With the economy heading south and uncertainty dominating the news, many are seeking alternative investment opportunities. Buying a vacation rental is one option to consider. While it may not seem like real estate would be a good investment at the moment, self contained accommodation options for vacationers can actually produce solid returns, even in a down market.



As with any investment, there are pros and cons to buying a vacation rental property. To get an idea if this is an investment strategy that might be suited to your needs it's a good idea to look over the ups and downs of this investment strategy and how they will impact you. With the Internet making it easier than ever for owners to reach potential holiday makers the self contained accommodation market is booming.

The first stage of due diligence is evaluating the risks. When buying a vacation rental property, you will want to carefully consider the upfront and ongoing costs, estimated returns, and requisite time commitments. Typically, non-owner occupied housing does not qualify for the best lending terms, so you must either pay cash upfront or arrange for non-traditional financing to purchase your property. This is especially true for international property purchases. HSBC and Deutsche Bank offer multinational mortgages to Americans, but they require a minimum of 20% down and only operate in select countries.

Additionally, while many self contained accommodation properties pay for themselves, prospective buyers tend to overestimate the returns while simultaneously underestimating the necessary time commitment. While some beach properties do return 15% or more annually, the vast majority of vacation rental locations average 4 - 5% returns. Unless a rental management agency is hired, owners should expect to spend at least 10 hours a month corresponding with potential clients, paying bills, arranging for repairs, and cleaning the unit.

With these risks in mind, the second stage of due diligence is evaluating the reward potential of your investment. Some of the big benefits of investing in a vacation rental are the generous tax breaks, chance of future growth in cashflow from rentals and the value of the property plus bonuses such as access to the property during weeks you don't let out. These benefits can more than balance out the risks of owning a vacation rental property.

The self contained accommodation market continues to boom as vacationers seek more unique experiences. Families are especially interested in alternatives to bland hotel offerings. Your vacation rental can provide them that alternative while simultaneously offering you a chance to write off interest on the mortgage and benefit from property appreciation in more than one location. Typcially a vacation property will be much more stable in value than stock market investments that have seen dramatic falls in the past year or so. By carefully considering the pros and cons, you will be able to judge whether or not this is a workable solution for you. Many people who have made the bold move find it to be a rewarding investment, especially if they have done their research upfront and know what to expect. If it's done right then a vacation rental property can be a solid investment and can help diversify your investment portfolio.