Seasonal rentals: How to buy at the right price?

The purchase price is one of the essential factors to consider when acquiring a property for short-term rental. Indeed, the two main parameters that will determine the profitability of an investment are the revenue generated and the purchase price of a property.

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Here are some tips to ensure you are buying a property for short-term rental at the right price.

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Create a business plan

The first essential step is to create a business plan. This business plan allows you to evaluate the future profitability of a short-term rental.

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The business plan is broken down into two main parts: income and expenses.

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Income

The income from a short-term rental depends solely on the nights rented. You will therefore need to conduct a study to determine the revenue based on two criteria:

• Occupancy rate: number of nights booked / total number of nights
• Average nightly rate

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Ideally, you should perform these calculations for low, medium, and high seasons. In high season, rentals are generally weekly and rates are higher. This breakdown by season allows for a more realistic simulation of the income the rental can generate.

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Expenses

Several expenses will be associated with the property. Here are the main ones:

• Financing: monthly payments and insurance related to the loan
• Landlord insurance: property insurance
• Taxes: renting out the property will generate profits that will be subject to taxation
• Concierge and rental fees: any costs that may be related to listing and managing the property.

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Based on the business plan, it is then possible to evaluate the profitability of the investment. And by setting a minimum profitability target, you can determine the maximum price at which the property can be acquired.

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This first method for determining the purchase price of a property is the most important. Because regardless of market prices, the most important thing is to ensure that you will achieve the expected profitability for your investment.

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Consult completed sales

After completing this initial study, it is relevant to check the prices currently being charged in the geographic area where you wish to invest.

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For several years, the government has been publishing all real estate sales made in the country as open data. This database, called DVF (Demandes de Valeurs Foncières), contains the following information for each real estate transaction:

• Date of the real estate sale
• Sale amount (excluding notary fees and agency fees)
• Property address
• Type: House or Apartment
• Living area
• Number of rooms
• Land area

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Thanks to this information, it becomes easy to check recent sales of comparable properties in any geographic area. This provides a factual overview of the prices for the type of property you are looking to invest in.

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More information on the data shared via Open Data is available on the government's dedicated portal.

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However, the General Directorate of Public Finance only publishes this information twice a year. The published data is therefore slightly behind the current market situation. This is why it is relevant to supplement this study with an analysis of listings on real estate portals.

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Look at properties currently for sale

Real estate portals provide an updated version of current prices. The listed prices are rarely the prices at which properties will actually sell, but they still provide an idea of the prices currently being asked.

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This research is easy to conduct, as these portals are generally where people go to look for their future investment. You should take the time to review each listing to get a feel for the market and gain a more informed perspective on its current state.

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Study the resale potential

When making a real estate investment for seasonal rentals, resale is generally not the primary goal. However, real estate investment projects span several years, and it is difficult to predict what professional or personal changes might occur. You should therefore always consider the possibility that you might need to free up cash or reduce your debt capacity.

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This is why it remains important to evaluate the resale potential of a property. To do this, a good indicator is to look at price trends in the geographic area compared to the rest of the country. If the trend is upward, it generally means the area is attractive, which reduces the risk of a capital loss in the event of a medium-term sale.

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Conclusion

In conclusion, the purchase price is one of the key parameters to consider when investing in seasonal rentals. You must ensure that it allows you to achieve the desired profitability while verifying that the price is consistent with the market.