Are Vacation Rentals Profitable? - Ideal REI

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vacation rentals

Are Vacation Rentals Profitable?

In the past, vacation rental owners had to perform the necessary maintenance tasks and market the properties to find guests or pay someone in the locality to do so on their behalf.

Bookings were low and the cost of maintaining the vacation homes was high. Thankfully, the firms that manage vacation rentals are using new technologies to eliminate these issues and deliver a comprehensive service on a high level that the vacation rental industry has not seen.

Many travelers are avoiding staying in hotels in favor of vacation rentals.

Why Vacation Rentals?

Some of the benefits of vacation rentals include:

  • Variety – Vacation rentals offer different decor, amenities and views among other things. Travelers select their own vacation rentals and preferences based on their budget and how they want to define their vacation such as close to the beach or a golf course among other locations.
  • Additional space – Vacation rentals are more spacious than hotels and are therefore popular with people traveling with their families.
  • Comforts of home – Vacation rentals provide the comforts of home and some of the things that a typical home does not have. There are multiple bedrooms, comfortable living rooms and adequate space to sprawl out. Vacation rentals are more comfortable than staying in the bedroom of another person like with Airbnb.
  • Privacy – Vacation rentals have private entrances and private balconies. Therefore, patrons do not have to walk through the lobby after returning to their unit.
  • Cost effective – Since vacation rentals are spacious, families often rent them together. This makes the homes more cost effective than hotels.
  • Easy booking and check out – Technology such as online payment platforms enable guests to save time. They do not have to wait in line to check in or out.

Improving Vacation Rental Technology

Technology has played a huge part in making the short-term rental market grow. Online listing firms such as Airbnb make it easier for guests to book the home they want to stay in.

New technology-driven management firms are also making it easier for homeowners to maintain and market their vacation rentals. As a vacation homeowner, you can easily manage your property by using vacation rental management software.

With this software, you can manage rental channels. These include HomeAway, Expedia, and Airbnb using one app or platform to reduce management time and increase profits. This means that you can manage your property without having to enlist the services of a professional management firm.

Are Vacation Rentals Really Profitable?

Investing in vacation rentals is an excellent way to earn passive income.

A survey done by HomeAway, which is a short-term rental marketplace, found something interesting. People who rent out second homes earn more than 33,000 dollars annually in rental revenue. On the other hand, at Airbnb, the average vacation rental owner collects yearly rental revenue of about 11,000 dollars.

Most of the vacation rental owners using the Airbnb platform don’t perform as well. They may only rent out only a single bedroom or rent out their homes irregularly. They do not treat their homes as true vacation rentals.

These figures are an indication that vacation rentals are profitable. They are popular with people renting properties for a short period. They can also outpace long-term rental properties when it comes to potential rental income. To increase your chances of earning higher rental revenue, you should do the following things:

Do the Math

It is not that straightforward to figure out the amount of money your vacation home can bring in. However, online tools can enable you to calculate the potential cash flow to your property.

You can use these tools to calculate the average daily rental rates, revenue, and occupancy rates. By using these projections, you can then subtract items such as interest, PITI, management fees and maintenance expenses. Then you’ll get a cash flow forecast.

Evaluate the Location

The other factor that will determine the amount you will earn as rental revenue is the location. If you buy a vacation home, which is close to a popular destination like a ski resort or beach community, then it is likely that it will bring in a higher rental income. An excellent location close to a major airport or a vacation spot that people visit year round will have the best impact.

Assess the Scene

Apart from the accessibility and popularity of a destination, you also need to consider the setting. For instance, it is more cost effective to invest in a vacation home located in the mountains compared to a beachfront vacation home. However, such a home is not likely to bring in as much income as a beachfront property can.

The peak season for vacation rentals lasts about 12 weeks.

The trick is trying to rent the vacation home during the off-peak periods or when you do not want to live in the house. Try your best to keep your vacation home occupied by advertising it on platforms like HomeAway and Airbnb. You can even seek advice on the best ways to keep a property occupied from a property management firm that manages vacation homes.

Set the Price Right

To maximize occupancy, you should price your vacation home well. You can price your property slightly lower than similar properties so that it will be occupied more frequently. Furthermore, you should keep an eye on events like festivals and conventions that occur close to the location of your vacation home. When the demand is high, take advantage of it and adjust your rental charges accordingly so that you will not miss out on revenue.

Vacation homes are unique in that they are both an investment and a lifestyle upgrade. While they perform equally as well as conventional rental properties, they offer the benefit of having a place to stay for your own vacations.

A vacation home can bring in a good return on investment if you can keep it rented out most of the year. If you hold the vacation rental for many years, then you will make a return, which is comparable to or greater than you would have made if you had invested in stocks.

About the Author James Davis

James is a real estate investor, real estate agent, and is dreaming about financial independence. His focus is residential (1-4) unit rental property, house flipping, and everything real estate.

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