Landlording & Rental Properties

4 Must-Ask Questions to Answer Before Purchasing a Vacation Rental

Expertise: Landlording & Rental Properties
15 Articles Written

Thinking about investing in a vacation rental? Especially if you haven’t invested in real estate before, you might find yourself a bit discombobulated. There’s a lot to consider — and a lot of conflicting recommendations.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

In 2009, I cofounded a technology-backed vacation rental management company. I’ve also personally invested in vacation rentals, so I’m familiar with the questions and concerns that buyers have.

Naturally, your priority as an investor is to land a property that will deliver healthy returns in exchange for minimal risk. Plenty of prospective investors look to vacation rentals as their first real estate investment vehicles, and many more focus on short-term rentals exclusively. Both are great strategies, as vacation rentals can deliver immense benefits whether you’re a veteran investor or not.

The two most common questions I hear are: Where should I buy? and When should I buy? Let’s answer those right now.

Where Should I Buy?

Generally speaking, drive-to markets are more recession-proof than fly-to markets since driving a few hours is less expensive than flying across the country. In a downturn, families that previously would have flown to Hawaii may instead opt to drive a few hours to the coast. In fact, we founded our company in 2009, right in the depths of a recession — but our strong drive-to portfolio allowed us to thrive.

Related: 5 Ways to Upgrade Your Vacation Property for Maximum Renter Appeal

Unsophisticated markets — that is, markets in which the majority of vacation rentals are managed by individuals, rather than professional management companies — also represent a strong opportunity for prospective buyers. If you’re working with an experienced vacation rental management company, your property will have an edge over others in the market.

Finally, look for a friendly regulatory environment. Some communities enforce strict barriers to short-term rentals in their communities. Avoid those. The lower the barrier to entry, the sooner you can start making money.


When Should I Buy?

The vacation rental industry is highly seasonal: More people go to the beach during the summer and head for the slopes in the winter. You can recover a lot of your cost outlay if you time your purchase to take advantage of peak season in your area. Buy a beach house in January so you have time to get it up and running before June. Conversely, if you’re shopping in a winter market like Tahoe or Aspen, make your purchase in August or September.

This will give you time to make any necessary repairs or renovations, create a listing, and start building your home’s brand in advance of the busy season. Plus, sellers renting their vacation home are more strapped for cash during the slow season, so your offer is more likely to appeal to them.

If you’re purchasing a larger home, try to close an additional month or two before peak season. Vacation rentals that can accommodate more people usually have longer booking windows because most groups plan gatherings further in advance.

What Should I Buy?

Experts advise choosing a vacation property on the beach, near a lake or river, or near a mountain recreation area. A home that’s within a few blocks of a thriving urban scene is also worth considering.

Bear in mind that micro-location matters, too. Be on the beach, not near the beach. Breathtaking views and easy accessibility will make all the difference. And be sure to keep those breathtaking views in mind when positioning furniture and hot tubs.

Will your rental be accessible year-round? The hiking might be incredible during the summer, but if the road is impassable from November through May, you’ll miss out on a lot of potential income. That said, even if your home is situated in a place with “year-round” tourist traffic, be aware that crowds  — and income  — will always fluctuate with the seasons. Even attractions like Disneyland don’t have the same number of visitors every month of the year.

Think about how many guests the property can accommodate. Sleeper sofas and bunk beds add value to your home, as they’ll allow you to welcome larger groups of guests.


What Should I Do Before I Buy?

Once you have a sense of where and when you want to buy, make sure you understand the costs — in both time and money — inherent in owning and managing a vacation rental.

Interest rates on fixed payments are low right now, so lock in these rates while you can. I caution against adjustable interest rates because they’re riskier in the long run, no matter how attractive they may seem.

Related: How to Make Your Dream Vacation Home a (Profitable) Reality Now

You’ll need insurance for your vacation rental, and disaster insurance is usually pricier in vacation markets. I recommend working with a tax professional since owning a second home can complicate your tax situation. The good news is that many of your expenses will be tax-deductible.

You’ll also need to set up utilities; furnish and decorate your home; and coordinate housekeeping, yard work, and maintenance. A good vacation rental manager can also help take the hassle out of this process. Naturally, if your new property is already running as a short-term rental or if you bought it furnished (not uncommon among vacation home listings), you can skip some of these steps.

Instead, focus on improving the property. Upgrade the fixtures and the mattresses, install a hot tub, and bring in a sleeper sofa to accommodate extra guests and earn extra income.

A vacation rental makes a rewarding investment, both personally and financially. When your property isn’t earning money for you (and supporting local businesses and workers in the process), you can enjoy it with your friends and family. It’s truly a win-win.

What areas are you looking at for potential vacation rentals? Any questions about the vetting process?

Be sure to leave your comments below!

Shaun Greer currently serves as the senior director of real estate at Vacasa and is responsible for the in-house real estate activity and broker/agent partne...
Read more
    Replied about 4 years ago
    Thank you for all this great information. I’m considering an investment in short term vacation rentals in the Gulf Coast area and/or East Coast as both of these locations are convenient to me and we enjoy going there on vacation as well. I am a 59 year old widow too young to start collecting any of my retirement benefits and in need of relying on a portion of the income for living expenses. I’m interested in getting into property management and investing and since I’ve managed my own properties and properties for family it seems a good fit for me. My question is am I better off to finance these properties or pay cash? Paying cash would mean I would invest in fewer properties but remain virtually debt free. Any advice you are willing to offer is much appreciated
    Shaun Greer Real Estate Professional from Boise, ID
    Replied about 4 years ago
    Hi Shelia, I’m happy to hear you’re looking into short-term rentals as an investment! Considering the affordability of interest rates, it may best to finance, allowing you to diversify instead of putting all of your eggs in one basket. I’d finance by putting 20-50% down, enough to pass the sleep test and secure an optimal monthly figure. Then I would see which property, or collection of properties, would earn you the net profit you need to subsidize your lifestyle. To do that, a mortgage lender can give you the monthly estimate while an active manager in the area can give you a reliable revenue figure. An added bonus of owning multiple homes is that your usage will have a more minimal impact on overall revenue and you will be diversified, so you can enjoy your hard work more often. This is much easier with financing than all cash. Happy hunting!
    Replied about 4 years ago
    Good advice for when to buy. Timing is everything for vacation rentals so this was really helpful.
    Shaun Greer Real Estate Professional from Boise, ID
    Replied about 4 years ago
    Thanks, Drew!
    Brian Eilering Real Estate Agent from Woodstock, GA
    Replied almost 4 years ago
    Great information. Thank you!
    Shaun Greer Real Estate Professional from Boise, ID
    Replied over 3 years ago
    Thanks and best of luck buying your vacation home, Annika! Let us know how it goes or if you have any more questions along the way.