The most basic component of buying a vacation rental as an investment is that the numbers need to make sense! Even if you hate spreadsheets and cap rates give you chills, having a basic understanding of how much money will go into this property and how much to expect in return is key.
The major difference between vacation rentals (or any short term rental) and a more traditional year long lease, is that guests expect the property to be “live in ready.” This means more than just a bed, couch and a few chairs since it needs to be ready for someone to come live at the property without going to the store for necessities. This includes things like a fully stocked kitchen, wifi, towels, toilet paper and soap. While this requires more of an investment up front it can pay off in the long run with higher rental income.
To determine the opportunity for a specific property, a few income estimators we like to use are Eliot and Me and Airbnb’s Income Estimator. While these provide a general idea of what your can earn, remember that depending on your market seasonality can have a big impact on your monthly income, especially if you live in a summer or winter only destination, but annual numbers tend to be quite a bit higher than long term rentals. See the screenshot below from our STR Property Evaluations calculator which we built to help you evaluate a potential purchase (We created this to help us, so be aware your numbers are different. These are based on generalizations from our experience and do not apply to your specific scenario or property you may decide to purchase). We highlight all the information you need to input into the calculator, and then provide insight for an apples to apples comparison of specific properties. If you have additional questions about this calculator, please email us and we will help address those.
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