There are many ways to get started investing in real estate. When most people think about the business they immediately start with rehabs and house flips. While these are certainly viable options, they are not for everyone. Something else to consider is investing in rental properties, specifically vacation rentals. These are properties located in specific niche markets that typically generate tourist and out of town interest. Because of the location there is increased demand that makes them financially attractive. If you are looking for a high return way to invest in real estate vacation rentals should be at the top of your list. Here are four reasons to consider investing in vacation rentals.
Increased Rents.Vacation rentals differ from traditional rentals in that they often come with the potential for high returns. With the average rental property you have a fixed monthly payment for the duration of the lease. A vacation rental will have a peak season where you can bump your rent based on demand. The peak season alone often pays for the rest of the year and will offset any off-season lulls. A good vacation rental in a good location can often be rented weekly instead of monthly allowing you to maximize the bottom line. Not every vacation rental will be a home run, but the right property can be extremely profitable.
Tax Benefits.The tax benefits for a rental can change the way you view your property. There are a handful of write offs, deductions and accounting strategies your accountant can employ with your rental that can add thousands to the bottom line of your tax return. It is not uncommon for a rental to break even monthly, but with the tax benefits feel like a winner. These advantages are something that must be considered when adding a rental to your portfolio.
Rental properties are a unique niche of investing. For starters, there just aren’t a lot of prime vacation properties available. Most owners know what they have and there is no need to sell. The properties that do become available often come with a hefty price tag that require a sizable down payment. They also need to be managed differently than the rental you own in your market. With frequent turnover you need someone that can handle all the moving parts. That being said, a vacation rental offers long term benefits, short term cash flow and the potential for tremendous upside. A vacation rental should be viewed as a long-term hold in your portfolio that can bear fruit for years to come.
As we mentioned, good vacation rentals by the beach or near a ski resort are hard to come by. When they do hit the market they often fetch a pretty penny. You should never buy on appreciation potential alone, but it is something that must be considered. A good property can end up yielding a six-figure return in the right situation. Like any other investment, there is some risk with niche properties, but the potential return is very appealing.
If you have capital to invest and have been looking at buying a rental you should consider a vacation property. You will have to do some extra homework in choosing the right market and show patience in finding the right property. However, if the right property comes along you will see the long-term impact in your portfolio for years to come.