Unlocking Opportunities: A Guide to Investing in Vacation Homes

Dec 27, 2023Buying Basics, Buying Up, Changing Homes, First-Time Home Buyers, Homeowner Tips, Market Trends, Real Estate Tips, Watching the Market

In recent years, there has been a notable increase in the popularity of vacation rental investment properties. The surge in demand for vacation homes and local getaways, driven partly by prior travel restrictions during the pandemic, created an opportune moment for individuals to explore the prospect of owning multiple homes.

With the widespread adoption of remote work, many are considering this as a lucrative investment, especially given the heightened demand for vacation rentals witnessed during the pandemic and thereafter. While luxury vacation rentals are front and center, proximity to nearby towns and cities is also an appealing factor when considering the investment. Compared to the effort of hopping in a plane, a road trip to a vacation home is not only enticing, but also threaded into the fabric of American culture.

The Trend of Second Homes in Vacation Towns

Back in 2021, demand for second homes consistently grew at a rate of 80% or higher, surpassing the growth rate for primary residences and marking the beginning of this trend. Redfin reported a significant 19% year-over-year increase in home prices in seasonal towns, characterized by over 30% of homes being designated for seasonal or recreational use. Families, redirecting savings from routine international vacations, increasingly opted for long-term and COVID-friendly alternatives, such as a second home.

Navigating the Market Dynamics

Before basking in the serenity of your newly acquired family vacation home, some groundwork is essential. Even seasoned homebuyers and real estate investors must factor in the variations in buying processes across different cities or states. Relying on the expertise of local professionals such as real estate agents, title agents, and home inspectors becomes paramount. Here are some tips to guide you in selecting the right professionals and ensuring a successful purchase of your second home.

Research Market Profitability and Popularity

Whether your motivation is pleasure, investment, or a combination of both, researching and understanding the market dynamics of your chosen vacation spot is crucial. 

Before engaging with a real estate agent, consider factors such as:

  • The preferred location
  • Regulations on short-term and long-term rentals
  • Available listings
  • Budget considerations
  • Rental potential

As popularity rises in vacation rentals, more data is available to project your potential returns on a property and the history of other properties in the area. Trends in which towns are popular 

Picking the Right Location

Contrary to assumptions, rural areas were witnessing faster growth in vacation rental bookings during the pandemic compared to urban markets, as per data from AirDNA. Vacation wish lists often include havens outside big cities, proximity within a four-hour drive, and move-in ready homes suitable for extended stays. Part of the complexity in determining where to buy is knowing where demand has soured, where opportunities still exist, and where the future of travel is headed in the short-term rental space.

According to Evolve Vacation Rental, these are the best places to buy a vacation home in 2023:

  • Finger Lakes, New York
  • Holland, Michigan
  • Hocking Hills, Ohio
  • Palo Pinto, Texas
  • Wisconsin Dells, Wisconsin
  • Savannah, Georgia
  • Michigan City, Indiana
  • Vernon Township, New Jersey
  • Dover, Vermont
  • Sevierville, Tennessee
  • Waldport, Oregon
  • Fairbanks, Alaska

Setting a Budget for a Vacation Home

Competition between locals and out-of-towners can affect sale prices in highly desirable areas. Consider not just the listing price but also ongoing expenses like maintenance, property taxes, insurance, and utility bills. Renting out the property when not in use can help offset costs. Researching similar homes in the area on vacation rental sites like VRBO, HomeAway, and Airbnb can provide insights into potential income.

Finding Local Real Estate Agents and Title Professionals

Engage local professionals who understand regional nuances. A local real estate agent can help understand the varied demand through the seasons, and other important market considerations. Start with your network for agent recommendations or conduct online searches. 

A pre-approval letter can demonstrate your seriousness as a buyer and attract high-caliber professionals. Interview multiple agents to find a good match in terms of communication, availability, and understanding of your budget and needs.

The Critical Role of Title Agents and Municipal Lien Search

Title insurance is a critical aspect of closing costs, covering property searches for taxes, liens, and encumbrances. Municipal lien searches reveal unrecorded debts that could lead to a lien against the property. Not every state follows the same procedures, making it essential to work with a title agent familiar with local regulations. Specific examples, such as Florida, allowing liens for overdue utility bills or code violations, emphasize the importance of a comprehensive search.

Beware of HOAs

Homeowners’ associations (HOAs) can impose restrictions on property use. Alongside the title search and municipal lien search, an estoppel report or HOA resale package provides information on whether the property can be rented short-term.

Don’t Skip the Home Inspection

A home inspection is crucial for understanding a home’s structure and long-term maintenance needs. While some regretful buyers have skipped inspections to avoid being outbid, the potential for discovering significant issues later outweighs the perceived benefits. Local inspectors understand the unique environmental factors, construction standards, and potential issues specific to the state, making their insights valuable.

Invest Wisely

Ownership of more than one home requires meticulous research, collaboration with local professionals, and thorough due diligence. As the upcoming vacation season approaches, now is the ideal time to explore investment possibilities and initiate the necessary research to make informed decisions. By unlocking the opportunities in the vacation home market, you not only secure a tranquil retreat for your family but also open doors to potential financial gains in the thriving world of vacation rentals.


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