Nowadays, people want something on the side that gives them regular income. Things are getting quite expensive, and money is always needed. You may think of doing a business, but not all businesses can be profitable. This is when vacation rentals come in.
Just think of it like this: when you plan for a vacation, the second thing you look at after booking the tickets is where you will stay. You’ll come across many options and select the ones based on your requirements. So, wouldn’t it be nice if you could get a chance to invest in one of the property rentals to keep your passive cash flow coming?
Investing in the hospitality business has always been the talk of the town for investors. However, in recent years, there has been a great rise in investment in vacation rental properties. While you may have to keep spending to maintain it, it’s actually a good way to generate regular income even when you are not first handedly handling it.
Apart from that, by owning a vacation rental property, you also get a second home without any worries of having ownership, paying property taxes, or worrying about maintenance. It’s something that will definitely make your life easy, and who knows, in a few years, you won’t even have to worry about your 9-5 job!
If you are thinking of investing in one but are not sure about how to do it, the risks and benefits, we’ve included everything you need to know in this article.
What is a Vacation Rental Property?
Also known as a short-term rental (STR), a vacation rental property is a type of accommodation you’ll usually find on websites like Airbnb, Midway Vacations, or even Vrbo. These can come in different types, some of which are condos, villas, aparthotels, and condotels. These properties are usually fully furnished and have all the amenities, making them perfect for tourists and travelers for short as well as long stays.
Are Vacation Rental Properties Beneficial?
I am personally a big fan of making hospitality investments. When it comes to investment properties, I really feel that vacation rental properties are a great option. You can actually benefit a lot by investing in them. I am not saying that it’s all easy to do; it may take time, but the long-term benefits you’ll get are pretty incomparable. Below, I have stated some benefits I have experienced:
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Increased Income
An increase in income was my very first priority when I first thought about buying a vacation rental property. So, yes, the very first benefit I would like to highlight is a significant increase in my income.
I’ve also seen others making a minimum of $800 profit every month through these properties after listing on platforms like Booking.com. If you manage to list your property on multiple OTA websites, just imagine how much profit you could get.
You just have to make sure that you are able to provide what the travelers are looking for. These can be making your property pet-friendly or providing an outdoor space for recreation, a dedicated parking space, and lots and lots of amenities.
Appreciation in Equity
Equity appreciation is the increase in the value of an asset or investment over time, specifically in terms of its worth relative to the original purchase price. Buying a vacation rental property is hands down one of the best ways to secure your future.
Real estate typically goes up in value over time, and I’ve seen my vacation home do the same over the past few years. If the economy holds strong and inflation rises, the value of my property could increase, too.
Recently, I researched and saw that adding unique amenities can increase your revenue by more than 10%. I made a few upgrades to my property, like adding a jacuzzi and an indoor swimming pool to attract more guests and boost its value, and I guess it has worked wonders for me.
In the future, if I plan to sell my property, I am sure it’s going to give me a great price so I can enjoy my investment even when it’s not there.
Increases Your Tax Reductions
By showing some of your vacation rental expenses, you might be able to waive off and save some tax. These expenses can be housekeeping fees, hosting platform fees, insurance premiums, supplies, occupancy taxes, and so on.
While you can get tax benefits, make sure to check the tax regulations in your state, as they can vary from state to state. To know more about these deductions, you can meet a tax professional, to know more about the deductions and the tax you’d be paying.
Your Personal Escape
I really love taking some days off with my family from the monotonous life and the hustle and bustle of the city. During this time, I prefer going to my vacation rental, mainly during the off-season. Not only does it help with work-life balance, but I also get to enjoy quality time with my loved ones whenever I want.
How to Buy Vacation Rental Property?
Now that you have an idea about the benefits you can get from a vacation rental home, you must be wondering how to buy one. I’ve made things easier for you by listing out a few simple steps on how you can do it.
#1- Find a Location
The first and foremost step in buying a vacation property is to decide where you want the vacation rental property to be. Location plays a massive part in deciding whether your investment property will be profitable or not.
To pick a location, decide where you would want the property to be. Whether it is on a beach, in the mountains, or the heart of the city. Then, according to your choice, research the popular places travelers love visiting. Look at factors like easy access, local amenities, and nearby attractions.
You should also see if the location you’re selecting is convenient for you and your guests and if they get easy transportation options or not. Check if the rental property is in close proximity to the airport, bus, and train station so travelers can reach it easily.
To make your guest’s experience even more memorable and convenient, look for local amenities like shopping centers, grocery stores, and restaurants. Getting easy access to these places will make the guests happy and encourage them to leave positive reviews.
Read Stephanie F.‘s review of Midway Vacations on Yelp
#2- Set a Budget
Before you start searching for the perfect property, it’s important to set a budget and look into financing options. I had to take a close look at my financial situation and figure out how much I could comfortably invest in a vacation rental.
That means considering the costs of the down payment, monthly mortgage payments, property taxes, insurance, maintenance, and utilities. I’ll also want to explore financing options like traditional mortgages, home equity loans, or even partnering with other investors.
#3- Research the Market
The vacation rental market is huge. You cannot just go and buy any vacation rental property without knowing its pros and cons. Therefore, it is essential to research the market as much as you can before putting your money into it.
Before buying a vacation rental, research the market in your desired location and see if there are enough properties to buy or not. Take a look at supply and demand, occupancy rates, average rental prices, and seasonal trends.
High occupancy and steady demand will be vital to ensuring consistent income, and knowing the seasonal peaks will help me maximize rental returns.
#4- Know About the Seasonal Fluctuations
You also need to be aware of the seasonal fluctuations in the vacation rental market. Some places see high demand during specific times of the year, like summer, winter, or the holidays. As you understand these patterns, you’ll be able to make a plan to maximize your rental income and plan for slower, off-peak periods.
#5- Identify the Challenges
As you research the vacation rental market, it’s also important to identify any potential challenges or opportunities that could impact your investment. This could be the local regulations, which might restrict short-term rentals in some areas or require special permits.
You’ll also need to assess the level of competitionโare there a lot of vacation rentals in the area, or is there room for yours to stand out? On top of that, you should look for unique selling points that can make your property more appealing to guests.
By knowing and identifying the challenges beforehand, you’ll be better able to minimize risks, position yourself for success, and move forward with a clear strategy
#6- Set Realistic Expectations
It’s also important to set realistic expectations when investing in a vacation rental. Once you’re done with doing thorough research, you should evaluate your investment goals and make sure they align with the current market conditions.
By setting achievable targets, it will help you avoid disappointment and allow you to make smart, sustainable financial decisions in the long run. By being realistic about potential income and expenses, you can better manage my investment and ensure its success.
#7- Pick the Right Vacation Rental Property
Once you understand your budget and the market, start looking for the right property with the help of a real estate agent who specializes in vacation rentals. While you’re on the hunt, try focusing on factors like property size, amenities, and location while keeping my target audience in mind.
It’s also important to account for any renovation or furnishing costs. Consulting industry experts, like property managers and vacation rental platforms, will be a good idea for getting valuable insights and making profitable investment decisions.
#8- Analyse Revenue and Overall Cost
Like any investment, it’s important to break down the costs and potential revenue of a vacation rental. You’ll need to calculate your total monthly expenses, including the mortgage interest, property management fees, maintenance, etc.
Also, look at the average rental rates in the area and estimate occupancy based on market research. With this information, you can easily create a financial projection to evaluate potential income and ROI.
Additionally, try researching similar properties nearby, noting how rates fluctuate during peak and off-peak seasons. Using these insights, along with your expense analysis and occupancy estimate, you can create a solid financial projection to assess how viable your investment will be.
#9- Work on the Managing and Marketing Strategies for Your Property
Managing a profitable vacation home requires solid strategies that work in your favor. To help you with this, you first need to decide whether you want to do all the stressful work yourself or hire a professional property management company.
There are pros and cons for both options. If you decide to go the self-management route, you’ll have to do things on your own according to your, be it legal requirements, local regulations, or industry best practices. This can be both an advantage and a disadvantage.
On the other hand, hiring a professional management team will put your work at ease. You don’t have to run from one place to another; all the work will be done with utmost professionalism and according to the industry standards. The only con is that you’ll have to spend some extra money on property management fees. But, trust me, the result you’ll get will be worth your every penny!
#10- Aim for Providing a Good Experience to Your Guests
Providing a positive experience to your guests during your short-term vacation rentals is very important. How good your vacation homes are going to do all depends on the guest’s review. So, how will you get positive reviews from the guests?
Before buying vacation rental property, you’ll have to think about everything you can give to your guests to make their stay comfortable and memorable at your vacation home. To do this, think about ways you can make the atmosphere warm and cozy. Choose the right furniture and decor that goes with the theme of the property you’re planning to buy.
Clean the entire place before the guests arrive and make sure that all the toiletries and linens are changed with the fresh ones. Provide them with Wi-Fi, cable, and all the kitchen items to ensure they are comfortable enough.
To make things run smoothly for me and the guests, I usually hand out a set of rules before they visit the vacation rental. This way, they know what to expect before even coming to the site. I also make it a point to give them a guest manual with important info about the property, local attractions, and my favorite restaurants to help them make the most of their stay.
#11- Keep Working on Your Strategies
To be relevant in the vacation rental market, it’s important to keep an eye on trends, track competitors, and listen to guest feedback. Keep reviewing your finances regularly to spot areas to improve, like pricing, amenities, or marketing strategies.
You can also use various analytic tools like Mashvisor or AirDNA that can really boost your game. These tools can help you track bookings, analyze guest data, and make smart decisions to grow your revenue.
Also, by analyzing the guest preferences and booking patterns, you can personalize their experience, leading to better reviews and more bookings.
Risks Associated with Buying a Vacation Rental Property
We’ve discussed a lot about the benefits and profits you’ll get with these real estate investments. But however beneficial it may be, there are still certain risks associated with buying a vacation home. If not taken care of from the beginning, these risks can easily impact profitability and long-term success.
- Seasonality is a major concern, as income often fluctuates based on tourist demand, leading to inconsistent cash flow. For example, a place for skiing will only be active during the winter.
- Property damage is another risk, with potential wear and tear or even significant damage caused by renters.
- Aiming for unrealistic projections can ultimately cause you loss in the long run.
- If you opt for a vacation home location that has too much competition, chances are that it will take too much time to reflect any profits as people will first prefer the established rentals.
- During the recession, people usually cut down on necessary expenses, and going on vacation is one of them. This means no vacation, no stay in a vacation rental property.
- Regulatory changes can alter local rental laws, restricting short-term rentals or imposing new taxes.
Choose Midway Vacations for Professionally Managing Your Vacation Rental Property
Just like any popular vacation destinations, Hawaii is one of the most visited places by people all around the world. Therefore, the scope for real estate investments is also pretty good. To make things easier, we suggest you partner with a professional property management company like Midway Vacations.
Midway Vacations has a team of experienced property managers who will understand your needs and vision as to what kind of property you want. They will understand the market trends and suggest properties that will give you the most benefit. From selecting to managing the property, they’ll take care of everything. You can rest assured that you’ll be in good hands with Midway Vacations.
FAQs
What type of property makes the best vacation rental?
This depends on your target audience. Popular options include:
- Condos/Apartments: Lower maintenance, ideal for urban or resort locations.
- Single-family homes: Perfect for families or groups, especially in suburban or beach areas.
- Luxury or unique properties: Cater to niche markets seeking premium or unique stays.
How much can I expect to spend on a vacation rental property?
Costs for short-term rental properties vary based on location, property type, and size. Important expenses to budget for include the purchase price, which involves the down payment and mortgage, as well as renovation costs to enhance the property’s appeal. Additionally, furnishing the property with quality furniture, appliances, and extras like Wi-Fi or hot tubs adds to the investment. You’ll also have to keep spending on the ongoing maintenance and repairs of short-term rentals to keep the property in top condition for guests.
Do I need a property manager?
Hiring a property manager for your short-term rental is optional, but it can truly ease the workload. Property managers handle tasks like marketing and booking management, guest communication and check-ins, as well as cleaning, maintenance, and addressing emergencies. While these services come at a costโtypically 20-30% of your rental incomeโthe convenience of having someone manage day-to-day operations can be well worth the investment.
Ready to Buy a Vacation Rental Property?
Investing in vacation rental properties offers a profitable opportunity for generating passive income. With the rising popularity of short-term rentals and the potential for appreciation in property value, vacation homes can provide both financial growth and lifestyle benefits. By following the steps in the article, you’ll be able to find the vacation rental property of your dreams and make a lot of profit out of it. If you find any difficulty during the process, do not hesitate to contact us!
