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Thinking about cashing in on the vacation rental market? In top travel destinations, there's constant demand -- and many vacationers would prefer to book a villa, condo, or vacation home rather than a hotel. It makes sense for families and larger groups, as well as people who intend to stay longer than a week. Also, in vacation markets that don’t have a wide variety of hotels, many travelers find that vacation rentals can meet their specific needs in terms of amenities, facilities, and aesthetics better than the local hotel products can.
Now to burst your investor fantasy bubble before you actually head to Miami or LA to see what your money can buy: It’s almost impossible to get a perfect little investor-friendly three-bedroom beach cottage steps from the Santa Monica Pier or South Beach for a reasonable price. Individual investors are limited not just by budget and space constraints, but also by city zoning, available product, limited access to labor, consumer preferences, and new but major factors like climate risks.
Here are eleven things to evaluate in neighborhoods where you're considering buying
Research each of these factors for every prospective property before you make an offer. Use apps, online search, public records, and the expertise of professionals you know. Ask your real estate agent for their insight. Ask HOAs, even the ones where you are only considering buying and haven’t made an offer yet. And finally, hop in the car or use your feet to explore the neighborhood and get a feel for it.
1. Within walking distance of restaurants, bars, shops
Location is at the top of most people’s considerations in where they’d like to stay while on vacation. Turnkey Vacation Rentals found travelers ranked it as the most important consideration in the platform’s 2019 Consumer Travel Survey. And while proximity to major attractions is important, most visitors also really want to stay in a place that doesn’t require driving every time they want a bite to eat or a nightcap. If you have any doubts, just read through some TripAdvisor or Booking.com reviews of vacation rentals, and see how many times a property’s proximity to great restaurants and shops gets a mention… and how people always tend to note it as a definite plus if plenty of options are within walking distance.
2. What’s the parking situation?
Regardless of whether your rental is in a resort neighborhood, a suburb, or the center of a beach town, people are going to want to know about available parking. In walkable neighborhoods, it’s not necessarily a deal-breaker, but if you’re looking at a location where tourist attractions are spread out, such as San Diego, Orlando, or New England, a rental without at least one available parking spot is going to lose bookings.
Also, note that even if your no-designated-parking property is in a walkable neighborhood near attractions and public transportation, if you tell the guests “Street parking is plentiful” and they end up getting a ticket, they will note it in their review of your property, and they probably won’t be coming back.
3. Proximity to public transit
This is a big consideration in certain urban centers like DC, Boston, and Honolulu. Although many visitors will end up taking cabs or ride-shares most of the time, the idea of easy access to public transportation is a big plus regardless because it signifies: This place is in the middle of the action… or a straight shot from the middle of the action. And some people do use it -- especially above-ground streetcars -- not only as a means of transportation, but part of the sightseeing experience.
4. How far is the property from the major attractions?
Simply calculating the mileage between your prospective rental and the biggest amusement park in the city is not enough. People want more. Follow the booking platform template and figure out the 10 attractions closest to the rental. List those within walking distance first, and then those within driving distance. If there’s nothing closer than a 30-minute walk and all your drives are more than 15 miles, you’ll need to concede on your nightly rate to compensate for being “in the middle of nowhere.” (Probably more accurately in the middle of a nice suburb, but still.)
5. What construction is planned in the neighborhood in the next 3 years?
Look all the way around the block near the building, on both sides of the street. If you see any developer signs on lots, or any empty lots at all, make notes and then start making calls. You can oftentimes check a city planning website for permits, or call the city and ask about future construction plans. You can also call the developer number on a posted sign, or look for news of that developer’s upcoming projects online. Ask the seller and seller’s agent what they know about projects slated to break ground within the year. But don’t just take their word for it.
Also, take no one’s assurances that a construction project will be wrapped up in a few months, or that it won’t be a big deal, but will raise the overall values of properties around it when it’s done. Construction, as a rule, is very disruptive, and always takes longer than it’s supposed to. It also starts very early in the morning. Unless you’re looking in an area that it’s unavoidable, don’t go for the property that’s about to be two doors down from a future construction site.
6. Is the neighborhood safe?
This has become a relatively easy thing to check thanks to websites that create neighborhood maps with graphics to show where crimes took place. It’s not only extremely helpful in vetting neighborhoods, but also fascinating to plug in neighborhoods on SpotCrime and CrimeReports and see what pops up -- oftentimes not what you’d expect. Note, the crime-checking sites are not completely accurate, so it’s advised to cross-check before making an initial call on a property.
7. Acceptable noise levels
This is about finding a happy medium, or sometimes flat-out compromising. In any hot vacation market, there are party spots and then there are “nice” buildings where the residents will call security if a party seems to be happening after 10 p.m. If you’re looking to invest in a vacation rental, you probably want to lean slightly on the party-friendly side, while keeping in mind that families and older renters will complain when things around them get lively. On the spectrum of noise complaint evils, though, that’s probably better than getting an HOA violation or the cops called.
Speaking of police, a more serious consideration to look into is the noise ordinance in the city you’re considering buying a rental. In some places, it’s in effect all day long. That means the police will come out if neighbors complain of excessive noise, even if your guests are hosting a barbecue at 3 p.m. This can put a serious wrench in a vacation, and get you as an owner in trouble as well.
8. Is it in a flood zone or fire zone?
Climate/weather considerations have become incredibly important in recent years. Before you buy in many vacation hot spots these days, you need to consider if it’s in a surge zone, a flood zone, a wildfire zone, a hurricane zone, or even a heatwave zone.
Getting this info online from the official government resources is fairly easy. Counties have their own sites, and FEMA also has a flood risk assessment tool.
Also, if you’re looking in a destination that gets flash floods or some other suddenly-occurring event, be aware that these might be very common, almost daily events in their season.
9. How many months is “slow season?”
Realistically, how many months will you be able to rent the place out, and how many will it be sitting unoccupied or going for a drastically reduced rate? One of the reasons Florida and California are so popular as vacation destinations is that their tourism season extends nearly all year long. In destinations that have a shorter high season, or a much less popular shoulder season, you need to price accordingly, or you’re not likely to meet your monthly revenue targets, and that will have a major effect on your annual.
No matter where you’re attempting to invest in a short-term rental, smart pricing to take advantage of peak times is always going to demand some savvy -- luckily, there are dynamic pricing tools like Beyond Pricing and Wheelhouse that can help you price your property correctly day-by-day.
10. Is the neighborhood/community short-term-rental (STR) friendly?
A neighborhood might be a vacation paradise, but if it also has a lot of full-time residents or a lot of hotels, you need to check for potential legislative battles between those very influential factions and the STR investors looking to change the landscape.
If a city is really in a battle about short-term rentals, a quick online search will reveal local news features, public statements from the city, and advocacy group activity that should make any smart investor think twice. Find markets that are STR-friendly. These are often less urban vacation destinations without a lot of hotels.
Even if the town is overall friendly to vacation rentals, assume nothing about a specific property. Call the seller’s realtor and the HOA if there is one, and ask for the rules around renting before you even bother looking at the place.
If you’re looking to do seasonal rentals, a property in a super-desirable market that can only be rented two to four times per year might work. Ask your realtor to run a report of the neighborhood for you. In the MLS a realtor can check what rentals are closing, how many there are in the neighborhood, and can see some patterns in rental history -- i.e. if certain addresses in a building are renting every six months.
11. Cost of real estate
This one’s so simple, yet it’s oddly the last thing many people think of. I strongly advise you to think of it first. No matter how ideal a property is -- how great the neighborhood, how investor-friendly the building, how hot with tourists -- you still need to look at the potential rate of return. If the price is so high that you won’t be able to make the mortgage payments unless every month is fully booked at your ideal rates, then this is not a good investment for you.
Know the neighborhood, the market, your guests, the future… and the profit potential.
While people might not stay in a vacation rental property long, they expect to eke every bit of positive experience out of their time. Remember, any one of the factors above can compromise the experience and lower a property’s appeal to future guests-- so know your rental as well as you know your own home before you buy.
Unfair Advantages: How Real Estate Became a Billionaire Factory
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