Vacation Rentals

vacation

How Do Timeshares Work?

Reading Time: 4 minutes

Timeshares are a common form of vacation rental found in sought-after spots like ski resorts or near Disney. According to the American Resort Development Association (ARDA), the timeshare industry is valued at $8.1 billion, with 9.9 million American households owning some form of timeshare. But what exactly are timeshares, how do they work, and how do they compare to owning a traditional vacation home? This guide offers an overview to help you decide if timeshares are right for you. Key points to remember:

  • Timeshares represent fractional vacation ownership where multiple buyers own usage rights for a single property.
  • Three types of timeshares exist: fixed week, floating week, and points-based.
  • Before buying a timeshare, calculate the total cost per vacation night.
  • Timeshares don’t offer the same return on investment as owning a vacation home.

According to Investopedia, a timeshare is a “shared ownership model of vacation real estate where multiple buyers own usage rights, typically in one-week increments, in the same property.” This fractional ownership model applies to various types of vacation rentals, including resorts, homes, condos, apartments, and even campgrounds, RVs, and private jets.

Timeshares originated in the 1970s as a solution for surplus condominiums. Timeshare ownership grants each buyer the right to use the shared vacation property for a certain duration each year. The three types of timeshares are:

  • Fixed Week: This model guarantees buyers the right to use a specific property at the same time each year.
  • Floating Week: These timeshares offer more flexibility, allowing buyers to use the timeshare at any point during the year.
  • Points-Based: This is the most common timeshare model today, used by resort chains like Hilton, Marriott, and Wyndham. The points system is based on factors like location, property size, and availability, providing buyers with more vacation choices.

Timeshare ownership can be structured in two ways: deeded or leased.

  • Deeded Timeshare: This is a fractional ownership model where each buyer owns a fraction of the property. Buyers purchase rights to a specific place or unit for a designated number of weeks each year.
  • Leased Ownership Timeshare: This is not a fractional ownership model. Instead, a single owner possesses the vacation property and leases or rents it out to timeshare buyers, who essentially rent the vacation home for a predetermined period each year.

Before purchasing a timeshare, it’s vital to calculate the long-term expense. Take into consideration all the costs associated with the timeshare and divide it by the number of nights you’re securing to get the genuine cost per night.

For instance:

Upfront cost: $20,000

Annual fees*: $1,200

Closing costs: $700

Annual vacation days: 10

Number of years*: 35

Total cost of timeshare purchase:

$20,000 + $42,000 ($1,200 annual fee x 35) + $700 = $62,700

Total vacation nights: 10 x 35 = 350

Total cost per vacation night: $62,700 / 350 = $179.14

Compare this cost per vacation night to your regular hotel room budget to determine if it is affordable. If it’s equal to or less than your usual budget, a timeshare could be a worthwhile consideration.

*Annual fees: Every timeshare comes with annual maintenance fees or dues, apart from the purchase price. These dues generally cover maintenance, HOA fees, property tax, insurance, and day-to-day property management. ARDA reports that the average annual fee for timeshares in 2018 was $1,200.

*Number of years: Leased timeshares provide buyers with the right to use the property for a specific week for a certain number of years, typically ranging from 25 to 85 years. However, 35 years is the most common term.

Comparing Timeshares and Vacation Rentals

Choosing between timeshares and vacation rentals can be challenging when planning a vacation. Let’s explore the pros and cons of each option to help you make an informed choice.

Timeshares are affordable vacation options that offer spacious units and many amenities, making them perfect for group travel. Property maintenance is taken care of by the management company. However, it’s important to note that timeshares are not considered an investment since they do not appreciate in value or generate rental income.

Vacation rentals provide a different experience. Owning a vacation rental property allows you to generate passive income while enjoying personal use whenever you want. Vacation rentals can appreciate in value, especially in high-demand areas, providing a great return on investment. However, financing a vacation home purchase can be expensive, and you’ll be responsible for all property management and maintenance costs.

Timeshare ownership has downsides. Many buyers regret their purchase, and the resale market is often limited, with prices significantly lower than the initial purchase price. Additionally, timeshare owners are tied to a specific week or time period each year, which can be restrictive.

In contrast, vacation rentals offer more flexibility and control over your vacation plans. However, renting out your vacation property for more than two weeks a year may result in higher tax obligations.

In conclusion, if you’re looking for an affordable and hassle-free vacation option, a timeshare might be suitable for you. However, if you’re interested in real estate investment and want more flexibility and potential for income, a vacation rental could be the better choice. Ultimately, it depends on your personal preferences and financial goals.

Looking to add vacation rental properties to your portfolio? 

We are a crowdfunding platform that makes it easy to fractionally invest in vacation rentals, earn rental income, and build equity over time. Start your real estate investment journey today by exploring our wide range of properties. 

Please note that the information provided in this article is for general knowledge purposes only and does not constitute individual or specific security or investment advice. These perspectives may change without prior notice. Please review Foothold’s disclaimers for more information.

How to Finance a Vacation Rental Property

Reading Time: 5 minutes

Investing in a holiday let property can be an exciting venture for financiers, investors, and business-minded individuals. The potential for significant profit depends on factors like strategic borrowing. It’s crucial to understand all borrowing options before buying a holiday let property. Doing thorough research before committing can help you make a promising investment!

Now, let’s explore the steps that real estate investors take when purchasing a holiday let property.

Pre-purchase Considerations:

  • Risk Perception: Your personal risk attitude as an investor is important. Some investors are comfortable with higher risks for higher rewards, while others prefer a cautious approach. When financing a holiday let, knowing your risk tolerance is essential.
  • Determine your upfront and monthly affordability. This will give you an idea of financiers who are willing to work with you and the type of temporary investment property that aligns with your objectives.
  • Avoid using your life savings for this business endeavor, as there is always a risk of loss. Remember, you’ll need additional funds for property marketing, furnishings, or holiday let software.

Understanding Your Market:

  • Gain a thorough understanding of the market you’re investing in. Familiarize yourself with local regulations, market trends, and other factors that affect potential investments.
  • Consider economic conditions in the local market, such as house prices, mortgage interest rates, inflation, buyer demand, and appreciation.
  • Recognize that lenders also want to mitigate their risk, so investing in a stable area with a proven history increases your chances of securing a loan.

Setting Investment Goals:

  • Your rental income objectives play a crucial role in determining the type of short-term rental property that suits you. Some individuals buy holiday homes for personal use and rent them out for the rest of the year.
  • When aiming for income generation, the purchase needs to be tailored to the holiday let market. Estimate the income potential for short-term rentals like Airbnb or VRBO compared to long-term rentals before making a purchase. Ensure that your monthly mortgage payments are lower than the typical monthly income for similar properties.

When choosing a vacation rental, it’s important to understand the rental market and consider key factors specific to operating a holiday let business. Here are some important metrics to consider when evaluating potential short-term rental investments:

  1. Airbnb Rental Income: Will the rental income cover all expenses, including mortgage payments? Is the monthly income sufficient?
  2. Occupancy: What is the average occupancy rate over a specific period? Remember to account for seasonality. A higher Airbnb occupancy rate means more rental income and lower risk.
  3. Capitalization Rate: This measures the potential return on investment compared to the property’s initial cost. A higher cap rate generally indicates higher rental returns and lower risk.

Lenders also consider certain metrics when evaluating financing eligibility:

  1. Debt-to-Income Ratio (DTI): This ratio compares debt payments to income. A lower DTI suggests that rental and personal income can cover expenses, reducing the risk of loan default.
  2. Debt Service Coverage Ratio (DSCR): This measures the rental income remaining after all expenses have been paid. A higher DSCR means more rental income for the investor and less risk.
  3. FICO Score: Credit score plays a significant role in property financing. Holiday let financing typically requires a higher minimum score. A higher score increases the likelihood of approval and better terms.

Mastering these key metrics and conducting thorough research before investing in a holiday let property can significantly improve your chances of success.

Understanding Financial Lenders for Vacation Rental Financing: Financing a holiday retreat differs from financing a primary home. Lenders often charge higher mortgage rates for rental properties, considering it a business venture. During financial crises, borrowers are more likely to give up an investment property over their residential homes. In the United States, Fannie Mae and Freddie Mac set standards for lenders. These government-backed entities transform mortgages into Mortgage-Backed Securities (MBS) to boost the secondary mortgage market. Established by the US Congress in the 1990s, they are now supervised by the Federal Housing Finance Agency (FHFA). Remember that lenders aim to minimize risks. Demonstrate your reliability and credibility as a buyer by providing a strong package. A 20% down payment reduces risks for both lender and borrower. Financing for vacation rentals is usually costlier than obtaining a mortgage for a primary residence. Paying a larger sum upfront increases chances of approval with lower interest rates.

Options for Vacation Rental Loans:

  1. Conventional Mortgage: Consider conventional lenders for a second home loan. They typically require up to a 20% down payment and may ask for proof of income or a good credit history. Conventional lenders offer lower interest rates and long-term financing for investments, ensuring you can afford to maintain two homes.
  2. Asset-based Loans: Also called commercial loans, these use the investment property as collateral. Instead of assessing the borrower’s debt-to-income ratio (DTI), these loans evaluate the property’s actual or potential income through the Debt Service Coverage Ratio. For multi-unit properties, an asset-based loan may be suitable. These loans have a quicker closing process, requiring less documentation, but usually come with higher interest rates and shorter payment terms.
  3. Hard Money Loan: Typically offered by individuals or firms for real estate transactions requiring a quick close. These loans have significantly higher interest rates and use the property as collateral. Keep in mind that they often have short repayment terms and may require a larger down payment.
  4. Cash-out Refinance: This creative financing option allows investors to borrow against their existing property equity and use it as a down payment for a new vacation rental property. Another option is a Home Equity Line of Credit (HELOC), where the lender agrees to lend a maximum amount over an agreed period.
  5. Private Lenders: These lenders can be people you personally know and trust, willing to invest in the property with you. While their interest rates may be higher than traditional lenders, they provide quick access to capital.
  6. 401K Loans: You can borrow up to 50% (or $50,000) of your retirement savings without paying taxes or penalties. However, consider the long-term effects of borrowing from your retirement savings.

Final Thoughts: Conduct thorough research and explore all possibilities. Compare loan options and understand their implications. Keep your finances ready to act quickly if you find a good investment deal. Regardless of the financing method, assess your risk tolerance, and consider rental income when calculating returns. Adopt the mindset of a real estate investor to increase your chances of success in the vacation rental business.

Discover an easier way to invest in vacation rentals with Foothold.

Designed for those who want a hassle-free approach to investment, Foothold lets you explore various vacation rentals and make investments starting from just $200 within minutes. 

Please be aware that the information provided here is for general informational purposes only and does not constitute specific advice or recommendations for any individual, security, or investment product. These perspectives are subject to change without prior notice. For more information, please refer to Foothold’s disclaimers.

Fractional Ownership in Real Estate: Is it Worth it?

Reading Time: 3 minutes

Real estate is a popular choice for wealth building, especially with current inflation rates and unpredictable stock market trends. However, a Pew Research Center study suggests that owning homes is increasingly challenging for current generations compared to their predecessors, mainly due to property price growth outpacing income growth in the past decade.

To address this, new investment models like fractional property ownership and real estate crowdfunding have emerged. Fractional ownership allows individuals to own a portion of a property instead of the entire asset. The property is divided into shares and sold to different individuals, sharing costs, potential profits, and responsibilities among stakeholders.

Fractional ownership serves both investment and vacation purposes. For investors, it offers a way to acquire rental properties in high-growth markets through platforms like Foothold Homes, even allowing non-accredited investors to participate. It’s important to note that fractional ownership differs from investing in publicly-traded REITs, although it may offer similar tax benefits in some cases.

For vacations, fractional ownership provides an affordable way to own a luxurious holiday property. Co-owners can enjoy the property for a certain number of weeks each year, share it with family and friends, or exchange time with properties in other locations.

Fractional ownership should not be confused with timeshares. With fractional ownership, you acquire a deeded share of the property, which allows for resale and other ownership rights. Timeshares only involve purchasing usage time without any ownership rights.

In conclusion, fractional ownership offers an alternative investment and vacation option, allowing individuals to benefit from real estate without buying an entire property.

Is Fractional Real Estate a Good Investment?

Fractional real estate ownership adds a unique twist to property investment. With a low entry point and professional management, investors can diversify their portfolio. Let’s explore scenarios where fractional ownership can be strategic.

Equity is key

Unlike timeshares, fractional ownership gives you equity. This means you’re making a legitimate real estate investment that generates rental income and profits from property appreciation. A management platform creates an LLC or LLP to own the property. Your ownership percentage determines your share of the rent and potential profit when you sell.

Affordable second home

Owning a second home or vacation rental is expensive. Fractional ownership offers investment growth potential and shared usage rights. You can enjoy the property without the full expense of owning it.

Extended stays at your vacation property

Fractional ownership allows for longer stays multiple times a year, unlike timeshares that usually only offer one or two weeks of usage.

Real estate investment without heavy capital

Fractional ownership is a great strategy for those who want to benefit from real estate without a large capital investment. Platforms like Foothold offer fractional investments starting as low as $200.

More control over your property

Fractional ownership usually eliminates the need for owners to handle maintenance and upkeep. A management team takes care of these tasks, but fractional property owners still have a say in property management.

Investing in rental properties is simpler than ever.

When comparing timeshares to fractional real estate investing, it’s important to understand the significant differences between these two ownership models. If your goal is to expand your portfolio, establish a passive income stream, and accumulate equity in real estate investments, then fractional ownership is the way to go. While residential real estate has been a prime investment in recent history, many people are hindered by complex operations and high initial costs. At Foothold, we are dedicated to helping everyone build wealth through modern real estate investment that caters to their needs. With us, fractionally investing in vacation rentals, earning rental income, and growing equity through value appreciation is a breeze as we handle all the other aspects. Start your real estate investment journey today by exploring the available properties.

How to Buy an Airbnb Rental Property

Reading Time: 3 minutes

According to Airbnb’s data, they have a global network of over 4 million hosts. With more than 150 million users and over 1 billion bookings, Airbnb properties are available in 100,000 cities worldwide. In North America, the average cost of an Airbnb stay is $163 per night. Given these statistics, it’s appealing to consider running an Airbnb business. This article will guide you in assessing if Airbnb is the right investment for you and how to choose a profitable rental property for long-term profitability.

Renting out a property on Airbnb is simple: list it as a short-term vacation rental, accommodating different guests throughout the year. In addition to Airbnb, you can also list the property on other vacation rental platforms like Vrbo, HomeToGo, Homestay.com, and FlipKey.

Investing in a vacation rental property like Airbnb is appealing due to its popularity. The high demand for vacation homes and potentially higher rental rates in popular travel destinations make listing a property on Airbnb an attractive strategy for real estate investors. Initially, most Airbnb hosts start by renting out a room or considering the vacation rental income as supplementary. However, with the right property in desirable locations, hosts can expand their portfolio and increase their income.

It’s important to note that Airbnb bookings declined during the early days of the 2020 pandemic but have since rebounded as travel resumed, with a trend towards rural holidays away from crowded places. This pattern has continued, with both rural and urban areas witnessing high bookings.

When comparing Airbnb rentals to traditional properties, the key difference lies in the rental duration. Airbnb has the potential for higher profits due to higher daily rates in certain markets, but conventional rental properties offer stability and consistent cash flow. The decision to lease your property as an Airbnb rental or a conventional long-term lease depends on factors such as the target market, your level of involvement, and your financial goals.

Airbnb rental properties have their own set of advantages and disadvantages. Benefits include potentially higher cash flow, lower maintenance costs, flexibility, and the ability to rent out a portion of your residence. However, Airbnb rental properties can also have high upfront costs, be time-consuming to manage, and come with a higher risk due to the number of guests.

The profitability of an Airbnb property investment relies on factors beyond the property’s physical condition. Key aspects include location, visitor volume, and local market data. Below, we explore acquiring an Airbnb rental property.

Setting a budget and property type

Begin by establishing a feasible budget that considers borrowing potential, interest rates, inspection and closing fees, repairs, renovations, and management expenses.

Choosing a location

The critical decision is selecting your Airbnb property’s location. Top vacation rental spots include Nashville, Tennessee, Hawaii, and South Carolina. Be aware of cities like New York and San Francisco, where laws restrict or ban Airbnb rentals. Research homeowner association rules too.

Market Analysis

Understanding the vacation rental real estate market is crucial. Determine the right property type based on city or resort areas and the type of guests you aim to host. Utilize market analysis or a real estate agent to assess your property’s potential return on investment.

Property Listing

Set a competitive rate by analyzing comparable properties and adjusting rates seasonally. Consider day of the week, time of year, and market demand and supply.

In Summary

Investing in Airbnb properties can provide income and an appreciating asset. If you’re not ready to purchase, Foothold offers an opportunity to fractionally invest in vacation rentals starting at just $200. Begin your property investment journey today! View available properties here.

Why Should You Invest in Vacation Rentals?

Reading Time: 3 minutes

In the realm of real estate investments, people often consider long-term rentals as secondary assets. But owning a secondary property in a favorite city for occasional visits, while also earning short-term rental income when it’s unoccupied, shouldn’t be overlooked. This can even apply to a promising investment in a holiday resort you’re considering for retirement but not ready to settle down in yet.

Vacation rentals offer a unique opportunity for income generation alongside personal use, which has become increasingly popular since the launch of Airbnb in 2008 and the rebranding of Vrbo in 2019. Travelers who prefer a more personalized and exclusive stay over conventional hotels have embraced this concept. In fact, 19% of first-time users booked vacation rentals from March 2020 to April 2021.

So, what exactly are vacation rentals? They are furnished apartments, houses, or professionally-managed resorts rented out as alternatives to hotels, often to tourists. These short-term rental properties offer basic amenities for stays typically up to 30 days.

In recent years, short-term vacation rentals have gained popularity. According to the Vacation Rental Search Report by Vacasa, traffic and searches for vacation rentals more than doubled year on year. As of Spring 2021, searches were up 235%, and user numbers increased by 116%. For investors, vacation rental income can be a significant source of earnings. Data from Vrbo/Homeaway shows that vacation rental income makes up 24% of an average owner’s annual earnings.

Investing in vacation rentals can be highly rewarding, especially in sought-after locations that attract attention on social media. In October 2020, Airbnb hosts globally earned over $100 billion in rental income. However, it’s important to note that the vacation rental market operates differently from long-term rental housing and requires more maintenance and care.

Here are some factors to consider when deciding to invest in a vacation rental:

Positive aspects include rental income, dual-use property, tax benefits, property appreciation, and resilience during recessions. Platforms like Airbnb, VRBO, and HomeAway have reshaped how people travel, and travelers are increasingly willing to pay more for unique and immersive vacation properties. Owning a home in the right spot can be highly rewarding, particularly during peak seasons. Additionally, a vacation rental can function as both an investment and a personal holiday retreat. There are substantial potential tax deductions and benefits for owning a primarily investment-focused vacation rental. Furthermore, as the real estate market appreciates over time, so does the value of the property, resulting in a high return on investment if sold, in addition to the monthly income it yields.

On the downside, expect vacancies and inconsistent income. There will be times when the property stays vacant, especially during the off-peak season. While high income on occupied days often offsets the vacant ones, prolonged vacancies can affect cash flow. Also, expenses can be high, including frequent cleaning, restocking, property management fees, maintenance, utilities, and supply costs. Lastly, managing a short-term vacation property requires more time and effort than a long-term rental, with daily tasks including overseeing maintenance, preparing the property, booking management, and guest communication.

When investing in vacation rental properties, choosing the right location is crucial. Consider booming markets with promising returns like the Appalachian Mountains, northern California, lakes in Minnesota, and upstate New York. Top-ranking cities for investors include Maui (Hawaii), Kenai Peninsula (Arkansas), Chattanooga (Tennessee), and cities in Mississippi, Louisiana, Florida, California, South Carolina, Illinois, and Maine. Assess the property’s seasonality and rental demand to determine occupancy rates and feasibility. Calculate recurring expenses like cleaning, restocking, hosting fees, property management fees, and marketing. Keep in mind the tax implications of vacation rentals as investment properties. Vacation rentals offer low entry barriers, tax benefits, and potential cash flow and property appreciation. Explore available properties with Foothold to start your investment journey.

Understanding Article Disclaimer and Opinions

Please note that the opinions expressed in this article are for general informational purposes only and do not provide specific advice or recommendations for any individual or specific security or investment product. The views reflected in the commentary are subject to change at any time without notice. For more information, please consult Foothold’s disclaimers.

How to start an Airbnb Business

Reading Time: 3 minutes

Airbnb is a popular choice for short-term holiday rentals. Its user-friendly interface, wide-reaching audience, and popularity make it an attractive option. However, successfully operating an Airbnb business requires more than just posting a listing. This guide provides details on managing an Airbnb business and helps you determine if it’s the right choice for you.

Let’s start with the basics. Airbnb is a digital marketplace that connects individuals seeking short-term accommodation (guests) with vacation property owners (hosts). The platform ensures a secure experience by verifying personal profiles, listings, and overseeing communication and transactions.

An Airbnb rental can range from an extra room in your house to an RV or a beachfront property. It presents homeowners with the opportunity to generate additional income from underutilized space, while real estate investors can optimize returns on their short-term rental properties.

An Airbnb business involves advertising short-term holiday rentals on Airbnb. However, like any business venture, running an Airbnb rental comes with its own advantages and challenges.

While Airbnb can significantly boost your earnings, it may not be suitable for everyone. Whether you’re considering it as a side gig or a full-time operation, here are some pros and cons to consider.

Pros of an Airbnb Business:

  1. Access to a vast potential guest pool.
  2. Airbnb host resources for learning and interaction.
  3. Property management tools for secure interactions and transactions.

Cons of an Airbnb Business:

  1. Requires time, effort, and initial expenditures.
  2. Involves guest inquiries, marketing, customer service, check-ins, check-outs, cleaning, and maintenance.
  3. Compliance with local laws, permits, and licenses is essential.

Let’s start with the basics. Airbnb is a digital marketplace that connects individuals seeking short-term accommodation (guests) with vacation property owners (hosts). The platform ensures a secure experience by verifying personal profiles, listings, and overseeing communication and transactions.

An Airbnb rental can range from an extra room in your house to an RV or a beachfront property. It presents homeowners with the opportunity to generate additional income from underutilized space, while real estate investors can optimize returns on their short-term rental properties.

An Airbnb business involves advertising short-term holiday rentals on Airbnb. However, like any business venture, running an Airbnb rental comes with its own advantages and challenges.

While Airbnb can significantly boost your earnings, it may not be suitable for everyone. Whether you’re considering it as a side gig or a full-time operation, here are some pros and cons to consider.

Pros of an Airbnb Business:

  1. Access to a vast potential guest pool.
  2. Airbnb host resources for learning and interaction.
  3. Property management tools for secure interactions and transactions.

Cons of an Airbnb Business:

  1. Requires time, effort, and initial expenditures.
  2. Involves guest inquiries, marketing, customer service, check-ins, check-outs, cleaning, and maintenance.
  3. Compliance with local laws, permits, and licenses is essential.

To create an Airbnb business, conduct thorough research and seek legal counsel before finalizing your plan.

Starting an Airbnb venture is similar to setting up any small-scale enterprise. Here’s a 6-step guide to kick-starting your own Airbnb operation:

  1. Find a Property in a Tourist-Attracting Real Estate Market
  • Look for locales near tourist hotspots like beaches, landmarks, mountains, or festivals.
  • Check local laws and zoning restrictions before purchasing to ensure short-term leasing is allowed.
  1. Establish Your Airbnb Business Legally
  • Seek advice from a business attorney to obtain necessary legal documents and insurance.
  • Get a business license, insurance, an EIN for taxation, and a business bank account.
  • Consider forming an LLC to protect personal assets and simplify business management.
  1. Prepare Your Property for Listing
  • Fully furnish and equip the property with furniture, home essentials, and amenities.
  • Repair, clean, and install a lockbox for self-check-in.
  • Create house rules and clear instructions for check-in and check-out.
  • Use professional photos, and consider personal touches like a welcome letter.
  1. Set Your Nightly Rate
  • Price competitively while ensuring profitability.
  • Account for peak and off-peak seasons, taxes, hosting fees, and processing fees.
  1. List and Promote Your Airbnb Property
  • Write an enticing description highlighting unique amenities and local attractions.
  • Keep the booking calendar updated and respond promptly to inquiries.
  • Request reviews and leverage social media for marketing.
  1. Manage Your Airbnb Business
  • Consider hiring a property management company to handle listings, upkeep, bookings, and guest communication.
  • Streamline operations and save time.

Invest easily in real estate with Foothold

If you’re interested in vacation rentals without the hassle, our platform can help. We offer the opportunity to fractionally invest in vacation rentals, with full property management. Check out our available properties today and start your real estate investment journey.