How To Make Money On A Vacation Rental Property
Owning a vacation rental property can be an excellent alternative income stream. Whether you are a seasoned real estate investor or just starting, our article can help guide you on your real estate journey.
A lot more goes into renting out vacation real estate than simply buying the property and having people pay you to stay there.
If youre really serious about it, a vacation rental property can become both a lucrative and enjoyable investment. Lets review what it takes to create a profitable vacation rental property and an enjoyable experience.
You Have An Extra Monthly Payment
If youre not careful, vacation rentals can cause problems with your cash flow. For one, they come with an extra mortgage payment. Depending on how expensive the property is, that alone could cause financial stress in your household.
There are also other expenses to consider, like utilities, lawn care, and general maintenance. Youll probably have unexpected repairs, too — and who knows what those will cost you? Take a good look at your larger financial picture and be sure the extra costs arent going to strain your finances before moving forward.
Stock The Right Supplies
What else can you do to cozy up your new location?
If your demographic includes families or young adults, consider creating a dedicated game room equipped with ping pong, foosball, or pool table. And never underestimate the power of incorporating board games or a gaming console.
Because your Myrtle Beach property will attract beach-goers, consider stocking your property with beach accessories such as:
- Sand toys
- Nets
- Beach towels
If you have a BBQ or grill, don’t forget to include supplies such as charcoal and lighter fluid. The same goes for laundry detergent, dishwasher detergent, etc. If you have a Keurig, make sure you provide a variety of capsules.
A couple of unexpected beach perks can’t hurt either. Consider purchasing paddle boards, surfboards, or beach cruisers that guests can use.
That way, guests can focus on playing rather than shopping.
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How Much Does An Average Beach House Cost
Beach house properties are substantially pricier than similar homes located inland. In Delray Beach, a popular beach town in Florida, the median house price in 2020 was $229,158, according to Zillow. Mortgage interest rates for vacation properties are also usually higher than those for primary homes.
Its Not Allowed Everywhere
If youre serious about getting into the vacation rental game, be careful where you buy your property. Many cities, municipalities, and homeowners associations have strict regulations around rentals — particularly the short-term kind.
Some places ban short-term rental activity altogether, while others have rules for how long or how often a property can be rented out. Some also require certain licenses in order to operate a rental in the area.
If you have a potential property in mind, study the local rental policies before jumping in. Start with your citys building committee and any HOAs in the neighborhood.
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Will A Vacation Property Pay For Itself With Rental Income
My family visits Destin, Florida almost every summer. We stay in the same condo each visit. Ive often contemplated purchasing a condo so that we could use it as often as we want and rent it out the rest of the season.
But the real question is whether or not renting that property out will pay for the property? This has taken some research and a lot of soul-searching but here is what Ive learned:
Will A Vacation Property Pay for Itself with Rental Income? A vacation propertys costs can definitely be offset by renting it out, but expecting it to pay for itself can be a risky approach to investing in a vacation home or condo. Management fees, seasonal demand, taxes, and your own comfort level with having others using your vacation property are all determining factors that you need to consider.
Lets break these down and see if renting out a vacation property to offset costs is the right choice for you.
Vacation Rental Investment: What Are The Options
Thinking about real estate investment to make money outside your 9-to-5 job? Buying a vacation rental home might be the best way to enter the real estate business and become a property investor. Vacation rental investments are gaining popularity nowadays. Many people choose to buy vacation property as an investment and rent it out when theyre not using it themselves. The idea is that you are actually buying a dual-purpose property. You can use it as a second home and spend your vacations there. Then you can rent it to guests for the rest of the year. The major advantage of this approach is that you gain a source of steady income without having to necessarily buy an investment property. Its your second home, and it looks as if you make money on the side. Vacation rental investment is a great way to get some passive income if you do in-depth market research and come prepared. A vacation rental property that can generate enough rental income to pay for itself is a good place to start if you are interested in real estate investing.
If you buy the right home and manage it thru Beach Time Rentals, purchasing a vacation rental property can yield excellent results over the years. But you need a comprehensive business plan to ensure that everything goes smoothly and build a rewarding and profitable business.
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Youll Probably Pay More To Finance The Property
One of the biggest downsides to owning an investment property is that you pay more to finance it. Investment property loans typically come with higher interest rates than other mortgage options. That means a higher monthly payment and more interest paid over the life of the loan.
On top of this, lenders usually require a hefty down payment when covering an investment property. In most cases, it’s 25% or more. On a $300,000 home, thats at least $75,000.
The Perks Of Owning A Vacation Rental
First up: The good stuff. There are obviously many advantages to owning a vacation rental, or millions of people wouldnt do it. Its why platforms like Airbnb and VRBO have grown exponentially over the last decade. Its probably why youre reading this article in the first place.
Lets look at a few of those perks now:
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How Vacation Home Rentals Can Pay For Themselves
Many people consider purchasing vacation home rentals but cannot find a way to make it work financially. In reality, if you do it right, a vacation home rental can actually pay for itself. Here are the basics of how to make a home rental pay for itself.
Determine the Break-even Point
Before you can do anything, you need to determine your break-even point with this venture. You need to figure out how many weeks out of the year you need to rent the property in order to compensate its expenses. Calculate how much this house is costing you on an annual basis. Take that number and divide it by the amount of rent that you charge for one week in the house. This number will tell you how many weeks that you will need to keep the property rented in order for the property to pay for itself. Unless you determine this number, you will not have a goal to work towards.
Tax Break
Internet Advertising
Many people use outdated methods to advertise their vacation properties. In today’s world, you need to focus on Internet advertising to bring people to your property. There are a number of different ways that you can advertise effectively online. You can start your own website that features information about the property. You can drive traffic to this website by using methods such as pay per click marketing, e-mail marketing, or through social networking sites. Many of these methods are inexpensive or even free, and they can be very effective.
Cutting out Management
Will It Still Feel Like A Vacation When You Are Doing Property Maintenence
This has been a big one for me. As much as I would love to buy the condo where my family and I stay every year in Destin, Im put off by the idea that I would end up spending a large portion of my time there dealing with maintenance issues.
Yes, you can hire services out but there are lots of upkeep items that are much cheaper to just do yourself. Fixes such as touch up painting, quick repairs of leaky faucets, and energy efficient upgrades are usually simply DIY projects that you can do yourself and save a lot of money.
Additionally, my wife has a decorative streak in her and we would likely spend time hanging pictures, replacing curtains, and other odds and ends. All of these types of projects stand to eat into your vacation time.
So, consider the time that you will be required to invest of your own and whether or not the end justifies the means.
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Does A Vacation Rental Pay For Itself
Our investment journey has taken yet another turn this year as we are embarking on our most exciting project yet. Our demand has continued to grow over the years so we have purchased land to build a custom vacation rental in the same community of South Haven, MI. As you can see, our answer to if a vacation rental is a good investment has changed over the years. Our business mindset has also evolved. So ask yourself again why you want to invest in a vacation rental home. Is it right for you based on your goals? Are you prepared to pivot if your goals change? For us its been a great journey. Our fingers and our toes are crossed that the purpose built vacation rental is successful.
You can look at a vacation rental strictly as a way to earn money. However, deciding whether or not a vacation rental is a good investment is more than just identifying the yearly income or the cap rate. We run our vacation rentals under an LLC, so if you do that, you are running a business and the tax advantages are very helpful in reducing taxable income. Even if you are only breaking even, having a vacation rental is an opportunity to invest in a place you love, be hospitable, meet new people, make new connections, and know that you have contributed to special memories for your family and for your guests as well. With that outlook, I believe that a vacation rental pays for itself.
Are Vacation Rentals A Good Investment
Is a vacation rental a good investment for you? To decide, you first need to determine your goals for the purchase. Do any of these apply to you?
- Is it your dream to own a property in a vacation destination?
- Are you seeking a particular return on your investment?
- Do you want to diversify your portfolio with a home that will appreciate in value?
- Are you looking for an investment vehicle that offers tax advantages?
Ill cover all of these topics throughout this article to answer the question are vacation rentals a good investment, but Ill start by telling you about my vacation rental investment journey.
My husband and I started our vacation rental adventure in 2007 when we fulfilled a dream to purchase a property in South Haven, Michigan. At the time we didnt have aspirations of making money as we really just wanted a home in Michigan to enjoy with family and friends and any rental income was going to be a bonus. We felt it would be ok if we covered 80% of the expense of the house with rental income as this was a long term investment that we knew would appreciate over our lifetime and in the short term we would benefit from a tax perspective.
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You Make Extra Income
The biggest perk of owning a vacation property is simple: You make money. Airbnb hosts alone earn upwards of $900 per month on average, while hosts in the most in-demand cities can make four times that or more. And thats only on one platform. Dozens of other vacation rental sites exist, opening the door to even more earnings if you play your cards right.
Here are some of the best vacation rental platforms you might want to consider listing on:
Make It Available During Peak Season
It may come as a bit of a personal sacrifice, but you can up your income by allowing vacationers to rent your property during coveted times. “There are peak seasons for all vacation markets,” says Jill Olivarez of Home Pocket in Destin, FL. Plan to use the property for yourself during fringe seasons and rent it during those peak times to maximize rental income.
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Costs And Benefits Of A Vacation Rental
Real estate is almost always a sound long-term investment. Within the larger field of real estate investing, vacation properties are a unique subset. What you choose to do with your vacation home may determine how lucrative an investment it can be. Its surely not a get rich quick scheme, but a well-managed vacation rental can be an excellent income generator.
Lets take a look at some of the specific costs and benefits of a vacation rental.
So You Want To Get Started Now What
The most important consideration when buying a vacation rental is to work with a real estate agent who is knowledgeable in the short term vacation market. There are so many important factors to consider such as rental regulations, location and property management, and an experienced vacation rental real estate agent will be your guide in this process. Organizations like Vrolio.com have teams of expert real estate agents all over the country that only focus on the vacation rental market. They also have a free vacation rental analyzer tool that helps you crunch all the data points to determine if you are making the right investment decision.
Investing in a vacation rental is a fun and exciting journey and I encourage you to consider if this is the right decision for you. Id be happy to speak with you if you have any questions along the way.
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Tips To Make Your Vacation Home Pay For Itself
Having a vacation home is something many people dream about. Unfortunately some expenses come along with it. Things like HOA dues, utility bills, snow plowing, maintenance and property taxes can be additional expenses that will need to be paid. Your vacation home can generate income when youre not using it that will help to cover those expenses. Here are some strategies to help accomplish that.
1. Rent your property short term. This is the most obvious and popular way to generate income with your vacation home. A general rule of thumb is to anticipate approximately $10,000 per bedroom gross rental income every year.
2. Handle your rentals yourself. If you are renting your condo through a full service property management company you can elect to do some/all of the work yourself and keep more of the profits. Even out of state owners can easily make this type of program work for them.
3. Tax deductions. As long as you stay below the limit, your mortgage interest is deductible. You can also deduct expenses if you are claiming rental income. Offering up a stay in your vacation home for a charity to auction off could be tax deductible too. We are not tax advisors so be sure and discuss how these strategies can work for you with your tax advisor.
When buying a vacation home, dont overextend yourself. Plan to pay all the expenses yourself. Use these strategies to cover your expenses when its feasible to do so and enjoy the extra savings.
Write A Compelling Listing
Make certain you mention in your listing the nearby attractions and perks of staying in your vacation home.
When future tenants read your rental listing and compare it with other options, you want to ensure that your listings text is compelling. The goal is to write a pitch to why they might want to stay there. Dont overdo it, though, because nobody wants to be sold.
Carter Seuthe, CEO of , gives an expert tip, Put as much information in the headline as you can and use a professional photographer. Those two things will sell a rental more often than not.
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How Much Will A Vacation Rental Owner Make
How much money a vacation rental owner will make comes down to not only having a great house, but more importantly having a great property manager. We had always self managed our rental properties but in 2017 we recognized that technology was rapidly changing the industry and we either needed to get on board or turn to a professional property manager. We decided to continue to self manage and invested into technology that would automate our processes and also provide us access to more OTA channels and create a Book Direct strategy. Some of these key solutions include:
- Myvr property and channel manager software
- Home automation smart locks, thermostat and smoke detectors
- StayFi wireless internet splash page for guest email capture
- Increased presence across social medial and email advertising campaigns
While there are a lot of tools and data on where to set your rental rates its not an exact science for single family homes as each has unique features that might make it more appealing than the property next door. Whether you self manage or work with a property manager, constantly evaluating your rates is one of the keys to the profitability of your investment. I can speak from our experience that initially we didnt charge nearly enough for our rentals and it cost us thousands of dollars each year.