If you own a vacation rental property and it’s done quite well, you may be thinking about adding one, two, or more homes to your rental business. But unless you’re investing in the same market as your current rental, you likely aren’t as familiar with the process. What’s the best way to go about buying a new property, and what factors should you be taking into consideration?
Identify Vacation Hot Spots
Vacation rentals in popular vacation destinations are much more likely to do well. How do you identify where those popular spots are? One strategy is to follow the real estate market and see what’s trending.
This may not be as simple as searching for top vacation spots – for example, New York is one of the most-visited cities in the world, but investing in property within the city can be expensive and labor-intensive. Instead, you may want to consider real estate markets that have been showing the fastest growth rate. These typically haven’t been larger metropolitan areas – for example, Boise makes the top of the list for 2021.
Choosing Your Location
Once you’ve identified a hotspot, you’ll want to get specific and research market trends and prospects. Places showing a lot of growth are a promising option, but traditional vacation spots along coastlines or in the mountains can be a good option too, although potentially more expensive.
And don’t rule out international properties! Mexico’s coastal towns can be a good option, given their beauty, local charm, and the growing populations of international visitors and buyers.
Consider the Budget
Adding a new property to your repertoire will also mean adding in new expenses. Property taxes, HOA fees, management and insurance fees, and utility bills are some of the expenses you’ll need to account for in determining if a potential property is a profitable investment or not. You’ll also need to consider rental income taxes and occupancy taxes, which will vary by state.
Consider also that certain areas may have a shorter vacation season than others. This may influence your profitability ratio if a potential home is likely to have a lower occupancy rate due to seasonal change. While a lot to consider, these are factors that can be researched relatively easily.
Buying an additional vacation rental can be a great investment. Whether you’re going for traditional vacation spots on the coast or thinking about an international property investment, careful research of the area’s real estate market and budgeting appropriately can ensure success in almost any climate.
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