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The Ultimate Guide to Buying Vacation Rental Property


As we saw in the previous example, rental income is based on what percent of the month you can keep your property rented (occupancy rate) and what the daily rate is. The seller is incented to tell you that the occupancy rate is 100%, and the daily rate is high.

Since you weren’t born yesterday, you’ll want to sanity check the projections they give you. One way to do that is to visit short-term rental site like Airbnb.com, Vrbo.com, AirDNA.com (owned by Airbnb) and data.rabbu.com (an aggregator of vacation rental data from all providers).

Type in the address or zip code of the property you’re considering and see what properties similar to yours are renting for, and what their occupancy rates are. Are the projections realistic?

Given the time it takes to do laundry and clean the rental between guests, I’d look closely at any projected occupancy rate above 80% (24 days out of 30). And how do the daily rates change? Are weekend rates higher than those during the week? Understand your market.

Another option is to buy a property that has already been a short-term rental and therefore has a track record of actual rent history. Looking at historical rents will eliminate a lot of the guesswork for that location and property.

Either way, if you think the projections are too optimistic, plug in more realistic assumptions and see if the investment still makes sense.

Do a sensitivity analysis. How low can daily rates go and still yield positive cash flow? How low can your occupancy rates go and still yield positive cash flow?

By sanity-checking the projections and doing a sensitivity analysis, you can invest with confidence. Any surprises you get will likely be to the upside.



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