Whether you’re buying or selling vacation rental real estate, success often comes down to good seasonal timing. There are benefits to buying and selling across all times of the year. Identifying the economic conditions and seasonal considerations that best align with your goals will help you know when it’s the right time to make your move.
Knowing When the Market’s Right
Determining the right economic conditions to buy or sell a vacation rental depends on your motivations. For example, it’s common to see a rush of investor and cash buyers step up activity during periods of residential slowdown. As a seller of a vacation home, you stand a good chance of beating a national residential buyer’s market—especially if you market your home’s cap rate and revenue potential.
Unlike with their primary homes, buyers planning to finance a second home might see a silver lining to a spike in interest rates. Financial institutions seeking to balance a dip in mortgages may decide to offer better HELOC and home refinancing options to broaden their customer base. Familiarizing yourself with vacation rental-specific market trends can help you decide if the time is right to buy or sell.
After determining that market conditions are trending in your favor—and even if they’re not but you’ve decided to forge ahead—it’s time to consider the impact of seasonality.
Buying Before Peak Season
When shopping for a home that’s in good condition in a high-traffic market, it’s a good idea to close before peak season. You’ll have the opportunity to purchase and receive advance deposits at the closing table for reservations already on the books. Since you didn’t have any expenses generating the bookings, that’s like money in your pocket. But all those “free” bookings come with a cost: You’re less likely to negotiate a discount on the purchase price.
Buying before peak season brings the benefit of a lot of guests on the books, but those guests are expecting the home to come furnished as listed. And you likely won’t have a lot of time to decorate. To avoid poor reviews, try to purchase furnished (unless your furniture is a major upgrade and you can get it all into the home in time).
Selling Before Peak Season
Most buyers looking to close prior to peak season want to see reservations on the books. Having a backlog of reservations gives them a revenue-driving window to get acquainted with the property management company and get settled. It also gives you more negotiation power.
Selling before peak season leads to a likely higher purchase price since you paid to get all those bookings and revenue in place. Since buyer demand tends to peak right before peak season, you will likely get to negotiate more than just price. Closing times, closing costs, financing terms, etc. are all on the table. You’re also likely to be able to sell the home fully furnished, which is typically in the buyer’s best interest as well.
Related: Does Your Vacation Home Qualify for a 1031 Exchange? Here’s What Tax Code Says
Buying After Peak Season
If you’re willing to buy a home that needs work, it can pay to wait until after peak season. With fewer guests on the books, you’ll have time to conquer all those updates that will increase revenue during peak season. You also won’t feel the same pressure to purchase furnished as you would when buying prior to peak season.
In most markets, buying after peak season improves your ability to negotiate a better purchase price. But you will need to start marketing the property quickly to ensure you get maximum bookings prior to peak season, so the pressure is on to get the property in rentable condition and advertised to guests.
One often under-looked benefit to buying after peak season is that it’s easier for you to compare more properties, because there aren’t any guests staying in them. You’d be surprised how difficult it can be for realtors to find time to show great vacation homes because they’re booked so far out.
Selling After Peak Season
The major benefit to selling after peak season is that the unit will have more availability for you to give it a facelift. With fewer bookings to work around, you can make any necessary updates and repairs to get the property in great selling condition. Lower guest occupancy means it will be easier to show the property and encourage potential buyers to stay there.
As peak season slows, purchase prices tend to drop. With fewer reservations on the books, you have less power to negotiate. Sellers who can use this time to make upgrades and sell prior to peak season tend to command higher purchase prices. That said, we’re seeing an occupancy trend in many markets (especially mountain markets) where seasonality matters less to guests, meaning down season is becoming a thing of the past and it’s always a good time to sell.
Whether you’re looking to buy or sell a vacation rental, timing is everything—and the right timing is unique to every buyer and seller’s situation. While this post covered some basic considerations to keep top-of-mind when deciding if the time is right to buy or sell a vacation home, it’s by no means comprehensive. When you’re serious about taking the next step, find a vacation real estate expert who can share insights about regional and market-specific nuances.
Do you have experience buying and selling vacation rentals? How have you found time of year affects the process?