Thinking outside the box can help real estate investors make the most profitable use of their available capital. The National Association of Realtors (NAR) recently released its Investment and Vacation Home Buyers Survey for 2015, which revealed some surprising information about the current residential real estate market and the opportunities available for investors. While primary residence purchases continue to dominate the market and comprise 60 percent of all sales, vacation home sales are on the rise. In 2013, vacation homes accounted for 13 percent of sales in the national real estate marketplace; by 2014, that figure rose to 21 percent. Understanding the factors that influence buyers of second homes can ensure that investors achieve their fair share of profits in this niche market.
Dynamics of Vacation Home Buying
According to the NAR survey, vacation homebuyers had five primary reasons for purchasing these properties:
- Roughly one third were actively looking for a property to use as a vacation retreat.
- An estimated 19 percent purchased with the intent to use the vacation home as their primary residence at some point in the future.
- Projected appreciation played a role in the decision to purchase for 13 percent of buyers.
- Another 13 percent indicated that they had bought a vacation home because they had located a bargain in the local marketplace.
- 11% purchased a vacation home to generate income through renting out the property
The latter three reasons bear a striking similarity to the objectives of those looking to optimize their revenues in the real estate marketplace. By taking a more inclusive approach to the types of properties considered, investors can often expand their portfolios while achieving higher returns on their financial investments.
Resale a Better Bet than Renting
While investing in a vacation home as a rental property may seem an attractive option for real estate investors, the greatest profits may be available for those willing to earn a bit of sweat equity and to resell these properties in the current marketplace. Financial experts from CNBC, U.S. News & World Report and other reputable sites are touting the financial and tax advantages of purchasing a second home. By entering this sector of the real estate market now, investors can take advantage of this buzz to ensure the greatest possible returns on their financial investment.
Rental Profits Possible for Cautious Investors
Depending on the location and the initial and ongoing costs of the investment, vacation homes can also provide ongoing rental revenues for savvy buyers. TripAdvisor notes that the Southeast region of the U.S. is the most popular area for vacation rentals, attracting 39 percent of all business in this real estate sector. By choosing a location carefully and looking for bargains in high-demand areas, investors may be able to achieve high occupancy rates and competitive revenues in current market conditions.
As demand for vacation rentals increases from sites like Airbnb, HomeAway (just purchased by Expedia for $3.9 billion) and Rent Like a Champion more investors will become hosts and purchase vacation homes to generate income.
By expanding their portfolios to include select vacation properties, real estate investors can potentially enjoy added revenue streams and increased diversification. This can result in greater long-term returns on investment and improved performance in the next few years.