fFor many, a bear market means a drop in investment and pension funds. But there are some ways to make money in this changing time, including investing in real estate — particularly a vacation home.
See: Fed hikes rates 75 basis points amid bear market and record high inflation
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Despite the Fed raising interest rates by 75 basis points in June to fight inflation, the housing market surprisingly remains at an all-time high for buyers who are fueling demand. And not only for the main residence – holiday apartments are also on the rise. In the era of the Airbnb explosion, many have used their savings to buy properties and convert them into rentals that provide a stream of passive income.
Indeed acc Entrepreneurs, 72.5% of rental properties in the US are owned by individual investors.
Adding some context, Vancouver mortgage expert Alan Harder told Entrepreneur that “the key here is to make sure you choose a vacation property that has an established market and demand for rentals so that it suits both you and is also profitable for every potential tenant – so nobody gets lost.”
According to a Realtor.com report, the median annual net rental income at the end of 2021 was $56,000 — the highest ever. The report also found that there is a surplus of holiday rental listings of over 1.2 million.
Even better, if you own a vacation rental, Roofstock says you can get the same tax benefits real estate investors get through deductions and depreciation, as long as you’ve rented the property for 14 days or more.
Buying vacation homes has become such a phenomenon that there is a Netflix reality series called The World’s Most Amazing Vacation Rentals, which explores the best spots around the world for homestay rentals. And now there’s even a new app called Here that “democratizes the process” so that average Americans can invest in vacation real estate as much as people with disposable incomes.
Here, people can buy shares in individual properties for a cool $100, and once all shares are settled, the listing is then placed on sites like Airbnb, where they are rented out. According to the about page of the app, the shareholders then receive quarterly distributions of the proportionate net rental income (rents less fees, expenses and additional payments). All operative tasks are carried out here.
Before investing, there are a few guidelines to help you determine where the hottest markets are. Aside from keeping an eye on demand and seasonal trends, location, location, location matters. There are some fail-safe ideas – of course, if you’re following the leisure market, invest in urban locations for business travelers and tourist locations.
For even finer detail, Vacasa has released its fifth annual report, Top 25 Places to Buy A Vacation Home. The vacation rental management platform bases its results on overall ROI, taking into account average home sales and annual gross rental income. And when it comes to their top picks, waterfront real estate ranks first. Vacasa notes that interest in short-term beach rentals has increased by 10% since 2021.
Lake Anna, Virginia topped Vacasa’s list, with a 17-mile lake and beaches that draw visitors and over $80,000 in annual rental income. Port Aransas, Texas is number two with an ideal location near the Gulf of Mexico and average home sales under $300,000. Three Florida cities also ranked in the top six, including Palm Coast, Okaloosa Island and Fort Lauderdale. The only major city to place in the top 10 was Phoenix, where 300 days of sunshine and a “thriving tech scene” boosted its appeal.
See: Why buying property in these holiday destinations could be a great investment
Find out: 7 cheap island vacations for this summer
Once you’ve decided on a property, there are also some important tips for banking your investment, as previously reported by GOBankingRates. These include: making any necessary repairs, spending on visual improvements like the latest appliances and a new coat of paint, self-check-in for renters, and extras for guests like a bottle of wine or gift cards to local attractions.
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This article originally appeared on GOBankingRates.com: Why vacation homes are a surprisingly good investment during a bear market
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