Why Your Next Investment Could Be a Vacation Rental

Vacation Rental Property

There are many ways to make money in real estate. Wholesaling, buy-and-hold and flipping are your standard investment options, and you can get more advanced with lease options and buying mortgage notes. There’s another investment strategy you might want to throw in the mix: vacation rentals.

The market for vacation rentals is growing. In 2010, vacation rental site HomeAway reports that there was $85 billion generated in the vacation rental industry. In 2015, popular vacation rental site Airbnb reported $7.2 billion in bookings were made on their platform. In 2016, they forecast $12.3 billion!

Changing traveler preferences are driving the growth. According to the Vacation Rental Management Association, 49% of leisure travelers are interested in staying at a vacation rental as an alternative to a hotel. Additionally, 22% of leisure travelers report having stayed in a vacation rental in the past.

If you haven’t acquired a vacation rental property yet, now may be the time.

Vacation Rental Basics

A vacation rental is the renting out of an apartment, house or professionally managed resort-condominium complex on a temporary basis to tourists as an alternative to a hotel. Simply, a vacation rental is a property that someone stays at instead of a traditional hotel. Someone could pay to stay in the property for one or multiple nights, as well as weeks at a time.

Typically, the property used as the vacation rental is fully furnished with everything someone would need to live there. This includes linens, TVs, cleaning supplies, furniture, utensils to cook with and dining sets for eating. The details matter in vacation rental property. For example, providing travelers with information on nearby attractions could influence travelers’ reviews of you and your property.

The Potential of Vacation Rentals

There are numerous reasons to own a vacation rental. For starters, you can visit the property with your friends and family whenever you want. It is your private retreat. Instead of spending money at a hotel, invest in a vacation rental that your family can enjoy for years to come.

The second reason, as you could guess, is cashflow. Let’s look at a quick example of a traditional rental property vs. a vacation rental property.

Regular Rental Cashflow

Let’s assume you have a 3-bedroom, 2-bath property that rents at $1,000 per month. You would take a $1,000 deposit up front. Over the course of a year, the maximum potential cashflow is $13,000.

Deposit$1,000
1 Month of Rent$1,000
# of Months12
Total$13,000

Vacation Rental Cashflow

Let’s assume the vacation rental only was rented about 50% of the month. This is a conservative estimate. So 50% is about 15 nights per month. A typical hotel stay can be $200 a night for one room. You, by the way, have three rooms and two bathrooms, so you might be able to generate more than $200 a night. But let’s not pad any numbers. We will keep it at a conservative $200 a night. When you look at the vacation rental on a monthly basis, you end up generating $3,000 in potential cashflow a month, or $36,000 over the course of a year!

Deposit$0
1 Night Charge$200
# of Days a Month15
# Months12
Total$36,000

Which cashflow do you want? $36,000 or $13,000?

You make nearly 3 times as much money as a traditional rental. Keep in mind, this is assuming you only rent it out 50% each month and you don’t charge a premium on the nightly rent. There are more opportunities to grow cashflow. Events like concerts, holidays and sports games allow you to charge premium prices on those nights.

Is a vacation rental right for you?

Anyone interested in making extra money with very little additional work should own a vacation rental. If you already own more than one property, you’re ahead of the game. If not, vacation rental properties can be quite affordable, as they do not necessarily require the purchase of a new property and have the potential to pay for themselves. While owning a property can certainly maximize profit, a leased property can have just as much earning potential.

If you don’t own more than one property, you may consider the advantages of acquiring a new one. For example, if you frequently do business out of town, renting an apartment could be much cheaper and more comfortable than paying for hotel rooms. Using that property as a vacation rental while you’re away gives you an extra source of income, added security and can help have the property pay for itself.

If there is a lake, beach community or ski area your family likes to visit each year, consider finding a property to invest in in that area. You will be able to enjoy it with your friends and family and rent it out when you aren’t there. You end up with a great family vacation destination paid for and you earn a great cashflow every month.

How do you get started?

Finding a vacation rental is no different than finding a property in your own area. A simple real estate search can clue you into properties that are inexpensive and have the same earning potential as an out-of-town property.

If you already own a potential vacation rental property, getting started is as simple as preparing the property for visitors, organizing your rental calendar and listing your property. Sites like Airbnb.com, VRBO and HomeAway are popular places that make listing your property simple. On these websites, you specify the days the property is available for rent and the price per night. As potential customers are searching, they can book your vacation rental through those websites. You get instant notifications throughout the whole process.

Lastly, it’s a good idea to find a coach or mentor to help you out. Even the best athletes have personal trainers and coaches to get them to the next level. Surround yourself with vacation rental investors that have experience doing what you want to do. You can learn from them and prevent costly mistakes. Use their experience and knowledge to help make your job easier.

Tylor Hindery
Tylor Hindery is an entrepreneur and real estate investor with experience in wholesale deals, flips, traditional rentals and vacation rentals. He also has experience in portfolio management, web development and startups. Tylor works with other real estate investors at VacationRentalTechnology.com to provide resources that educate people on the vacation and nightly rental business.