Should You Buy a Vacation Rental Property?
If you’re like many investors, the allure of owning a vacation rental property – or even a temporary rental property – is strong. But is it a good idea? This guide explains the pros and cons of buying a vacation rental property in Silicon Valley so you can make the right choice.
Should You Buy a Vacation Rental Property?
For many investors, it’s a great idea to buy a vacation rental property. However, if it’s something you’re interested in, you need to know that owning a vacation rental isn’t the same thing as traditional real estate investing. It’s important that you find a property that’s going to rent frequently with few vacancies.
Related: The ABCs of buying your first investment property
The Vacation Rental Business, Explained
The vacation rental business can be exceptionally lucrative. It involves an investor, like you, purchasing a property with the express purpose of renting it out for short periods of time. Generally, these properties are alternatives to hotels and are more suitable for long-term stays (several weeks to a few months) than hotels are.
Because you’re looking at properties you can rent on short terms, you can choose from a wide range of property styles – you’re not limited to traditional houses. You may choose to buy a cozy villa, a condo, a beach house or something else entirely. You can choose to look for budget-friendly investment properties or spring for a luxury property that you can command luxury prices for; the choice is yours.
Related: How to avoid capital gains tax on the sale of a rental property
How Much Money Can You Make With Short-Term Rentals?
On average, short-term rental property owners make $924 per month. However, that’s a national average – and if your property is in a higher-priced area (especially one where there are hotels that cost upward of a few hundred dollars a night), you may be able to make a significantly higher amount. The more days of the month your property is rented, the more money you’ll make, too.
Related: How to generate passive income by buying a duplex in Silicon Valley
What’s the Legal Side of the Deal When You Buy a Vacation Rental Property in Silicon Valley?
You’ll want to consult with an attorney before you buy a vacation rental property. Different localities have different laws and ordinances, which means if you want to stay out of hot water, you’ll need professional guidance. A recent law in Los Angeles prohibits some landlords from renting out their properties for the short-term, for example, so you’ll need to look before you leap.
Do You Need a Business Plan Before You Buy a Short-Term Vacation Rental Property?
As with any other business venture, it’s smart to develop a plan before you dive in with both feet. Ask yourself:
- How much money do I want to make?
- How much time can I dedicate to property management?
- Do I need to hire a property manager?
- Am I looking in an area where I’d like to vacation?
- Are there popular attractions nearby?
- Why would a person choose my house over a hotel?
- Is there really a demand for short-term rentals here?
- Does this area have all-season appeal?
You’ll also want to consider whether you can earn enough through short-term rentals, using a reasonable occupancy estimate, to pay for the mortgage loan on the property. If you won’t break even, you’re better off investing elsewhere.
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