If you’ve ever lived in, or even visited, some of America’s more expensive cities, you’ve likely experienced just how expensive housing can be – and in recent years, market changes, such as the rise of Airbnb, have only made the situation worse.
That shift has pushed prices up, so that Manhattan, home to 8 of the 10 most expensive zip codes in the country, features rents over $5,000 a month. In some parts of the country, you could buy a house outright in about two years for the equivalent cost. For investors, though, tourist locals can be appealing in terms of profits, if you can afford the price of entry.
Scoping Out The Area
Before you start looking at apartments to invest in, it’s important to study the surrounding area to determine what type of traffic the region gets, both in terms of tourism and permanent residents.
In New York City, for example, the area around the Oculus inside the new World Trade Center gets a lot of tourist traffic, but most residents in the area work in finance or other high-profile fields, since the building neighbors key financial offices. Meanwhile, in areas like Museum Park in Houston, pricey apartments can go for over 10 times the city’s average rate and are less likely to attract tourists who can opt for nearby boutique hotels.
Other elements, such as public transportation, walkability, and density of attractions and restaurants all determine whether a location is ideal for tourists or permanent residents. The Oculus is in a walkable area with great transit, but there isn’t much to see downtown, while in more sprawling cities like Houston, proximity to tourist sites is even more important, but even visitors are likely to have cars – and you’ll need to consider parking.
Know What You Can Afford
Facing the prices that dominate the most expensive rental areas, it’s no surprise that most investors are hesitant to head into tourism-heavy locales, even as Airbnbs and similar arrangements become more popular with travelers. Still, there will always be some who are willing to take the leap, and these investors need to be careful to avoid one of the most common investment pitfalls: investing in a property you can’t afford.
According to Houston investment property gurus, some investors assume that buying in a pricey area means that their tenants will pay enough to cover their costs – and this can backfire. After all, that property will sometimes stand empty and prices will fluctuate, meaning that rents may go down, even in desirable areas. Even if landlords can find a tenant, they may not make enough to cover starting costs.
Assess Legal Restrictions
Another issue that can befall investors seeking to buy apartments in popular tourist areas is changing rental and subletting regulations. Because the rise in Airbnb properties has had a sizeable impact on rental prices in many cities, especially when it comes to affordable housing, some have passed regulations regarding the minimum length of property leases.
Before you even begin looking at apartments in a given city, then, it’s important to research the local regulations and restrictions. In Charleston, a popular travel destination, tourist-centered rentals can offer serious financial rewards, but owners must live in the property, can only host a maximum of four adults, and must be specially licensed. Meanwhile, in New York City, it’s only legal to rent a private apartment in a multifamily dwelling for a minimum of 30 days. That rules out most tourists.
As tourists flock to private homes and apartments for short stays, cities are being forced to grapple with the consequences and investors with potentially risky financial decisions. Those who take a chance on the right property at the right time, though, have the chance to profit richly off of the resulting use. It’s all about picking the right location at the right time and being willing to take a big loss if things don’t work out.