Navigating the world of vacation rental investing can be challenging, and choosing the right properties is essential for success. In this post, we sit down with BNBCalc to explore the essential criteria for selecting investment properties in the vacation rental market. 

‍

Learn the key considerations and expert tips every investor needs to know before making their next purchase. Whether you are a novice or an experienced investor, these tips will help you make informed decisions and optimize your potential for high returns.

‍

HostGPO: 

There are so many factors to consider when looking for an investment property–location, budget, type of property, etc. Which of these factors do you start with when looking for a property?

‍

BNBCalc:

• I have purchased 10 properties and have helped many others as well. The thing I tell them is that in 2024 you want your property to stand out from others and have more and better amenities. I think too many people focus on a market itself versus looking at the type of properties within a specific market that are performing extremely well.
• So I’d say start with your budget and figure out the purchase price you can afford as well as how much you have for amenities / renovations.
• Find where the home prices that match your budget can afford you the type of property that can be a top performer in a market.
• Examples we’re seeing for high-performing properties are ones that can fit multiple families into one home with a bunch of games and activities. The amenities I really like are being the only movie theater in a market or pickle-ball court. You don’t need to break the bank with amenities – string lights, outdoor games, and wall mirrors go a long way too!
• So once you have figured out the type of property you want, where you want it, and what amenities you need – you can start identifying specific properties that match your criteria.

‍

HostGPO: 

Ok, so say I have $100k to invest, how do I figure out the purchase price I can afford if I also need to account for amenities and renovations? 

‍

BNBCalc: 

If you have $100,000 cash to invest then you need to first figure out what type of loan product you are going to use. A very common type of loan for vacation rentals / short-term rentals is a second home loan. This loan requires 10% down payment.

So if you bought a $400,000 home you would need roughly $40,000 as down payment and then another $10,000 or so for loan closing costs. You’d be left with $50,000 for renovations and furnishing. 

‍

The first thing you need to figure out is the financing options you have available. I recommend talking to a mortgage officer to learn what those can be. Many mortgage officers do not know that you can do a second home loan for a vacation rental – this is something you need to potentially educate them on. To my understanding, if you stay in the house 14 days a year it qualifies as a second home.

‍

HostGPO: 

Oh wow, I had no idea you could do a second home loan for a vacation rental. Do you always recommend allocating around 50% of your budget towards reno and furnishings? And do you take into account the time and costs associated with that time that it will take you to set up the property?

‍

BNBCalc: 

It is a little-known financing tip! I don’t have a specific break-down for renovation budgets relative to furnishing. I personally like houses that don’t need too much interior work but have a lot of potential on the outside. It is a lot less expensive to make the outside standout than the inside. So I’d rather mostly just furnish and paint the inside and then add stand-out out-side amenities. However, I did just add a movie theatre inside to my newest property.

‍

HostGPO: 

A movie theater sounds pretty epic! So you recommend houses that don’t need much interior work - are there other green flags you look for?

‍

BNBCalc: 

I look for the “inefficiencies” in the market. What does that mean? I want a house that could do well as a short-term rental but is not selling for some reason.

‍

I only look at houses that have been on the market for extended periods.

‍

Normally this means a bad floor-plan. I’ve constructed walls to re-frame homes (doesn’t cost as much as you’d think). I stay away from anything structural.

‍

For example, a recent purchase had a bedroom that you needed to enter from another bedroom. I made a new wall to extend the hallway so that was not the case anymore.

‍

I then focused attention on the outdoors that had a pool and a lot of space.

‍

HostGPO: 

Ahh that’s smart–great idea to change the flow of the bedrooms. What are the major red flags that you won’t touch?

‍

BNBCalc: 

I don’t want to do anything structural that will take time to permit. Time is money! 

‍

HostGPO: 

Speaking of money, how do you estimate what your return on the property will be?

‍

BNBCalc: 

Here is my exact process:

I go to BNBCalc (our airbnb calculator) and type in the address for the property. BNBCalc gives me an estimate range for how the property may perform based on comparable properties. I look at the comparable properties to dictate where my property should fall amongst them. BNBcalc leverages data from Airdna and Airbtics which are respected short-term rental data providers. 

‍

When serious about a specific property I’ll look at every data source possible as well as airbnb itself to get the best idea of a revenue range there can be. I’ll then consider ok, good, and great revenue outcomes.

‍

I then adjust the expense and financing information to make it as accurate as possible. Expenses are oftentimes not only market dependent but depend on very specific aspect of the house itself. For example base-board heating is generally less efficient than central heating and likely will cost more each month in the winter. I go through every expense variable and come up with the best estimates. 

‍

I then slide the revenue slider to match the ok, good, and great revenue outcomes and see how this affects my annual cash-flow. If the cash-flow hits my criteria I’ll go to the initial cash investment section and gauge how much cash it will take to get going. I like to use the square footage furniture estimator if the house is completely unfurnished. If you use HostGPO, you’ll save in that domain! If I need to renovate the property I’ll add that estimate in too to sum up total initial cash investment!

‍

So now I have a decent idea for my monthly cash-flows and how much cash it will take to do the deal. Now it is time to execute!

‍

HostGPO: 

I definitely agree that BnbCalc and HostGPO can be a powerful combo in finding properties and setting up and estimating costs. Lastly, are there any other important tools or tips that you use or think about to help you determine a good investment?

‍

BNBCalc: 

When I look at a house I think about the first five photos. I cannot understate their importance. How can you make these properties stand out in the first 5 photos? What are the things that will separate it from the pack.

‍

Even things as simple as a wood fence you can paint an awesome mural on as one of the first 5 photos can be huge in making your property stand out from the rest.

‍

So, in short, 1) Know your numbers – understand your expenses and revenue profile 2) Have the vision to transform the property into something special.

‍

Want to sign up for BnB Calc? Get 20% off your first 3 months by using code "HostGPO" when signing up.

‍