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If homebuyers are considering the possibility of a second property as a real property investment, most will think about long-term rentals. While this could be an excellent choice, there are times when you might want to consider a home in a different town that you visit often. However, you can rent it out in the short term if it’s vacant. Maybe you’ve discovered an excellent investment opportunity in a tourist town, and even though you’d like to move there one day, you’re just not prepared for it yet.
Vacation rentals are an excellent way to earn money from investment properties and use it to take short-term trips or supplement an investment portfolio for retirement. In addition, with the introduction of Airbnb in 2008 and the redesign of Vrbo in 2019, the possibilities are plentiful. Many travelers leave traditional resorts and hotels searching for individual and intimate experiences. 19% of those who booked holiday accommodation between March and April 2021 did it. If you plan to purchase an additional property and have a spare room to let out, renting out vacation homes could be a great investment opportunity.
What are vacation rentals?
Vacation rentals are furnished apartments, houses, or professionally-managed resorts or complexes that are rented out, often to tourists, as an alternative to hotels. These rental properties for short-term rentals come with basic amenities. Their timeframe is typically no longer than 30 consecutive days.
Vacation rentals for short-term stays have been extremely popular in recent years. In Vacasa’s Vacation Rental Search Report, search and traffic for vacation rentals were nearly two times higher than the previous year. By the time spring 2021 came around, searches were up 235 percent, and the number of users was increasing by 116 percent. For investors, rental income is an excellent source of income. According to HomeAway and Vrbo, Vacation rental revenue is 24% of the annual earnings of the average homeowner.
The pros and cons of investing in vacation rentals
Vacation houses can be lucrative, particularly in attractive and popular areas. In October alone, Airbnb hosts earned over 100 billion dollars in rental income worldwide. But investing in the market for vacation rentals differs from renting a property with long-term renters. While exciting and profitable, it also requires more care and maintenance. Here are some advantages and disadvantages to consider when investing in a vacation rental property.
Pros
Rental income
Websites for vacation rental properties like Airbnb, VRBO, and HomeAway have revolutionized how people travel. Instead of sterile hotel rooms, travelers are now prepared to pay more for holiday homes that provide an experience. As a vacation rental owner and investor, owning a property in the ideal area can yield huge profits, particularly in high season.
Dual-use property
A vacation rental could serve as both a way of investing as well as a vacation residence for a short trip when you are planning to use it as your second residence is easily blocked as inaccessible and allows you to profit from investing in the real estate market while owning a home to make a home for your vacation.
Tax benefits
A property rented out for vacation would be considered a holiday rental company, which implies that there are significant tax benefits and tax deductions when you own a vacation rental that is mostly used for investment purposes.
Property Appreciation
A vacation rental gives you a short-term rental income that is passive in the form of rent. However, it also appreciates in time. In other words, if the property were transferred to a buyer, the appreciation would ensure a higher return on investment in combination with the monthly rent it earns. The rental market for short-term rentals in areas that are desirable tends to have a faster increase in value and more rates of return over the long run.
Likely to survive recessions
The main benefit of buying property–and the reason why it’s an investment that is worth it, is that people will always require an area to live in. In addition, studies show that even in a downturn, people continue to go on vacation even if they’re making shorter trips, sharing costs, and planning trips closer to home.
Cons
Vacancies and inconsistent income
There are always vacancies in the rental market, and there will be times when the property is empty in the off-season, particularly in the case of a seasonal vacation rental. This is expected, and the higher profits when the property is in use usually outweigh the days when the property is empty. But, if a house is vacant for too many days during an entire year, that could affect the cash flow.
Expenses
Because of what is required in a rental property, where the property has to be cleaned and amenities filled and checked every time, the costs can mount up. If you contract an agency to manage your property, the fees may drain rental revenue. Other costs include supplies and cleaning expenses, maintenance expenses resulting from the wear and tear of your property, as well as utility costs.
Hands-on management
A short-term rental property requires more management, marketing, and book time than a long-term lease. Cleaning and maintenance tasks cleaning the property for sale, replenishing essential supplies and marketing, scheduling reservations, responding to visitors and tenants, and organizing check-ins and checkouts, are just a few of the daily things that must be accomplished when you have an apartment rental.
How to choose a suitable vacation rental investment property
The secret to finding an investment property that is a vacation rental that can continue to generate an appreciation and cash flow, for the most part, is the selection of the property. Here are some tips to consider when you look for potential investment properties.
Locality
This is possibly the most important decision to purchase a vacation rental. The location you’re purchasing can be a matter of personal considerations, for instance, the location you’re planning to spend your summer vacation or if there’s an area or state you’d like to retire to. From the standpoint of investment, you may consider looking at those booming markets with the highest profits.
Rent demand
Rental demand is an amalgamation of listing and annual occupancy growth rates. When looking at a property for sale, it is important to consider how seasonal the house is. Is it situated in a location that attracts tourists all year, or is it more suitable for winter or summer tourists? For instance, a home close to the beach will have a higher demand in the summer.
Costs
List of monthly and annual expenses for the maintenance of the property. This includes cleaning, restocking supplies and hosting costs, property management charges, and marketing.
It is easy to make investments in rental properties for vacations.
Rental properties for vacations are a great investment in real estate, with no entry barriers and numerous tax advantages. Due to the huge demand and the prices of specific areas, you’ll own a home that will provide steady cash flow year-on-year and a significant appreciation in value.
