While there are a wide range of reasons to invest in vacation home rentals, one of the most common goal investors have is to make as much money as possible right now. In order to realize significant and immediate income in the vacation rental market, there are four important factors to consider:
#1: To Borrow or Not to Borrow
Like any investment with the prospect of making significant short-term returns, investing in real estate rentals for short-term profits includes some amount of risk. As such, in order to invest for maximum short-term profits, cash is best for purchasing investment property. If you are aiming with a break-even operating strategy with an expectation of appreciation in value, it’s okay to borrow money.
#2: Maximize Utility for Your Target Renter
In general, maximum income will be realized by buying the property with the most bedrooms that you can afford, closest to the attraction where the most people want to be. With that said, it is important to consider the types of vacationers that are likely to rent your property and their needs:
• At Florida’s beaches—where families tend to gather—think 4+ bedrooms, and as close to the water as you can get.
• In a romantic destination, you don’t need as many bedrooms; instead, you will need privacy and view.
#3: Find Existing Success
As with most income-earning opportunities, it’s easier to continue what someone else has started than to begin anew. To this effect, I recommend buying a home which is already on the vacation rental market and already producing income. These properties are easy enough to find without having to start from scratch—both saving you time and reducing your risk.
#4: Income Multipliers Relative to Home Sales Price:
Many investors wonder how much they should expect to gross in revenue from their rental property per year. For these investors, a multiple of gross rental income is a good place to start (annual gross rental income x some multiple = sales price). That multiple changes with escalating values. In a market where values are increasing more raidly, a desirable multiple might be four or five while in a flat market, ten might be the goal.
For example if you are in a flat market, and your budget for your first vacation rental investment is $500,000, ask your Realtor to provide properties which are currently on the rental market and which are grossing no less than $50,000 per year in vacation rental income. Of course, remember that this is just a rule of thumb and different investors will often require higher or lower cap rates.
In sum, there are abundant opportunities on the Emerald Coast for rental property investors. As the Emerald Coast’s Top Selling Realtor, Cindy Cole and her team of local experts would love an opportunity to help discuss your needs, prepare a cohesive strategy, and offer insights into local properties that fit your goals. We proudly represent home buyers and home sellers in Destin, Miramar Beach, Santa Rosa Beach and surrounding areas.