Vacation Rental Property – Is Buying it a Profitable Investment?

By: ROS Team

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Travelers want to experience comfort while away from home. While hotels are usually convenient, they don’t always offer the same level of quality and privacy. Vacation rentals, on the other hand, are increasing in popularity for these reasons. They’re also becoming more popular for their additional amenities.

Given their demand, there’s no doubt that buying a vacation rental is a good investment. Let’s take a closer look at how buying vacation rental property can be profitable.

Is Buying Vacation Rental Property a Profitable Investment?

Vacation property rentals are a good investment. Statistics indicate people who rent out apartments earn more than $30,000 annually in rental revenue.

During peak vacation season, your annual revenue could be even higher depending on the location and number of properties you own.

The Merits of Buying a Vacation Rental

  • Vacation Rentals are good for Different Varieties. Travelers choose their vacation rentals and priorities dictated by their budgets and what kind of experience they want.
  • Vacation Rentals Provide more Space than Hotels. People with large families prefer a vacation rental so that they can spread out and enjoy each other.
  • Vacation Rentals are as Comfortable as your Home with Something more than a Home. They are especially better than opting for living in the bedroom that too of someone else like some online platforms offer.
  • You Can Ensure Maximum Privacy at Vacation Rentals. This is because you are not sharing a wall with another hotel guest, so you will not hear everything from the other room.
  • Since Vacation Rentals Offer Space, Families Often Stay Together. It becomes an economical package for families.

Steps for Investing in Vacation Rentals

Before going online and picking out vacation rentals at random, you need to perform some research to ensure you are buying a vacation rental that will be worth the investment and provide you with a return in capital. Keep reading to learn the steps for investing in vacation rentals.

1) Track the Cash Flow

Don’t underestimate the importance of conducting research into investing in vacation properties. It will only benefit you to understand ways to maximize potential profit. Consult with a real estate agent for additional guidance. Additionally, there are online tools that can be helpful.

2) Focus on Location

Location plays a major role in determining earning potential. If you choose to buy property near a popular spot like a beach resort, you will likely earn more profit when you rent out the property. Another idea is to look for property near an airport or another major transportation hub.

3) Brainstorm Before You Invest

After you identify possible locations, think about whether it will be more economical for you to invest in a secluded property or one near trendy beach homes.

On average, most vacation rental properties’ peak season lasts 12 weeks. Think about whether you’d rather target bookings in the offseason or if you want to compete during the peak season.

Explore different platforms to maximize bookings and earning potential.

4) Ensure the Price is Right

Although you may be tempted to demand higher prices to maximize the profit earned on your vacation rental property, it’s best to set rental prices low to ensure a higher occupancy rate.

This is not to say that the rental price shouldn’t fluctuate in conjunction with special events near the rental property or during peak season. But be willing to lower rates to attract new bookings during low traffic times.

Pros & Cons of Owning a Vacation Rental Property

Pro #1: More Income

One of the primary benefits of buying a vacation rental property is the potential for earning rental income. Homeowners who rent out their properties through sites like Airbnb earn an average of $10,000 per year. You can also maximize your property by listing it on websites like VRBO and HomeAway.

Pro #2: Property Appreciation

A vacation rental is an excellent way path to a financially-strong future. Real estate property values tend to increase over time, and property values for vacation homes are no exception.

Pro #3: Tax Benefits

Because your vacation home will generate income, you will be able to deduct operating expenses at tax time. Mortgage interest, real estate taxes, property insurance, homeowner’s association dues, property maintenance, utility expenses, cleaning costs, and management fees are all tax deductible.

Con #1: Unexpected Expenses

One of the most difficult aspects of owning a vacation home is accurately projecting expenses. Even if you’ve budgeted for expenses like utilities, mortgage payments, insurance, taxes, and management fees, there will inevitably be unanticipated costs.

Con #2: Damage Possibility

There is always the possibility of property damage when you have tenants on your property. The risk increases exponentially in short-term rental scenarios.

To help offset additional expenses related to repairs and maintenance, you can require that renters pay a deposit as part of the rental application process.

Con #3: Requires Marketing

Marketing ensures potential guests can find your property during their search. Optimize your vacation rental listing to ensure that it’s appealing to potential customers, and keep rental rates and vacancy calendars current. Also, promptly respond to visitor questions and past customer reviews.

A Profitable Investment

Buying a vacation rental property is an excellent investment as a potential investment and a lifestyle upgrade. It is not only a good return on your investment, but it also provides the benefit of having a place to stay for your vacations.

Vacation Rental Properties – FAQ

Do Vacation Rental Properties Make Money?

Buying vacation rental property can be lucrative. However, they demand a lot more time and energy than it takes to buy the property simply.

Is Commercial Real Estate the Most Profitable Rental Property to Buy?

Commercial real estate is the most profitable type of rental property you can buy. Office spaces, retail offices, and parking garages are all types of commercial real estate. If someone bought a commercial property in New York City 10 years ago, the property would have appreciated 3 – 4 times.

Why should you put Vacation Rental Property in an LLC?

Risk is high in rental properties, so adding it to an LLC is a way to help secure your investment in conjunction with property insurance.

Is Rental Property Ownership Worth It?

A rental property can be a sound and secure investment. If done correctly, it can also generate extra income. Buying a second home or vacation rental property also comes with additional financial responsibilities like paying taxes. But overall, rental property ownership is worthwhile in many aspects.

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