5 considerations to buying an income generating short term rental in Cabo

Buying and owning a vacation property is a big commitment with extensive personal and financial considerations. According to Hostfully, there are 9 million second homes in the U.S. and 25% of them are professionally managed as vacation rentals.

If you are thinking about a second home in Cabo and renting it, here are some key considerations to think about:

  1. Location
    Is the property located in a desirable, sought after destination? What’s the track record of the local market in terms of real estate values and occupancy rates – pay particular attention to performance during any economic downturns. How close is the property to airports, shopping, restaurants, and nearby points of interest?  Does it have a view, beach access, or other highly desirable features? If you’re aiming to create passive income from short-term rentals, you need to take all of these factors into consideration.
  2. Amenities
    • Properties that feature a pool, hot tub, gourmet kitchen, laundry, firepit or fireplace, high-end designer furnishings, patio or outdoor entertainment area, will boost a home’s desirability. High-speed internet, home automation functions and the latest technology gadgets is almost table stakes these days as well. You’ll need to think about upgrades to maximize you’re rental potential.
  3. Maintenance and Rental Costs
    • Besides the purchase price of the home, you will also be responsible for HOA fees, property and local taxes, insurance, furnishings, cleanings, and general upkeep. Also, unless you’re going to manage the rental process yourself, you’ll likely need to hire a property management agency to assist with bookings, check-ins, check-outs, cleaning, and maintenance. Also, you’ll need to think about the entire marketing component. Services such as Airbnb or VRBO offer a great service, but it will take time to manage the listings and there’s certainly a cost involved.
  4. Rules
    • Remember that not every home can be used as a vacation rental. You need to do your research, before you buy, when it comes to rules for rentals set by homeowners’ associations.
  5. Tax Implications
    • Depending on your intended usage of your vacation home, you may want to speak with a tax advisor to determine any implications down the road to avoid potential surprises. The rules are very complex and you’ll need to keep pristine records. At a high level, if you do rent it you’ll owe taxes if you use it for more than 14 days in a year or more than 10 percent of the days it’s rented.

With continued strong demand and high occupancy rates, rental properties here in Los Cabos can make a lot of sense from a value perspective. Optimizing your ROI for a rental is different than buying a property for yourself, even if you plan to use it part-time during the year. You’ll probably have questions along the way. Drop us a line, we’d love to chat.

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