Discover the Ins and Outs of Investing in Vacation Property

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By Richard

Is owning vacation investment property lucrative?

The short answer is yes – especially if you have the right property and financial strategy. When you get the perfect property and financial strategy, you will be able to bring in a steady stream of income, which includes charging renters a higher rate than the traditional long-term renting scenario. 

 According to current data, the average amount you would be able to collect is more than $900 per month. However, some property owners could make as much as $10,000 per month. This would break down to the average nightly rate of $185 per night (and as high as approximately $1,000 per night) for vacation rental owners. 

 Whether on the low or high end of this spectrum, both numbers indicate that there is potential to earn far more than the average monthly income. 

 As such, it becomes immediately apparent how easy it is to turn your current vacation rental property into a profitable large-scale business – especially if you know which property to buy, where to purchase land, who your target audience is, and how you can maximize the benefits of a vacation rental property.

 What Are the Pros of Owning a Vacation Rental Property? 

 When owning a vacation rental property, there are several pros and cons. The biggest pro is that having this property means you can get involved in a much more lucrative investment market than if you were only limited to traditional real estate. 

 Statistics indicate that vacation rentals can generate a much more significant source of revenue – even more than long-term rental properties. This is because temporary guests are often more willing to pay a higher amount for a well-furnished vacation rental. 

 As such, hosts are more able to adjust and fluctuate their prices throughout the vacation calendar year and especially take advantage of the high-season prices (whether that be because of the change in seasons or because of special occasions such as festivals).

  Your Vacation Home Can Be Your Getaway 

Finding a place to visit each vacation can be a task in and of itself. However, having a vacation rental home can use your property as your getaway. 

Whether you want some time away or you have a special event you are planning (such as a family reunion), having your property can make organizing this getaway much easier. 

While this should not be your main reason for investing in a vacation rental, it is an excellent bonus. 

Another possibility is that you could transform your vacation rental property into your retirement home once you have retired. Not only will you benefit from the advantages that this space offers, but your decision will mean that it will become yet another valuable fixed asset in your portfolio.  

More Control Over Your Property

Another bonus of opting for a short-term rental is that you will ultimately have far more control over the condition of your property when it is available and what the prices and rates will be as it is on the market to rent. 

Given that you have not signed a long-term contract for your property, it becomes much easier to choose a weekend for yourself or increase the rental rate over different periods or on weekends.

While having more rental turnovers means that you will have more work as the property rental manager, the bonus is that this allows you as the owner to engage in regular home inspections. 

Take Advantage of Tax Write-offs

Having a vacation rental property also grants owners some attractive tax benefits, including the fact that you can immediately deduct property-related expenses if you have been renting out your vacation property above 14 days in a year. These expenses include everything from utility bills to hosting fees.

Expenses Will Be higher Than with Traditional Renting

One of the most significant differences, when you have a vacation rental property is that the expenses will be higher. 

Statistics indicate that loans generally have higher interest rates. The down payment amount is much higher than what you would pay for the property if it were a primary residence. You may pay a higher amount to finance a short-term rental property.

In addition to these costs, having a vacation property rental also means that you will have to invest in furnishings and constant cleaning. 

These expenses will include investing in bedding and linens, décor, high-quality furniture, kitchen utensils and appliances, bathroom supplies, wi-fi, money for cleaning when the rental turns over, maintenance, occupancy taxes, and cash for short-term rental insurance.

Rental Income Might Be Irregular

While short-term rentals tend to be far more profitable than long-term rentals, one of the key downsides to anticipate is the possibility of encountering periods when your property does not have a renter (which means that your income will decrease due to seasonality). 

As a result, you should do some initial research on how seasonality in the area you intend to purchase can impact your business.

You Might Have to Deal with Difficult Guests 

Another downside to having a vocational rental property is that you may have to deal with difficult or problematic guests. 

To ward off this possibility, organizations such as Airbnb have put practices such as verifying IDs. You can also introduce charging a security deposit or asking your visitors to sign a vacation rental agreement. 

While this doesn’t prevent a guest from leaving behind property damage or affecting your relationship with your neighbors, it may avoid some undesirable behavior.

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