Pros and Cons of Investing in Vacation Rental Properties
Short-term and extended stay rentals (over 30 days) have exploded in popularity in the last year in part due to the COVID-19 pandemic. This increase came from people feeling trapped within their own homes because of the quarantine mandates and workers’ increasing ability to work from home. For example, rural hosts are seeing huge surges in business. For many, this past year was the first time they have booked a “staycation”. If you are one of these people who have enjoyed a getaway at a vacation rental home and are now thinking of investing in one, there are important things to consider before investing in a vacation rental property.
Advantages of Investing in Vacation Rental Properties
A consistent place to get away
The absolute best part of owning and investing in a vacation rental property is having somewhere consistent for you and your family to stay when going on a vacation. No more having to worry if the hotel you booked is up to your standards or if it’s been cleaned properly. You also avoid having to deal with blocked out dates during a busy season because you control the availability of your own property. A great property management company like our partner, Open Air Homes, understands that you may want to use your vacation home, and will work with you to create a rental schedule that works for you.
An appreciating income-generating asset
From a financial perspective, owning real estate is a relatively safe investment that appreciates over time given a long enough time horizon. Homes all over the country, especially those in desirable neighborhoods or vacation destinations, are in short supply. With demand ever increasing, real estate values will continue to appreciate in the foreseeable future. In addition, a well-managed short-term rental generates more income than if it were leased to a long-term tenant. With the popularity of short-term rentals and extended stays, a vacation rental can provide you a consistent income stream.
If you rent your home for 15 days or more out of the year then it qualifies as business income according to the IRS. You have to pay taxes on that income, of course, but it also allows you to deduct a myriad of expenses associated with owning a vacation rental property. These include, but are not limited to, property management fees, cleaning fees, maintenance costs, mortgage interest and occupancy taxes. We recommend that you speak with a tax professional to verify how these deductions can help offset your tax burden.
Disadvantages of Investing in Vacation Rental Properties
It requires investing in marketing and design to succeed
It takes more than simply listing your home on an online platform to succeed in the short-term rental business. In an industry that is extremely competitive, it takes proper marketing and design to make your vacation rental stand out from the rest. Today, social media like Instagram and TikTok can be great sources of publicity for your vacation rental and should be used to their full potential. A sophisticated interior designer can help you achieve the look and feel you want for your vacation home while balancing it with what appeals to the broader rental market. A beautifully designed vacation rental allows you to charge a higher nightly rate and have a higher occupancy rate than your competitors.
Managing a rental property can be time consuming
From maintenance and cleaning to attending to guests’ requests, managing a vacation rental is equivalent to a full-time job. Finding and vetting the right vendors is only half the battle. Following up on requests and making sure they are done correctly and in a timely manner can take hours off your day. Hiring a property manager can alleviate the many different responsibilities that come with owning a vacation rental.
Higher insurance & mortgage rates
Homes in premier vacation destinations such as the beach and the mountains tend to have higher insurance rates because they are exposed to location-based risks such as flood, fires and wind. Mortgage rates on investment properties are also higher than on an owner-occupied property.
If you’re looking to purchase your own vacation rental property, having a team of experts to guide you from the very beginning is important in succeeding in this journey. Our team at OpenAiRE can provide you with a complimentary revenue and expenses analysis for a potential investment property to help you assess its viability as a vacation rental. After your purchase, our partners at Open Air Homes can help you navigate the competitive short-term rental industry, allowing you to fully enjoy the benefits of owning your own vacation rental property while avoiding the pitfalls associated with running a business.