Why Vacation Homes Are a Surprisingly Good Investment During A Bear Market

Waterfront house balcony at sunset.
courtneyk / Getty Images

For many, a bear market means a drop in investments and retirement funds. But there are some ways to make money during this time of flux, including investing in real estate — in particular, a vacation home.

Though the Fed raised interest rates 75 basis points in June as a measure to help combat inflation, surprisingly, the housing market remains at an all-time high for buyers who are driving demand. And not just for primary residences — vacation homes are on the rise too. In the era of the Airbnb explosion, many have used their savings to buy properties and turn them around into rentals that provide a stream of passive income.

In fact, according toEntrepreneur, 72.5% of rental properties in the U.S. are owned by individual investors.

Vancouver mortgage expert, Alan Harder, added some context, telling Entrepreneur that “the key here is to make sure you choose a vacation rental property that has an established market and demand for rentals in order for it to be profitable for both you and any potential tenants – that way, no one loses out.”

According to a report from Realtor.com, at the end of 2021, the average annual take-home pay from vacation rentals was $56,000 — the highest it’s ever been. The report also noted that there is a surplus of listings for vacation rentals beyond 1.2 million.

Even better, according to Roofstock, if you own a vacation rental, you can get the same tax benefits that real estate investors take advantage of through deductions and write-offs as long as you’ve rented the property out for 14 or more days.

Investing for Everyone

Buying vacation rental property has become such a phenomenon that there’s a Netflix reality series, “The World’s Most Amazing Vacation Rentals,” which explores the best spots around the globe for private accommodations. And now there’s even a new app called Here that’s “democratizing the process” so average Americans can take part in investing in vacation properties just as much as those with disposable income. 

Here lets people can take out shares on individual properties for a cool $100, and once all shares are spoken for, the listing is then placed on portals like Airbnb where they are rented out. According to the app’s about page, shareholders then receive quarterly distributions of pro-rata net rental income (rents minus fees, expenses, and additional reserve allocations). Here handles all of the operational responsibilities.

Before you invest, there are some guidelines that will help to determine where the hottest markets are. Beyond keeping an eye on demand and seasonality trends, it comes down to location, location, location. There are some failproof ideas — invest in urban spots for business travelers and tourist locations if you’re going after the leisure market, of course.

For even finer details, Vacasa has released its fifth annual “Top 25 Places To Buy A Vacation Home” report. The vacation rental management platform bases its results on overall ROI, taking into account median home sales figures and yearly gross rental revenue. And when it comes to their top picks, waterfront properties reign supreme. Vacasa notes that interest in beachy short-term rentals rose 10% since 2021.

Investing for Everyone

Lake Anna, Virginia topped Vacasa’s list, with a 17-mile-long lake and beaches that are a draw for visitors, topping $80,000 in annual rental revenue. Port Aransas, Texas is number two with an ideal location near the Gulf of Mexico and median sales for homes under $300,000. Three Florida cities also ranked in the top six, including Palm Coast, Okaloosa Island and Fort Lauderdale. The only major city placing in the top 10 was Phoenix where 300 days of sunshine and a “thriving tech scene” have boosted its desirability.

Once you settle on a property, there are also some key tips for banking on your investment, as GOBankingRates previously reported. Among them: Making all necessary repairs, spending on visible improvements like the latest appliances and a new paint job, offering self-check-in for renters and providing extras for guests like a bottle of wine or gift cards to local attractions.

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