February 3, 2023

Should I Buy A Vacation Rental Property In 2023?

Investing in real estate can be an intimidating but rewarding experience. With the fluctuations in the housing market over the years, it may seem impossible to find the right time to invest. If you’re someone who has been thinking about purchasing a vacation rental property, but are unsure when to make the jump, 2023 may be the year. The housing market has been a challenge for the past couple of years due to high prices, but it appears that there is a shift occurring due to potential declines in mortgage rates and house prices. This shift in the housing market could make way for new investment opportunities in 2023. Here are 3 things to consider when deciding if owning a rental property is right for you.

Is the Vacation Rental Business Profitable?  

While investing in real estate can be risky, it can also be extremely rewarding if done correctly. Before investing in real estate, it’s important to consider external factors that could impact the overall success of your rental property. When investing in real estate, you’ll want to consider the location, the market, the local regulations, and the costs that you’ll incur throughout the rental process. There are numerous factors to think about when deciding if this may be the right move for you. If you’re someone who is able to take on the financial risk and afford to spend money upfront in order to make more money on the back end, then this could be an avenue for you to consider. According to a recent article, The vacation rental market is poised to grow by $84.41 billion during 2023-2027, accelerating at a compound annual growth rate (CAGR) of 8.54% during the forecast period. 

With the rapid predicted growth of the market, it creates more investment opportunities as well as more opportunities to utilize the instant rental property instant booking resources that exist. In addition to that, owning property allows you the ability to create and manage your pricing and adjust it to your location, demand, and season. If you choose to purchase in a popular location such as Florida, you’ll have the ability to look at rentals that exist in the area to determine a general pricing strategy. If you are unsure about where to start, consider looking into hiring a property management company or seeking assistance from vacation rental property experts. It’s important to understand your potential market so when you’re pricing your rental, you’re putting out competitive, yet realistic prices. With the help of vacation rental property experts, you can learn about revenue management and get insight into different types of data on how to go about initial pricing and price adjustments that’ll best fit your goals.

What Are The Benefits of Investing In a Rental Property?

If you’re looking for a way to increase your income in a relatively hands-off way, investing in property can be a great start. Some of the benefits that entice people to want to invest in a property include, creating a flow of passive income, having their own place to vacation whenever they want without having to worry about finding a place to stay, and even the tax benefits and deductions that come with owning and renting. Generating a form of passive income through owning a rental property can be advantageous because while you’re making an upfront payment for the property, along with any renovations or repairs that have to be made, you’ll be able to make up for the money spent, through the revenue you’ll earn through renting it out. 

When considering purchasing a property to turn into a vacation rental, it’s important to keep in mind the amount of money you’ll be spending on this investment. By owning two properties and using the second as a rental, you’ll be responsible for paying for the mortgages of both properties, and any ancillary expenses that may come along. If you’re in a place where you want to invest, but don’t have the cash up front, consider pulling from the equity built in your current home by way of a home equity loan (HEL). An HEL can be a great way to get some extra assistance when it comes to your finances and allow you to use the equity that you’ve built up in your home to put toward investing in this new property. Understanding the best way to finance an investment such as this will allow you to have the flexibility to purchase a rental property, but also ensure that you’re not breaking the bank in the process.

In addition to navigating the financial processes, you should take time to research the different tax benefits you may be eligible to receive as a result of owning and renting a property. Some of the potential benefits that you may be able to utilize include, deducting the cost of rent default insurance policies for each property and landlord insurance premiums, deducting mortgage insurance, taking care of professional fees such as a property management company and even repairs or maintenance to name a few. Understanding what can be written off and deducted from your taxes as a result of renting, can help to take full advantage of the tax deductions opportunities that are available to you as the landlord.

What Is The Current State Of The Market?

There is always going to be hesitation when it comes to determining the right time to buy. With the uncertainty in the market due to external factors such as the pandemic and economic struggles, it’s become more difficult to find the best time to make the jump to invest in property. AirDNA discussed predictions for 2023 for the vacation rental market. It’s stated that 2023 will be a year of mature performance from an industry that has faced challenges and changes. While that is true, it’s also reached all-time highs in supply, demand, and total revenue. There has been a shift in demand from 2021 to the present, as there seem to be predictions of slow but stable growth as well as slowed growth for supply. With the housing market seemingly decelerating, it could leave room for more buying opportunities as prices may begin to fall. That being said, it’s also imperative that you consider any economic downturns that may occur in the future. 

When researching the market, look at the data for the area that you’re considering purchasing property in, as well as the surrounding areas to determine where a good location would be that would still be able to thrive in the face of challenges that will arise in the economy. Being able to have data showing what the market might do and what your potential guests might be doing is very telling to what will be happening in the rental space. If you’re not staying updated in the current trends, it’ll become more difficult to make an informed decision about whether or not to invest in a vacation rental.

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