Vacation Rental Investment: Is It Worth It?

vacation rental investment

By  The Smartbnb Team

A vacation rental investment is an excellent strategy to make money in real estate. Today, making money with vacation rentals has become much easier than it was ever before, thanks to vacation rental websites like Airbnb and Vrbo. But are vacation rentals a good investment for beginners? Let’s find out!

Vacation Rental Investment: What Are the Options?

Thinking about real estate investment to make money outside your 9-to-5 job? Buying a vacation rental home might be the best way to enter the real estate business and become a property investor.

Vacation rental investments are gaining popularity nowadays. Many people choose to buy vacation property as an investment and rent it out when they’re not using it themselves.

The idea is that you are actually buying a dual-purpose property. You can use it as a second home and spend your vacations there. Then you can rent it to guests for the rest of the year.

The major advantage of this approach is that you gain a source of steady income without having to necessarily buy an “investment” property. It’s your second home, and it looks as if you make money on the side.

The best thing is that the money you make from bookings helps you pay the mortgage and other expenses for the property where you spend your vacations.

How to Estimate the Vacation Rental Potential?

The goal of every real estate investor is a positive cash flow when income is higher than expenses. So no matter what rental strategy you are planning to implement, you should look for property that can generate consistent income.

Try to keep your emotions out of it and concentrate on real numbers before you buy a property. Analyze your upfront and ongoing costs (mortgage costs, annual taxes, property insurance charges, maintenance, and repair expenses) and your likely income. In this way, you will see if the cash flow will work for you. 

Investing in a vacation rental property doesn’t guarantee that you’ll become rich quickly, but it can be a lucrative source of income. But how much money can you make from a vacation rental? There is no single answer to this question, as there are a lot of variables that can affect the potential income.

The most significant aspect is the location. A vacation home located in popular travel destinations like a ski resort or a beach community is likely to have a high occupancy rate, which is the key to generating positive cash flow.

So you should focus on areas that boast a booming tourism sector and a high average rental income. Other aspects to consider when looking for the ideal location include proximity of essential amenities, excellent weather, low crime rates, etc.

To increase your revenue, you must strive to keep your home occupied as often as possible and keep it rented consistently during the busy season. So you should list your property multiple sites. Besides, you should hire a team to juggle some logistical challenges related to cleaning, check-ins, and check-outs, maintenance, etc.

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Vacation Rental Business Plan

Have you decided to run your vacation rental property as a business? There is more involvement than just creating listings, serving guests, and collecting money. There are taxes, maintenance costs, marketing fees, and of course, unforeseen expenses.

Many first-time vacation rental business owners fail with their ventures because of the lack of a strategic vacation rental business plan and unrealistic expectations. So you should create a comprehensive business plan that will guide you through your business actions.

It’s crucial to plan the amenities in your apartment. Your ultimate objective is to make your guests feel comfortable. Your other important objective is to avoid extra costs on constant refurbishing and repair works. Follow our guide on how to prepare your place for vacation rental business.

Your business plan should focus on such key aspects as a company, customer, and competition analysis, daily operations, marketing plan. Besides, you should determine the financial and critical milestones you are planning to reach.

Owning a Vacation Rental: Pros and Cons

If you’re thinking of buying a vacation home to rent out for extra cash, you should consider the full range of pros and cons before diving in.

Owning a vacation rental property has several obvious advantages:

  • You can make extra income if you list your property on Airbnb and other similar platforms.
  • You can have your spot to get away and use your property for birthdays, parties, or family get-togethers.
  • Tax benefits – you can write off a lot of your expenses you’ll incur to repair and maintain the property if you rent the home out for more than 14 days a year.
  • Over time, the right vacation rental investment in the right location can significantly increase in value.
  • It can ensure you have healthy finances upon retirement – you can sell it to cover your future costs of living, healthcare, travel, and more. Or you can keep it as a retirement home.

But as with any type of investment, there are several disadvantages of investing in vacation rentals. You have to clean, prepare, and restock the property between every guest, and if you have no time to do it yourself, you may need to hire a team. Besides, you need to market your property on Airbnb and other platforms, find guests, answer their inquiries, ensure smooth check-ins and check-outs, etc.

Managing a vacation rental requires year-round work. The good news is that you can automate most of the routine tasks.

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Conclusions

Vacation rental investment is a great way to get some passive income if you do in-depth market research and come prepared. A vacation rental property that can generate enough rental income to pay for itself is a good place to start if you are interested in real estate investing.

If you buy the right home and manage it effectively, purchasing a vacation rental property can yield excellent results over the years. But you need a comprehensive business plan to ensure that everything goes smoothly and build a rewarding and profitable business.

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