Is It Time to Invest in a New Vacation Rental Property?
This week, the Federal Reserve raised interest rates a quarter of a percent. Despite the minor increase, it’s still a great time to buy a home for first-time shoppers or a new home for those looking to move or add investment properties.
California’s real estate market is doing well overall and homes that go on the market sell incredibly fast. In fact, in some areas, homes are selling in as little as 18 days on the market! Now that’s some fast turnaround.
Let’s Talk Mortgages
According to a report from the first tuesday Journal, a California real estate reporting journal, the average fixed mortgage rate in May 2018 was up by just 1.12% (4.43%) from its lowest point over the last 30 years (3.31% in December 2012). For comparison, the highest average fixed rate over the last 30 years was an astounding 9.62% in January 1991. Though average rates have fluctuated significantly over the last 3 decades, the current numbers are still promising and offer a positive outlook for those interested in purchasing real estate in California.
All in all, things aren’t “bad” in the Golden State.
Reasons to Invest in a New Vacation Rental
If you’ve ever considered purchasing additional real estate as an investment, now might be a great time. Despite the Fed raising rates across the board, California averages are nothing to scoff at.
As they say, “There’s no better time than the present.”
Rates will likely continue to rise steadily over the next several quarters, meaning you’ll save a little more money on your investment if you can get in now.
Here are a few other reasons why taking the plunge and adding another vacation rental might be a wise investment:
- You’re spending money to make money. If you’re really serious about making your vacation rental business an actual business and taking things beyond just a side gig, adding another property could potentially bring in significantly more income. LA is still very much a hot vacation spot; it all depends on where your new place would be located in town.
- Property taxes may not be as bad as expected. Thanks to the most recent tax overhaul from Washington, D.C., the federal government will cap property tax deductions on returns filed for 2018 and beyond at $10,000. That doesn’t go very far in California and state politicians have been working to do something about it. In January, California state Senator Kevin de León spearheaded a bill that would allow taxpayers to donate money to the state in exchange for a lower tax bill. Senator de León isn’t the only one working on a solution: Assemblywoman Autumn Burke is working forward a similar solution, too.
- The vacation rental industry will continue to grow. Airbnb and sites like it have taken over the travel industry and they’re not showing any signs of slowing down. Vacation rental businesses have had hotels and accommodation providers shaking in their boots for years now. Things will be no different moving forward, meaning you have the upper hand in the vacation and travel industry as a short-term rental owner.
- You don’t have to spend a fortune. There’s something out there for every price point. You don’t need to invest in a huge, multi-bedroom home. Consider looking for a small place with enough room to host 1-3 people. If you can afford a bigger place, great. If not, stick to your budget. There will still be guests looking for what you’re offering.
Is it time to invest?
Ready to start shopping?! It’s all very exciting, but be sure to think things through before jumping into local real estate listings.
Here are a few questions you should ask yourself if you’re considering buying an investment property:
- Can you currently qualify for a mortgage? If you currently own property and have an existing mortgage, you may or may not be at an advantage. Shop around before settling for any one bank’s offer.
- What can you put toward a down payment? These days, having a down payment is key. Lenders are less likely to offer money to cover this expense.
- Can you afford to comfortably furnish your new place once you’ve purchased it? Once you’ve secured your new digs, you’ll still need to set up shop! This can get expensive, though it’s possible to do it (and do it well) on a budget.
- How will you manage both (or all, if you already have more than one vacation rental) of your listings efficiently? Will you enlist the help of a vacation rental management company? Will this be your new full-time job? The logistics are important.
- Can you charge enough each night to cover your new mortgage payment each month? It’s important to do your research and have a good idea of the going average nightly rate and whether you can charge as much or more based on your home furnishings, location, and so on.
There’s a lot to consider when thinking about adding real estate to your investment plan. However, it has the potential to be lucrative long-term and worth the expense.