The vacation rental market has grown at a rapid rate over recent years, and there’s no sign of it slowing down. Vacation rental investment is a lucrative business. Statistics indicate a worldwide revenue of US$302.9 billion in 2017 and a forecasted revenue of US$436.9 billion by 2020.
Existing property managers and retail estate investors are regularly adding to their portfolio and placing more listings on travel platforms. There’s also interest from newbies. People are starting to realize there’s profit to be made from short-term and long-term rental. If you’re considering vacation rental investment check out our brief guide on how to be successful.
The Benefits of Investing in Vacation Rental Property
Vacation rental investment can be very rewarding. Property is usually considered to be a sound investment and will hopefully climb in value over the years (until you decide to sell). In the meantime, you can rent out your investment property and make a decent return. For some, this is a second income and can be used to splash out on the finer things in life such as nice holidays. Others make short-term rentals their primary business and use their earnings to live on.
There are also a number of risks associated with vacation rental investment. For instance, markets are often seasonal. Your beachside rental could attract a high level of interest and bookings in the summer, but accrue much less attention at other times of the year.
You could also face issues relating to the rules and regulations on short-term rentals. These can differ from area to area, so you do need to check local government policy on this. We will look at this topic in more detail later.
Finally, no matter how much planning and thought you put into investing in a vacation rental, you can’t foresee exactly what might happen in the future. Extreme weather conditions, economic and political unrest, etc can all have an adverse impact on interest and bookings.
Things to Consider
If you are thinking about embarking on vacation rental investment there are a few things you should take into account:
The location of your investment property can play a huge part in how much you can feasibly charge guests. Find a few prime areas that are ripe for vacation rental investment and find out all you can. Are other vacation rental properties trading successfully? Does the area have popular attractions and features that will attract guests? Does the location have plenty to offer all year round, or is it more of a seasonal area? It might cost you more to buy in a tourist hot-spot but you will be able to charge more per night when it comes to letting your property.
Cost of repairs and maintenance
Vacation rental properties require maintenance and running repairs. Guests expect to stay in a property that’s clean, tidy and functional. That means all fixtures, fittings and appliances should be in good working order. Remember – vacation rentals can take a battering – not all guests will look after the place as well as you hoped.
Laws and Regulations
We’ve briefly touched on this, but it’s important you do your homework in terms of the rules and regulations surrounding vacation rental properties in your chosen area. In many cities, you will need to register, get a license or secure a permit, before you can list your rental or receive guests. Worst-case scenario – short-term bookings might not be allowed at all and you will face penalties/criminal action if you go ahead.
You will need to take out insurance to protect your vacation rental property. It’s not enough to rely on homeowner or landlord insurance – as your rental will be occupied in different ways throughout the course of the year. It will be rented to short-term rental guests at certain times and at other time you might stay yourself. During other periods your property may be unoccupied for a duration. You need to make sure your insurance covers all three eventualities.
Take care when setting your pricing strategy. Your prices need to be low enough to remain competitive but high enough to secure a good enough return on your vacation rental investment outlay. You need to cover expenses, such as mortgage payments and utilities and (hopefully) make a little profit too!
Analyze comparative market data by researching the cost of other properties in your area. Take a look at what they offer and think about the features that make your property stand out from the crowd.
You should also consider adjusting your price to reflect demand. You can reduce your price per night during quiet periods to attract last-minute-bookings and boost occupancy rates. You could enlist a management company or invest in software tools to help with this.
Are You Ready For Vacation Rental Investment?
Vacation rental investment can provide you with a healthy primary or secondary rental income. However, we suggest you put together an investment strategy and do your research before buying a vacation rental.
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