The vacation rental investment sector is burgeoning. The steadily improving economy and wider recognition of the private accommodation sector means more individuals and families are going on vacations than ever before. Surveys show that second-home buyer demand is declining, and more people would instead use a vacation rental.
The rise in guest demands opens up more opportunities for people who want to venture into this real estate niche. Airbnb hosts earned over $110 billion in rental income in October 2020 worldwide. This figure shows how lucrative investing in vacation rentals can be if done with the right combination of skill and commitment.
Like all real estate investments, a would-be successful rental investor will have their work cut out for them. You have to figure out stuff like the best place to own a vacation rental, finance the property, and run your new investment profitably.
This kind of investment, however, goes beyond just finding the best place to own a vacation rental; investors may often have to deal with certain drawbacks from time to time. Before we consider that, take a look at the most convincing reasons to invest in vacation rentals.
Why Invest in a Vacation Rental?
Extra Income
The primary reason for any investment is to make more money, and Orlando vacation rentals can make you good money. Airbnb hosts in some high-demand cities make as much as $3500 monthly. Investors must find the best place to buy Airbnb in 2021 to maximize profit. Factors like holiday seasons, amenities, and the state of the economy influence how much income a vacation rental property can generate.
You Have a Personal Getaway Destination
You can always use your vacation rental for your events anytime you want. You can host a birthday party, have a family getaway, or just move out of town to clear your head. You should buy a rental in a place where you would love to visit once and again if you want your investment to double as a getaway destination.
Fixed Investment with Appreciative Value
A vacation rental investment property is fixed and is most probably going to increase in value with time. So, you always have the option of selling your property for a profit if you choose to get out of the rental property sector in the future.
Tax Exemptions
Your property is considered a business if you rent it out for more than two weeks a year. Therefore, you can write off property-related costs (cleaning, utility, insurance premium, mortgage interest, property management fees, supplies) as tax-exempt business expenses.
Cons of Investing in a Vacation Rental
Some drawbacks to consider before buying a rental property include:
Requires Property Management
Vacation rentals are not as passive as other property investments. They require hands-on management. Owners have to take care of cleaning, maintenance, guest needs, check-ins, checkouts, and other issues that may arise.
These activities are time-consuming and can overwhelm investors managing several properties. Hiring a property manager can help take some of the load off, but it may cost you anywhere from 15% to 40% of your income to hire one.
You Have to Market Your Rental Property to Get Guests
Just listing your property on a rental platform may not be enough to get patronage. To improve visibility, you may have to create specific business pages on social media; and optimize your listings with videos, slideshows, and SEO strategies.
Inconsistent Earnings
Vacation rentals are seasonal, and you may not generate as much income during the low seasons. You have to understand the seasons in your target market so you can maximize the peak seasons.
Additional Expenses
Running a vacation rental comes with recurring costs, including listing fees, maintenance, and the cost of restocking supplies. Your monthly revenue should cover these expenses, even when patronage is low.
Best Places to Buy a Vacation Rental
One of the vital ingredients for succeeding as a rental property investor is finding the right location to buy a property. We have compiled a list of the best places to own a vacation rental property:
Smoky Mountains, Tennessee
The picturesque views, roaming wildlife, and southern charm of the smoky mountains draw 11 million people each year. Tourists come to hike scenic trails and do some climbing. The unique firefly festival, an extraordinary display of nature puts the Smoky Mountain on many travel bucket lists.
The median price for rental properties in the Smoky Mountains is about $367,262, and it’s reasonable to expect a yearly ROI of around $51,228.
Gulf Shores and Orange County, Alabama
The white sand beaches that line Alabama’s coastline attract over 25 million visitors annually. Gulf shores offer a scenic shoreline 32-mile beach that runs into Orange County.
The beach offers lots of activities for a great family vacation, including deep sea fishing, dolphin cruises, and golf. Rental properties go for a median price of $346,018, with average annual revenue of around $30,222.
St Augustine, Florida
The immaculate beaches, clear skies and European vibe makes the Sunshine state a tourist hub. St Augustine is America’s oldest city, and the colonial architecture still lines the landscape. Investors will have to pay around $365,557 for a vacation rental property and expect annual revenue of approximately $46,557.
Palm Springs, California
Palm Springs is one of America’s most popular vacation destinations and needs little introduction. This favored spot for celebrities and high rollers has become one of the best places to acquire a vacation rental property.
With median home prices around $539,370, it is not the cheapest place to buy a vacation home. However, investors who can afford the significant outlay will be glad they did in the long run. The average rental price of $52,784 per year makes buying a Palm Springs vacation rental property a prudent investment.
The Poconos, Pennsylvania
The Poconos has evolved through the years to become one of America’s favorite vacation spots. The mountainous terrains offer year-round adventures for families and groups seeking to explore nature.
From hiking the hilly landscape to playing water sports in Bushkill Falls, the Poconos have an irresistible charm. Rental properties are listed at a median price of $198,667 and investors can expect gross annual revenue of around $41,669.
Closing Thoughts
Vacation rental investment is a great way to break into the real estate investment sector and build a long-term portfolio. But you must understand your target market well before investing. Research the industry diligently, and ensure you have the time, will, and resources to make the best out of your investment. For more information on selecting a good property manager, you can check online.
