The acquisition phase is an exciting but also intimidating part of the vacation rental process. You probably have a few properties in mind and so many questions that it’s hard to know where to start. In this guide, we’ll look at some of the most important things to keep in mind before making an offer on your next vacation rental.
Location and Researching Comps
Location will be an important factor for your guests, so it should be a top concern for you, too. Think about your ideal tenant, and then consider what they’d want to be closest to (and farthest away from)!
Want to appeal to a younger crowd of vacationers? Then a property near the town’s best nightlife options is ideal. These renters won’t be too concerned with late-night noise. But if you’re angling to rent for professionals in town for a work meeting, a quiet neighborhood with an easy commute downtown would be best.
Once you’ve found a place that is a good fit, you’ll want to ask your agent to provide comps. Comps, short for comparable sales, show you what similar properties nearby sold for. That way, you know what a reasonable price looks like for the property.
Local Laws and the HOA
One of the least fun but most important parts of the acquisition phase is getting to know local regulations and the homeowners association’s own set of rules. Is it even possible to rent this place out? Is there so much bureaucratic red tape that it’s not worth it? Each town and neighborhood will be a little bit different, so make sure you have all the facts.
History of the Property
Is this house or condo already being used as a vacation rental property? If so, you may be able to ask the current owner to disclose more about its history as a rental, giving you a better idea of its earning potential. Plus, they may be open to leaving the property fully or partially furnished.
We recently talked with vacation rental owners Evan & Aneesa about their beautiful property in Port Aransas, Texas. They told us that they wish their real estate agent had helped them learn more about the property’s previous rental history. That’s a good reminder to find a thorough, professional agent who will help you gather all this vital information.
Figure Out Your Cap Rate
In real estate, the cap rate gives you a rough idea of your return on investment over a year. While it’s a non-exact metric, calculating cap rate should give you a helpful ballpark figure.
There are a few different formulas for cap rate, but here’s the one AirDNA recommends:
Net operating income ÷ Property asset value × 100 = Cap rate.
AirDNA says that you should aim for something in the neighborhood of 8% and 12%. Your cap rate will vary, though, depending on location, type of property, and many other factors.
Now you’re ready to find the best locations, calculate cap rates, and discover the property of your dreams. As exhausting as the acquisition phase is, this step sets you up for success in the years to come. After closing on the property, your next challenge will be building a support system of fellow rental owners that will answer your many questions regarding how to market and operate the property. When you’re ready, check out our blog post on how to create a support system in your local market.