Where Should I Buy A Vacation Rental In San Diego?
With over 70 miles of coastline, San Diego offers an incredible variety of options of beach towns to purchase a vacation rental in. From Oceanside adjacent to Camp Pendleton all the way down to Imperial Beach neighboring the U.S. Mexico border. Deciding where to purchase a vacation rental can be a challenging task. We will share with you local knowledge of the San Diego vacation rental market to help you get started.
Coastal vs Inland Vacation Rentals In San Diego
Historically coastal residential real estate (property close to or on the beach) always performs better as vacation rentals. There will always be exceptions to the rule, but if you take a three bedroom oceanfront home in Mission Beach vs a three bedroom home in Poway, Mission Beach should always win.
Most buyers also want the utility of staying in the vacation rental themselves now and then. If you’re coming to San Diego for your vacation from Phoenix, Los Angeles, or Riverside, you likely are going to want to stay close to the beach. So a coastal property is the winner here hands down. Let’s dive in deeper to coastal vacation rentals.
Do I Have To Get A City Permit To Operate A Vacation Rental?
Yes. To legally operate a vacation rental business in any City along the San Diego coastline, you will need to obtain a permit. Each city has their own rules on what type of property can qualify to obtain a vacation rental property and where that property must be in the City.
Most cities have already fought and settled the “Airbnb battles” in San Diego County. The only one that is still not completely settled is the City of San Diego. The City of San Diego created a Short-Term Residential Occupancy (STRO) tiered system on what they allow. The City is capping whole homes not in Mission Beach to not exceed 1% of housing units in San Diego and in Mission Beach not to exceed 30%. The City of San Diego jurisdiction covers the coastal communities of Point Loma in the south up to La Jolla in the north. As of the writing of this article, it is unclear exactly who will get the permits and who will be out of business.
How Much Is It To Purchase A Vacation Rental In San Diego?
A typical purchase price range for a vacation rental close to the beach in San Diego County as of the writing of this article would be between $600,000.00 up to $10,000,000.00 (or even higher depending on the size, location, etc. of the home).
By example, a one bedroom blocks from the beach in Carlsbad goes for approximately $1,000.00 per a square foot. A one bedroom in Imperial Beach blocks from the beach can go for $600.00 per a square foot. Where you can buy along the coast will depend on your budget.
What Are My Financing Options When Purchasing A Vacation Rental?
In today’s wild real estate market, the first question will be if you can obtain financing. Many properties are going for $100,000.00 over asking price (all-cash). If you are one of the lucky ones who has a property in escrow that will appraise at the agreed upon price when considering recent sales comps, then you should be good to obtain financing.
Typically, you will see higher interest rates when compared to purchasing a property you will live in as your primary residence. Then comes the determination by a lender on whether or not your property qualifies as a “second home” or if it is an “investment property”. Lender’s make this determination by calculating the distance from your primary home to the property you want to purchase. If the property is by example 15 minutes from your house, it will clearly be an investment property. If you live in Scottsdale, AZ, and the property is in Del Mar, CA, it will qualify as a second home and you will receive a more favorable interest rate.
So long as you have good credit, debt-to-income ratio, and cash reserves on hand, most lenders will lend to you so that you can purchase the vacation rental of your dreams. Specific numbers in connection with those metrics are all lender specific. Shop around and get the best deal when obtaining debt.
How Should You Hold Title To A Vacation Rental?
Now that we covered financing, how should you hold title and why does this matter? How you hold title is important because in the event there is an accident on the property, and someone files a lawsuit against the property owner, they will sue the individual or entity holding title.
If you purchased the property all cash most property owners hold title in the form of a Limited Liability Company (“LLC”). When financing, lenders typically will not allow title to be held in the form of a LLC. Your options are then to hold title in your name, you and your partner (if you have a partner), or in the name of your trust (if you have a trust setup).
If you want to dive deeper into how you should hold title, check out our article “How Should You Hold Title To Your Vacation Rental Property?
What Type of Insurance Do You Need For A Vacation Rental?
You need to purchase vacation rental insurance and we recommend a policy of at least $1,000,000.00 in liability coverage. Often when we review property insurance policies for new clients we discover they purchased the wrong insurance policy. Usually it is a homeowners insurance policy and it does not cover using the property as a vacation rental property. In this case if a guest were to be injured and were to sue the property owner, the insurance policy would not cover the policy holder.
Make sure you are covered with the correct insurance policy. If you want to learn more about who issues vacation rental insurance policies and more about these policies, check out our article “Why You Need Vacation Rental Insurance“.
Who Can Help Me Purchase My Vacation Rental Property?
One of the founders of Haustay Vacation Rentals, Nick Foster, is a licensed California Real Estate Broker (BRE Brokers Lic # 01913436) and is your go-to broker when buying a vacation rental. He has experience owning a vacation rental for over six years and in managing dozens of vacation rentals over the years. He may be contacted at nick@www.haustay.com or at (858) 522-9127.
