When purchasing an investment property or vacation home that you plan to rent out, knowing the potential for rental-income is crucial.
I’ve listed below several different ways you can research rental income. I recommend using multiple sources to determine a rough estimate of your projected rental income to help support the accuracy of the information.
Realtor Resources
Realtors can be helpful during your investment property search in several ways. One of those ways is using their knowledge of the market to help inform your decision making. They may have insight from a past client who rented a property for a certain amount. They may have clients who are looking to rent a certain type of property, and therefore have a sense of what types of properties are in demand. And, they also typically have access to a database of recently rented properties known as “comparables” commonly referred to as “comps”. This database would typically be geared more toward long-term rentals and seasonal rentals (depending on the area) but not as useful for researching short-term rental income. Reviewing “comps” gives you an idea of what the market rent is for certain types of properties. Ideally, you’d find the properties that are most similar to the property you have in mind and see the amount that they’re currently receiving in rent.
This, of course, is not the only benefit of working with a Realtor, but having as much insight to the rental market as possible is key to your cash flow success. Your screening questions when determining which Realtor you would like to work with should be geared toward understanding how their experience or expertise can help with your specific goals.
Advertised Rental History
Some listings will advertise rental history if the property has previously been rented out. This is more common in second home markets where many of the homes that are for sale are already used as vacation rentals. Seeing what someone else has made on the property is rental research gold. It doesn’t necessarily tell you what you’re going to make, but it is a super helpful place to start.
Your Network
If you love a place enough to buy a vacation home there, chances are you may know someone else who already has one! I had a friend who owned a vacation home before I bought mine and she was an awesome resource throughout the process. She was able to give me a better idea of what months we could expect high rental demand, share her process for managing the property, and give us an idea of the types of things renters are typically looking for. Finding someone who has already done it is perhaps the best resource in my opinion (if you have that option!) This is also why I share so much detail about my investment property journeys, to make your journey a more efficient one. 🙂
Homework
Get online and figure out how much properties currently on the market are charging for rent. You can do this for long-term and short-term rentals.
I used Zillow to get an idea of the rental income for long-term rentals. However, keep in mind that on Zillow you can typically only see the amount properties are being listed for, not necessarily the amount they’re actually receiving in rent. This is where looking at “comps” (mentioned above) would come in handy, because it tells you the actual amount of monthly rent.
For short-term rentals, I used VRBO and Airbnb to determine how much properties were charging for rent. It’s important to use different dates throughout the year since many vacation destinations have varying levels of demand in different seasons. It’s also important to find properties that are as similar as possible to the type of property you are looking to buy (same number of bedrooms and bathrooms, similar locations, similar amenities, etc.)
Another important note about getting a vacation rental up and running is that it takes time to gather a broad audience. When you’re new to a website like VRBO or Airbnb it’s common to offer “promotional pricing” to get some bookings under your belt and start collecting reviews. Usually, “promotional pricing” means that you’re listing your property for less than market rent. This is optional, and only temporary, but it’s important to keep in mind when you’re projecting your immediate cash flow. When you start to receive more reviews, more potential renters will consider your property, and you can increase your rent to match market pricing.
Once you’ve figured out how much income you’re planning to make on a property, you can pretty easily define a budget for your home search. Make sure you’re working with a trusted mortgage advisor who can help you run the numbers and get you on the path to owning a profitable rental property.
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