Are Vacation Rentals A Good Investment?

The idea of buying a vacation rental home is appealing, and can guarantee steady income in the warmer months depending on where the home is located. It has become popular within recent years, due to the expansion of industry, and the surge in the private accommodation sector.

When families go away on vacation, there are so many options for them to choose from. To own a vacation rental home, it is important to understand the local financial revenue as well as your potential investment earnings. 

What should I do before investing in a vacation rental? 

Before you invest in a rental home, you need to make sure it will be worthwhile and worth your money. It should be able to provide you a steady stream of income that eventually covers the cost of your investment. 

The property is the most important part of the investment process. People renting your vacation property are mostly interested in what this home can provide for them when they are on vacation. For example, the location of the home needs to be the top priority.

If the vacation rental is in a well-known location, vacationers will be looking for a home that is in close proximity to attractions, beaches, and other amenities. This will affect how much you can charge, and how many people you may get staying in your property per year. 

This will also apply when the weather changes. If your vacation rental is situated in a place that relies on certain seasons, it is important to think of the effect this may have on your finances when the colder months hit. Although, if your property is great, this may not affect you as much as other properties. 

It is important to be comfortable with investing in the city or town that you choose to buy your vacation property in. This will ensure you are paying attention to things like the employment rate, weather and demand for vacation rentals. After all, what’s the point in having a vacation rental if it’s not going to be worth it for anyone? 

Once you know about your vacation home location, you need to put yourself in the shoes of people going on vacation. What would appeal to them within your property, and why should they pick yours? There needs to be enough consistent demand for it to be sustainable.

Remember, upkeep will be part of the cost. Those months where it is not as popular, there still needs to be general upkeep and cleaning within the property to ensure your vacation rental is to the highest standard.

It is also important to look at the type of property you are looking to buy. For example, a condo, a small house, or an apartment. What can each different type of property provide for your potential vacationers. This will also give you an insight into how the real estate market operates depending on the asset and property in this area.

Airbnb and VRBO are great places to do some research into the general rates and the types of properties available. After all, you’d probably want something a little different that may appeal to a bigger demographic. 

Then, you need to calculate your expected expenses from the vacation rental, as well as your income. If your research shows a positive outcome and a good demand, then you’ll have no issues. You should expect to see a weekly rental rate of 15% higher than your monthly mortgage payment if you are paying monthly.

In areas with higher demand, you may even be able to raise your rental price depending on how much visitors are willing to pay. The more your property has to offer, the more money you can expect to get from your rental investment. 

The final step once you have a property is to sufficiently advertise your property to ensure you get the visitors you need. Property investing can be seen as a risky investment, but if you have done all of your proper and prior research, you should be happy with your investment.

Make sure to advertise on sites such as Airbnb, as this has no annual fee. This is where most rental properties are found, so it is important to list your property to its highest potential, as well as uploading the best pictures. There is also the opportunity to create your own website to generate your own income from the website, too. 

How good of an investment is a vacation rental? 

When you have properly factored in all of the expenses, income, and benefits, vacation rentals will most likely give you good results. They are likely to give you an increased cash flow, along with a stable source of income. There are also benefits within the property taxing system that will benefit your business.

Once a vacation rental is rented out for more than two weeks of the year, it becomes a business in the law. This means you can deduct expenses and property management fees from your taxes, meaning you will save a lot of money. It is an excellent way to generate guaranteed income as well as an excellent experience for travellers.

It will allow you to grow your business and reputation on the property ladder, and will be even more beneficial if you are in a good financial position. Another great benefit of investing in rental property is the ability for you to have your own vacation home.

You may be forgetting this aspect, but you can also use this vacation rental for yourself and your family, as a private getaway whenever you desire. 

What are the negatives of investing in a vacation rental? 

Managing your vacation rental may add to the stress and upkeep of your own life, so it is important to organize this fully so you can be stress-free. However, it is possible to hire an external business to help you with this part. 

Another potential negative of this experience could be the monthly payments and expenses. Even though you are making money from it, you are still tied to the success of your rental property, and it could potentially cause issues within your income. You need to make sure you are in a financially stable position to invest in a vacation rental, as there are a lot of expenses involved.

Another issue, and the most obvious and important issue, could be the aspect of finding guests for your property. Without guests to pay you rent, your investment will fall through. Marketing is a key aspect of earning money from your property, and you need to make sure you have done all of the research.

You must make sure your property offers the best options for potential guests, as if you are investing in a property in a city or busy area, there will be many competitors. 

How much can you make on Airbnb?

Airbnb is a great place to advertise your vacation rental, because they do not charge an annual fee to list your property. The average amount earned from hosts for a four bedroom property in 2020 was $43,000 – and there is more potential next year. Another statistic from CNBC shows that Airbnb hosts can make an average of $925 a month from a low cost rented property.

Of course, the amount you earn is completely dependent on what your property can offer, how many bedrooms it has, how close it is to any attractions, the weather in the location, and the overall area. 

Will a beach condo pay for itself? 

A beach condo is a great choice, because in hotter climates such as California, they are profitable at all times of the year. After you are up and running, you can even raise your prices in the busy months, as there is such a demand for beach vacation rentals. It can definitely pay for itself eventually, as they can generate an excellent cash flow all year round. 

What is the seven day rule for vacation rentals? 

One of the only issues you may face with owning a vacation rental is the seven day rule. This rule can be slightly restrictive, especially in places where you rely on the season to get guests. If a rental is rented on average for seven days or less, your deductible losses in taxes and expenses are zero.

To solve this, it is wiser to rent your property for an average period for more than seven days. It is acceptable to rent it out for seven days or less, as long as you are able to rent it for more at times. This is not the be all and end all, but it may limit your finances to some extent. Make sure your property is in a location that has a lot to offer. This will incline guests to stay for a longer period of time. 

What is the average profit for a vacation rental? 

There is no exact number to this question, and it depends on the location and features of your vacation rental. On Vrbo, an owner can gain more than $33,000 in gross revenue in a year from their vacation rental. You will be earning more than hotels charge, so you can do the maths yourself before taxes. 

Matt Roberts
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