the financial demands and prepare you appropriately before investing. While analyzing competition, make sure the market in that location is not saturated yet.
Decide on the type of vacation rental unit
Next, you need to visit and inspect some available properties in the city. There are some obvious aspects you need to look out for, such as the accessibility of the location to major tourist destinations, the safety of the neighborhood, and of course, the price.
Figure out your financing options
Once you have likely settled on a couple of sites, you can talk about finances. Whether you want to take out a loan from a bank or if you have the resources to acquire or lease the property is entirely your choice.
Before you finalize it, however, you must devise a way to draw out the potential of the rental property. If you are wondering how to achieve that, read on for a detailed explanation.
Assessing the Vacation Rental Potential of a Property
The potential of your vacation rental real estate asset is dependent on a wide variety of factors. No property you come across will be furnished perfectly, so you have to make some renovations and refurbish it.
You need to start with checking the exteriors, make a note if you think it needs a fresh new coat of paint, or maybe install some close circuit television cameras to increase safety.
Inside the property, you need to do the same. Paint your interiors, get rid of any unnecessary clutter, and maybe add some stylish looking furniture.
In any step of this process, you can consult a professional designer, as they can not only help you achieve aesthetically high standards, they can also help you maximize space, cut costs and make several other contributions to increase your profit margin.
Once you have successfully redone your recently acquired property, you can increase the vacation rental potential by a significant margin.
Use the Right Metrics
It never hurts to crunch some numbers and be ahead of the game by keeping in mind some key metrics. These metrics are:
- Rent Income — the amount you plan to charge for customers for a fixed period of time
- Rental Expenses — a breakdown of maintenance, advertising, lease, and tax expenses for your property
- Cash Flow — the amount of income that is coming your way after taking care of all outgoing expenses
- Cash on Cash Return — the ratio or percentage of how much income is being generated compared to total expenses
- Occupancy Rate — the number of days your rental property is occupied by customers.
Another important metric to remember is Capitalization Rate, or cap rate, which shows the potential rate of return of a particular property, and is mathematically the ratio between the net operating income and the current valuation of the property.
Hottest Vacation Rental Markets in the US Today
The vacation rental markets in the United States are generally profitable, considering the high footfalls of tourists the country experiences annually.
This means you can have a pick of numerous locations rather than be limited to just a few, which is often the case in other markets. These markets have the most rewarding vacation rental property for sale in the country.
We have compiled a list of the most lucrative vacation rental markets in the United States as of 2020. However, this list does not take your personal budget into account, just the highest rates of return from all over the country.
Choosing the perfect location for your vacation rental business is done after a careful process of screening and considering several important factors. This list aims to serve as a guide on the best places to own a vacation rental property in 2021.
1. Huntington, Vermont
Located in the idyllic and lush mountains of Vermont, Huntington is a quiet town with an astonishingly booming rental market scene.
A famous hiking spot for nearby locals and tourists alike, Huntington attracts a bunch of tourists. The average property price for Huntington around $155,750, and boasts a 45% occupancy rate.
2. Tuscaloosa, Alabama
Tuscaloosa is a city in western Alabama, famous as a sporting city for its numerous successful football teams.
There are significant tourist spots scattered around the city, like the Battle-Friedman House and Jemison-Van de Graaff Mansion, which are reminiscent of the rich history of the area. All of these factors make it one of the hottest Airbnb markets, with the numbers to back it up.
The average property prices are at $350,000; whereas there is a high occupancy rate of 40%.
3. Sevierville, Tennessee
With the Smoky Mountains National Park in the near vicinity, it’s no wonder that tourists rush to Sevierville by the dozens. The place is scattered with vacation real estate opportunities.
There are countless picturesque forest trails and waterfalls around the area, and make tourists feel like they are in the lap of luxury surrounded by dense nature. To own a vacation rental home in this neighborhood, the median property price is $385,520 and boasts an occupancy rate of 72% around the year.
Choosing the perfect real estate property to rent out is neither one-dimensional nor easy.
There are numerous factors and details you need to keep in mind before embarking on your venture. The most critical piece of information you need to remember is to have a watertight business plan and a clear idea of what you want out of the business with your level of engagement.
Make sure you keep this in mind when looking for the perfect vacation rental property for sale!
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