What is a Vacation Rental?

A vacation rental is an investment property rented out for short periods of time, typically less than one month.

A vacation rental is an investment property rented out for short periods, typically less than one month. According to Statista, the expected rise to 57 million vacation renters by 2023 highlights the growing popularity of vacation rentals as an investment.

How Much Can I Earn With a Vacation Rental?

Earnings from vacation properties vary by location, amenities, and other factors.
But according to the Evolve Vacation Rental Network, a 1-bedroom vacation property in the 50th percentile earns about $38,490 per year, while a 3-bedroom brings in $98,688.

Vacation Rental vs. Residential Rental Management

There are many differences between vacation and residential rentals, starting with their expected term length. Often, residential rentals are leased for six months to one year, if not longer. They may sport a month-to-month lease agreement, but rarely will a residential rental have a shorter term.

On the other hand, these properties are typically short-term rentals, meaning they’re leased for a month or less. As such, most people who rent these properties don’t pay for utilities.

Owners must know their market and revenue well, anticipating yearly vacancies.

How to Buy a Vacation Rental

Fortune Builders lists four steps to investing in vacation rentals:

  • Research thoroughly. Success hinges on location—select a city and region, then examine market conditions, employment, weather, demand, inventory, and nearby amenities.
  • Conduct an in-depth market analysis. With potential locations in mind, scrutinize market demand, personal appeal, nearby attractions, and seasonal trends. There must be a consistent demand for the vacation rental investment to be considered sustainable. Then, start comparing rental properties in the area to understand how the market performs.
  • Understand the rhythm. Your vacation rental’s income is likely to be highly seasonal. For example, a house near a ski resort will see more interest in the winter than the summer. You also need to establish your expected monthly expenses, factoring in any furnishings and regular cleanings. Plan to put at least 25% down if you’re financing your purchase, and expect a higher interest rate since you’re more likely to let your vacation rental’s mortgage lapse than your own.
  • Estimate income and expenses. If the market shows steady demand, expect strong cash flow. Generally, rental rates are 10-20% over monthly mortgage costs, depending on the area. Account for downtime by estimating a 25% vacancy rate. Once you know the property is right for you, secure preapproval and make an offer!

Conclusion

In conclusion, the robust demand, projected to hit 57 million by 2023, positions the vacation rental market as a lucrative income source, with earnings dependent on property specifics. With the potential for earnings significantly varying based on property location, size, and amenities, investors can see annual incomes ranging broadly, highlighting the market’s lucrative nature.

Key steps for a successful venture into this rental market include meticulous research on location, conducting in-depth market analyses, and grasping the financial aspects unique to short-term rentals, such as higher down payments and interest rates. The effort to align investment strategies with current market trends and demand can lead to rewarding outcomes.

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