People often have a pretty good idea where they would like to purchase their vacation rental property. It is usually an area that they love to go to and wish to spend more time visiting. Often there will be recreational activities nearby that they most enjoy. Perhaps it's a winter getaway to avoid the cold northern winters. Or maybe a summer haven away from the crowds and the chaos of city life. Whatever your motivation, here are some tips on beginning your search and some key considerations on how to narrow your choices to find that perfect vacation home.
Getting started on your search
When my wife and I decided to purchase our first short term rental property to use for family fun, and as a great source of extra income, we first considered the following factors:
Proximity to our primary home - We capped our distance at no more than a 4-hour car ride as we didn't want to spend most of our time traveling driving.
Family Recreational Opportunities - As an active family with kids, we needed some of our favorite activities nearby.
Rental Earning Potential - It had to be an area popular with tourists, and preferably year-round traffic to ensure a steady income.
So what did we decide on? Ultimately the perfect vacation property for us was a mountain condo that checked all of our boxes.
We located a beautiful property a 3.5-hour drive from our home.
It was on a ski hill near seven state parks. Think hiking, biking, golf, and fishing in the summer.
Having stayed in the area numerous times previously, we knew that the rental demand was high.
But enough about us, this is about you finding the perfect STR for you! Let's get started.
Key Location Attributes for Rental Success
Year-round traffic - Don't limit yourself to a few busy months, followed by six months as a ghost town. Spring Break is fabulous in the Spring.
Proximity to recreational areas - Think beaches, State and National Parks, and lakes. These are places people want to be at to get away and relax.
Nearby Tourist attractions - There is a good reason why the Orlando, FL area has such a high density of vacation rentals. Theme parks consistently draw in tourists.
Dining and shopping options - Travelers love to eat out and shop. Give the people what they want.
Now think about yourself, as it is your home. What do you love to do? Perhaps it's sailing on the ocean. Maybe it's golfing at a fabulous course surrounded by fantastic scenery. Perhaps you have kids that love going to the waterpark. These are all things to consider as you select your dream retreat. The chances are that if you are passionate about these things, your guests will be as well.
Finding your dream property
Once you have decided on an area to purchase your property, it's time to start searching for your soon to be home away from home. An excellent place to start is online Real Estate listings. Sites like Realtor.com and Zillow allow for filtered searches. Filters prove useful when looking for specific features such as the number of bedrooms and bathrooms and property features such as lakeshore access or swimming pools. Map views are available to show the property's location as it relates to attractions and recreational areas. Digging into the features may yield information about rental potential, as shown in the listing below.
So you found a promising property, time to look at the rental potential.
Predicting rental income is not that challenging when you use a couple of free tools available online. Our favorite is the Rental Income projection tool from VRBO. Answer a couple of questions about the property and be rewarded with a rental estimate in seconds. The projection at left is for a Mountain Condo of ours, and yes, that projection has proven to be very accurate!
Another option is to search for properties in your selected area on a site like Airbnb. Here you can look at comparable properties and see what the going rental rate is. You can dig in a bit farther by pulling up a listed properties calendar to see how often they occupied. Occupancy data will give you a good feel for the area's rental market.
The calendar at right is our same Mountain Condo showing Autumn availability. The crossed-out dates indicate reservations. It looks like a promising season!
I wanted to add a few thoughts on costs when looking at property listings. Be sure to look at the full picture when comparing properties. It's more than just the mortgage payment. To find that great property and have it be a great value, consider these factors as well.
Home Owners Association Fees
If you choose to buy a condo or townhome (and possibly a single-family home), it will likely have HOA fees. If there are swimming pools or other amenities, the rates will probably be high. Higher than you might imagine. I know this to be true as I have properties where the HOA fees are more than double my mortgage! Don't be discouraged by the sticker shock, but do account for it. The high priced amenities will allow you to charge higher guest rates accordingly. Suppose you have chosen your property location wisely, set up your listing well, and managed your property wisely. In that case, the HOA fees will still be manageable. Stick with me, and I will show you how to do this.
This one is pretty straight forward as taxes are a given. Just be aware that features such as waterfront locations will drive up taxes significantly. Some areas also charge higher tax rates for Vacation Rentals as they classify them as commercial real estate. Just do your homework.
Now here is a hidden cost that can derail you if you don't watch out for it. Often as buildings age, repairs will be needed—kind of like people. In an HOA setting, significant maintenance may not be in the annual budget. Thus the costs are passed along to the homeowner in the form of an assessment. You do not want to find out late that the dream property that your a closing on in a week has a $30,000 roof and siding assessment. Your Realtor should be all over this but be sure that you are clear before submitting that purchase offer.
Choosing a location and zeroing on your dream property can be an exhilarating experience. When done correctly, it can lead to owning a vacation property that can be personally and financially rewarding. In upcoming posts, we will focus on setting up your listing to become a successful Airbnb owner or VRBO owner.