The travel landscape is changing, and real estate investors are asking, “should I buy a vacation rental property in 2023?” This guide will help.
Table of Contents
- What Will Travel Look Like in 2023?
- Is the Vacation Rental Business Profitable?
- Where Should You Buy a Vacation Rental Property?
- What Is a Good Rate of Return on a Vacation Rental Property?
- Is It Smart to Buy a Vacation Home?
- Vacation Rental Property: A Good Investment Opportunity
According to Globe Newswire, the global vacation rental industry was valued at $74.64 billion in 2021, representing a 32% percent increase from 2020. And it is only going to go up in 2023. Therefore, with such promising numbers, 2023 is a good time to buy a vacation rental property.
Buying a rental property is quite different from investing in other types of real estate. It means that the techniques used to buy commercial real estate are not the same as buying a vacation rental property. In this case, you will need a keen insight into the local market and the projected revenue of the home. Also, with the transition to the post-COVID era, more people are traveling, and it is time for you to cash in on this opportunity.
In this article, you will learn how to determine the profitability of a rental property and where the best places are to purchase one. You will also discover the best tool provided by Mashvisor to find rental homes with healthy projected revenue. Therefore, if you’ve ever asked yourself, “should I buy a vacation rental property?”, this is your answer.
What Will Travel Look Like in 2023?
The most recent forecast for international travel from US Travel predicts 65 million foreign arrivals in 2023. It means that people are ready to travel, and not even inflation will keep them at home. Research shows that the average American is ready to spend $200 per day on travel.
More traveling is expected in 2023 than in the last two years. It is why you should look to buy a vacation rental property for the thousands of Americans looking to go on vacation. Also, since more jobs are going remote, employees get more opportunities to travel anywhere they want and still get their work done.
Seventy-one percent of Americans believe that planning for travel is tedious, and another 43% say that they prefer to use a travel advisor. Mashvisor can help you get more travelers to your vacation rental property. You will find out how later in this guide.
Is the Vacation Rental Business Profitable?
If you follow the necessary steps needed to buy a vacation rental property, you will reap the many advantages of investing. One of the massive advantages is the consistent cash flow. Platforms for renting homes like Airbnb and VRBO are excellent ways to enjoy a consistent cash flow.
According to research, when you buy a vacation rental property, you can earn an average of $900 every month. The amount is a conservative estimate. According to the latest data, some rental properties make as much as $10,000 every month. It means that there is a strong chance that you can earn far more than the average income when you buy a rental home.
You can also take advantage of the tax benefits that come with buying a rental home. According to existing tax laws in some US states, your rental property is considered real estate if you rent it out for at least two weeks in a year. It means that you can write off some of the expenses you incur on your vacation property, which will, in turn, boost your average income.
In the end, though, there is a possibility that you can turn your rental home into a major income-generating business. You can enjoy all the advantages that come when you buy a rental property. But it is only possible if you use the right tool to locate and buy the best and most profitable vacation rental properties in 2023.
Related: How to Buy a Vacation Home With No Money Down?
5 Other Benefits of Investing in a Vacation Rental Property
If you do it right, a vacation rental property can pay for itself over and over again. Below are some other benefits of investing in a rental home:
1. Higher Income
The most captivating benefit you get when you buy your vacation rental property in 2023 is the potential to make more money. As already mentioned above, the average income for such types of investments is $900 per month. But if your home is in a populated and desirable location, that number can multiply fast.
2. Your Own Getaway
Just in case you want to change locations for a while, you can go to your vacation home instead of spending money on someone else’s house. You can use the house for anything you want, like birthdays, parties, get-togethers, and other gatherings. Ensure that you buy a vacation property in an area that you would love to visit again and again.
3. Tax Advantages
If you rent out your vacation rental property for more than two weeks in a year, it is considered a business. It means that you can make tax write-offs on the house. Of course, you still need to pay your taxes on earned income, but you can write off any expenses you incur while trying to improve the home.
Related: Top 6 Tax Tips on Reporting Your Rental Income
4. Protect Your Future
When you buy a vacation rental property, you are not only ensuring that you earn some money today, but you are also securing your future. For example, when you get old and are unable to work, you can still earn money from your house.
Also, you can sell it whenever you want, and by that time, the equity on the vacation rental property would’ve risen, making you a handsome profit.
5. Recession-Proof
Vacation rental properties perform very well during a recession. It means that you won’t need to worry about losing your money when economic downturns hit. Most travelers, when vacationing, look for more budget-friendly homes to stay in during a recession. Therefore, when the whole country is worried about losing their investments, you are only worried about not owning enough properties.
Where Should You Buy a Vacation Rental Property?
A major challenge with buying a vacation rental property is knowing where to buy the best properties that will bring in a significant profit. There are places where you can find great vacation rental properties with a good track record of consistent profits.
You can buy vacation rental properties from online marketplaces. In online marketplaces, you can find good houses in some of the best locations available. Another great place you should look to buy a vacation rental property is traditional listing services. Most of the properties listed there are done by real estate agents.
You can also find an excellent house on Mashvisor. Visit the website and search for the location where you would like your house to be, and the platform will provide the best possible option. Here are some things you should consider when deciding on the location to buy a vacation rental property.
1. Seasonality and Demand
Some vacation rental locations do not attract traffic all year round; they are only attractive to travelers and vacationers during specific seasons. Such properties will bring in more income for you during the high season, but they will be bone-dry during other periods. Focus more on the more popular locations if you want a more predictable source of income.
You should still research to see whether a vacation rental property will be able to bring in enough income during its boom season. If the demand is low, you should focus on another property. But if the demand is high, then you can go ahead and buy the house.
2. Local Laws and Regulations
Every location is subject to local and state rental laws and regulations. You should study them thoroughly before deciding to buy a vacation rental property in a particular location.
Also, ensure that you study the homeowner’s rules in the neighborhood. Because depending on the location, there are rules as to how often you should rent, the type of renters allowed in the neighborhood, and other specific rules and regulations.
Related: Is Airbnb a Good Investment Considering All of the Regulations?
3. Guest Persona
The location of your vacation rental property will determine the type of short-term renters that you entertain. For instance, families with children will prefer a house with a big yard while couples will prefer one with a good view.
Also, the features of the house will be of importance depending on the type of people you rent it to. For instance, if you rent the house out to someone who works on vacation, you will need to provide a small workspace.
4. Potential Income and Expenses
Once you’ve found a vacation rental property in an area with enough demand, you can start calculating your earning potential and how much you may need to spend on the house.
Costs might significantly impact your rental income. Therefore, before you buy a vacation rental property, you should assess your costs against potential earnings to be assured that you will be profitable. Fortunately, Mashvisor offers a rental property calculator for your vacation rental property analysis. The tool will provide you with the numbers and tell whether you can expect a positive or negative cash flow from its calculations.
After that, you should calculate how much you will need to make each month to cover your expenses and make a profit. Doing so will help you eliminate the loss-making vacation rental properties.
5. Tools That Help Find the Best Vacation Rental Property to Buy
Sometimes, it is hard to be objective enough about a vacation rental property to buy, especially when you see a feature you love. It is why it’s important to use a tool that gathers data about the properties in an area. You need something that will let you know if the vacation rental property you want to buy is worth your money.
Some tools can help you objectively perform research on any house in the US that you’re looking at and tell you if it’s worth buying. Mashvisor is one such provider of all the necessary and useful tools. The platform will help you make an informed decision and will reduce your research time considerably.
Mashvisor can help vacation rental property investors calculate their potential income (and expenses) through its wide selection of tools.
What Is a Good Rate of Return on a Vacation Rental Property?
Firstly, as long as you make a profit from your vacation rental property, you are doing fine. That being said, some returns are better than others. Therefore, what is a good rate of return on a vacation rental property?
If you decide to use the cap rate calculator, a reasonable rate of return is around 10%. If you decide to go to the cash on cash rate calculator, a reasonable rate of return is 8%-12%. But even with the said return rates, some investors will not buy a vacation rental home if it comes up with anything less than a 20% profit.
However, it all depends on you. If you’re comfortable with an 8% return, you can go ahead and purchase the house. But if you would prefer a 20% return, that’s fine too.
Is It Smart to Buy a Vacation Home?
Two schools of thought exist when considering if it is smart to buy a vacation home. There are pros and cons to purchasing and renting a vacation home. It will eventually be up to you to decide. We’ve looked at some of the pros of owning a vacation home. Now, let us look at some of the cons of owning a vacation home:
1. Taxes
The type of taxes you will pay for your vacation rental home will differ from the one you pay for your current home. Ensure you figure out the deductions your vacation rental property will require and how your income will be taxed.
2. Vacancy issues
The house used for vacation rentals can be vulnerable to break-ins when nobody is occupying it. Some locations offer check-ins for investors who are not around.
3. Additional costs
It’s expensive to own a vacation home. You will have to pay the mortgage and other expenses, which don’t come cheap.
Therefore, weigh the pros and cons of investing in a vacation rental property. If you think the pros outweigh the cons, you can buy the vacation property. But if you think the advantages outweigh the disadvantages, you can hold off for now until you feel comfortable investing.
Vacation Rental Property: A Good Investment Opportunity
It is an excellent investment if you choose to buy a vacation rental property in 2023. Plus, you can still have a great vacation rental home where you can relax whenever you want. Your property should also be able to bring in a good income for you consistently.
Yes, there are some expenses you will incur when you buy a vacation rental home, but if you do your calculations and research well, you will still come out on top and make a profit. That is why you should have a great tool like Mashvisor in your arsenal.
Mashvisor can help you find vacation rental properties and also make sure that you do not incur any loss on your investment property. It will do so by performing the necessary research and calculations on your preferred property and then telling you if it is worth your investment or not. With the information the real estate website provides, you can tell when and if to buy a house or when to move on.
Therefore, based on the travel stats above, the question of “should I buy a vacation rental property in 2023” should instead be, “which vacation rental property should I buy in 2023 that will give me the highest return on my investment”?
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