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 you’re really serious about it, a vacation rental property can become both a lucrative and enjoyable investment. Let’s review what it takes to create a profitable vacation rental property and an enjoyable experience.
The Process For Success
Let’s say that you’re committed to learning how to make a profit from vacation rental property, but you’re starting from ground zero. Here are things you need to consider and be aware of when you start your journey.
1. Purchase the Property
The first step in the process is to choose and purchase the right property. Your goal is to be profitable, so this is one of the most important steps. Choosing the right property will either make or break your profitability.
Keep this in mind:
- Size of the Property. How many guests can comfortably stay there? However, larger properties correlate to higher asking rates. Make sure that you stick to your budget and price range.
- Location of the Property. Location is by far one of the most important things to consider before buying a rental property. It is helpful to think about what things you would like to be close to if you vacationed there. As the old saying goes, “location, location, and location.” Close to the center of the city or airports are the best locations for vacation rentals.
- Condition. Will you have to remodel the property after purchasing it? If you don’t want the hassle of hiring a contractor, then look for a property that is in good condition.
- Consider If You Would Stay There. If you find a property but have no desire to stay there yourself, then that could be a sign to steer clear. A good rule of thumb is to consider whether you would choose to stay in your own rental property.
Alfred Decarolis, Owner of Casa Teresa (A luxury rental in Costa Rica), also points out two other factors that you should consider when searching for a vacation rental; demand and seasonality.
- Demand. What is the demand in your desired location? Conduct some market analysis of the local area regarding other vacation properties that exist there, where the general region they are located in, their proximity to key tourist destinations, and what amenities they may be offering unique to that location. What is the area known for? What could you offer to fulfill the demand for unique, perhaps exclusive amenities that others in the area cannot?
- Seasonality. What is the seasonality like at the location? What is the “off-season”? Is the demand for unique experiences consistent year-round? Are there weather conditions that lead to fewer bookings during certain seasons or periods of time? Anticipate those periods; remember, your vacation rental income will ebb and flow based on how consistently you can book your space. Locations infamous for inclement weather may play a role in whether you choose that location or how much you charge for your guests. Some travelers may not mind paying less in an ideal location in an off-season, for example.
You’ll have to think about what you can afford, but as you weigh the pros and cons and think about these various aspects, you are in the right direction to find the perfect rental property.
Tip: Make a list of what features you want in your vacation rental. There is a certain magic when you write things down on paper. During your property hunt, you will be able to cross off your desired features list to narrow down your results.
2. Beautify the Interior
Once you have decided on the property, you want to buy. The next step is to furnish and decorate the inside of the rental. You want to make it comfortable and inviting for your guests and ensure that their stay in your property will be memorable.
Below we’ve listed a few sections of your home you’ll want to focus on first:
- Living Area. Ensure that this area is very inviting. A plush, comfortable couch can really help to provide your guests with a nice place to kick back and relax while on vacation.
- Kitchen. Keep this area open and tidy. If any of your future renters want to make their own food in your vacation home, a clean and organized kitchen will be the icing on the cake. Be sure to supply cooking appliances and utensils as well.
- Bedding. We spend about 1/3 of each day in our beds, so comfortable bedding is not something to overlook. Invest in some quality mattresses with cozy bedding, and you are sure to have well-rested (and happy) guests.
- Windows. Adding curtains or window treatments can really add to the feeling of a room. Don’t underestimate the added value that dressed-up windows can offer.
3. Acquire Landlord Insurance
To protect your precious property from any future damage and unforeseen losses, insuring your vacation rental is a sage move to make.
Landlord insurance is an insurance policy that includes coverage for properties that individuals own and rent out to tenants.
Landlord insurance covers different situations that range from paying for the replacement cost of the building in the case of a fire to providing liability coverage for legal fees in the unfortunate event that a tenant sues for damages.
Because your rental property is an important asset and investment, protecting your vacation rental is a top priority. We highly suggest looking into getting landlord insurance as soon as possible.
Steadily landlord insurance is best suited for a ‘wide range of properties’ since we don’t believe that one-size-fits-all. We can provide a quote within a few minutes with no obligation, while for most other companies, it can take weeks.
Once you have it, it will provide you with peace of mind knowing your investment is in safe hands.
Key Insight: Choosing, purchasing, and furnishing a desirable vacation rental property is key to success. If you would be happy to stay in the property yourself, then it’s a good indication that others would as well.
The Next Steps in Your Vacation Rental Journey
If you have acquired a promising property, then you are off to a great start. The next steps involve figuring out how much you will charge, your property’s availability, and advertising your rental.
1. Determine How Much You’ll Charge
Choosing how much it will cost vacationers to stay in your rental per day is a crucial decision. It directly correlates with the amount of money you will make from renting out your vacation property. Here are a few things to consider when you set your rates for the vacation rental:
- List your expenses. There are many expenses to consider when renting out a property, so it is helpful to account for the different expenses you have to pay to maintain the property. The mortgage, utilities, and property taxes are the major expenses you can expect to include. Other expenses you will have to account for are cleaning services, repairs, and equipment replacements for the property.
- Nearby competition. What is the rate of other nearby rentals? Investigate and see what kind of perks or amenities they offer to justify or explain their price point. If your vacation home has more to offer to future tenants than surrounding rental properties, you can justifiably raise your rates to reflect that.
- High and low seasons. Depending on the area that your home is in, the numbers of visitors will fluctuate at different times of the year. Do some research on the area to figure out what events and attractions are nearby that will attract vacationers. Then, adjust your rates to reflect the expected number of vacationers in the area. Use the supply and demand principle to determine your long-term pricing strategy.
2. Effectively Market Your Property
To start receiving income from your investment, you will have to put a lot of time and energy into advertising the property.
Strategically marketing your property can be what pushes your vacation rental above the competitors. This is where it will really make a difference in how successful you are at making a profit on your rental.
Andrew Wasserstein with Guesty offers an interesting insight on how the pandemic has affected how vacation rental owners and property managers market their properties.
“The Covid-19 pandemic shifted travel patterns across the United States and the way that vacation rental owners and property managers market their offerings to consumers. In the US, domestic travel is up 12% this year compared to where it stood pre-COVID. In fact, 90%+ of reservations in the US are made by domestic travelers.“
It is important to keep up with what is happening in the current market to tailor your marketing plan to suit the present conditions. If most of your guests are domestic, then incorporate this into your messaging.
Take high-quality photos
Take high-quality photos to show off your luxurious property. Photos are one of the best ways to attract vacationers as they will visualize how nice it will be to stay in the home.
Pictures taken with your smartphone won’t cut it these days, so invest in some high-quality photography to show off your beautiful home.
Loren Howard, Founder of Prime Plus Mortgages, reinforces photos being important by stating, “Photos are worth their weight in gold. Put the money to get photos taken as digital images will sell a property better than any listing tips or tricks.“
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 listing’s text is compelling. The goal is to write a pitch to ‘why’ they might want to stay there. Don’t overdo it, though, because nobody wants to be ‘sold.’
Carter Seuthe, CEO of Credit Summit, 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.“
Offer deals and promotions
As a new business owner in the market, you need to go beyond user expectations and make your business known. Offering deals and promotions can help you attract visitors and help you get your business launched.
You can then ask your guests to leave a review online for your services to help improve the online presence of your business.
List your vacation rental
It is a good idea to diversify where you advertise your rental property to have the best chance of booking tenants.
3. Create an Availability Calendar?
Create a schedule for when your vacation home is available to rent. Having and keeping an up-to-date schedule will make the booking process for future vacationers run smoothly.
Keep in mind that you will need to ensure that the rental property is cleaned and tidied for the next guests between stays. Make sure that either you or someone you hire has adequate time to make sure that this happens.
By doing this, you can guarantee that stays do not overlap and that each guest has the best and cleanest experience possible.
Key Insight: Making money on your vacation rental property boils down to how you determine your rates, have effective advertisements and listings, and if you keep an up-to-date calendar. If you keep this in mind, your property will be generating income in no time.
4. Continually Improve Your Vacation Rental
Because each property is unique, different strategies will work better than others. One of the necessary but exciting parts of owning a vacation rental property is continual improvement.
Keep this in mind as you figure out what things work well for your home.
One of the best ways to know how your rental is doing is to receive feedback from your guests through reviews. Reviews from your past tenants can offer a lot of valuable information about what they liked about the rental, as well as areas that can be improved.
When you do receive reviews, be sure to respond promptly to let them know you care and appreciate their feedback.
Positive reviews can let you know what your tenants really like about the property, as well as the perks and amenities that they enjoyed. They are also a valuable tool in generating more visitors and future tenants for your vacation rental.
For any negative reviews, you receive, be sure to reach out to them directly. This can show other potential guests that you care and want to provide a good experience. This is a good way to learn how to improve.
If you lack reviews, especially when you first start with renting out your property, don’t be afraid to request reviews from your guests!
5. Incorporate Feedback
The feedback you receive through the reviews on your rental property provides you with direct information on how your vacation rental property is performing as an investment. Smart landlords will incorporate this feedback to improve their vacation homes, which will generate more tenants in the future.
Pay close attention to both the positive and negative reviews given by your past guests. Those reviews will be a good indication as to what is working with your vacation rental and what could use some improvement.
Key Insight: Make sure you have an open mind (and unbiased) to feedback on your investment property, and you will be able to make it better for guests in the future continually. By doing this, you can provide the best possible customer experience.
6. Managing Your Vacation Rental
Besides continually improving your vacation rental, you will have to manage your property to improve your vacancy rates. If you live nearby and have extra time, managing the rental yourself won’t be an issue.
However, if you have multiple properties, don’t live nearby, or don’t have time, hiring a good property management company is a viable option.
Some of the commonly required processes to successfully manage your rental property are:
- Cleaning. Chris Brown, CEO at Tudor Housing Consulting, says, “The first impression of any place can help the visitors make a decision, and cleanliness can be a major factor for that first impression. Also, the world’s perspective has changed towards cleaning since the pandemic, and everyone is more critical about it. Therefore, you must offer proper sanitization services to satisfy customer needs.”
- Check-in and Check out. When guests come to your property, you will have to check them in. You will need to provide them with access to the property, parking instructions, driving/ parking directions, and any other information they will need. Matt, the CEO of Nexus Homebuyers, offers a tip, ” Provided an automated check-in and check out. Everyone loves the concept of privacy, and you can provide your customers with just that by incorporating automated services into your rental space. This will add a sense of respecting privacy on your behalf and can go a long way in saving time and keeping things professional between you and your tenant.”
- Property UpKeep. Occasionally, you will have to repaint walls, fix broken fences, and perform other necessary tasks in upkeeping the property. Make sure that you budget for this accordingly.
- Legal Requirements. Your rental property will bring you additional income. Make sure you keep track of your expenses, receipts, and other costs for accounting purposes. Each state has its own legal requirements for vacation rental properties. Be sure to check the latest regulations in your state.
These were just some of the most common items to consider in successfully managing your vacation rental.
Jeff Johnson, Owner of Simple Homebuyers, sums it up nicely, “My tip for effectively managing your rental properties is to keep up with technology trends. Our best tip is to use technology and people to assist you in managing your vacation rental. Using software like Lodgify allows you to manage your property even from remote locations remotely. They let you sync your calendar with booking applications like Expedia and Airbnb; and view all your rentals, your customers and finances, on a single dashboard, making your work much easier.“
Matiah Ty Fischer, Founder of RetireBetterNow.com, offers another perspective of what you should keep in mind when thinking of your management strategy:
- Figure out your Management Style Early. Do you want to be the one letting guests in? Managing the property and scheduling maintenance? It would be best if you decided whether you or a property manager will be running the property.
- Have a Steady Flow of Customers. If you’re looking to maximize profits, you need to have a steady stream of paying guests. It’s important to be on the main platforms and have excellent photos and an attractive listing description.
- Be Prepared Financially. In certain cases, vacation rental properties will produce a tiny profit for their owners year-round. But if you own a vacation rental(or many!), you have to be prepared for some months to be busier than others and be able to withstand slow periods.
Tips on managing luxury vacation rentals:
If you are an investor and keen on getting your foot in the luxury travel market, you need a property manager. Particularly at luxury properties, your guests will have enormously high expectations, and if you live overseas or
otherwise, off-site, you need a person or a team of people employed by you to keep things running smoothly for your property and its visitors.
- How close is your property to local residents who you could potentially employ toward this effort?
- Who will manage your on-site staff?
- Who will help your guests book local activities, source local chefs, or otherwise help coordinate their day-to-day needs during their vacation?
What are the pros and cons of owning a vacation rental property?
Here are just a few of the possible pros and cons of investing in a vacation rental.
Pros: Passive income, income-generating vacation home, tax deductions
Cons: Unforeseen expenses, continual management and upkeep, advertising, and finding guests to occupy the property
Can I hire someone else to maintain my rental property?
If you don’t have the time or energy to maintain your rental or if it’s just something you’d rather pay someone else to do, you can hire help! There are plenty of businesses that would be happy to maintain your vacation rental
How do I know if buying a rental property is the right decision for me?
Buying and owning rental property is not a small decision. A good way to know is if the pros outweigh the cons. Be sure that you have the time, energy, and money to commit to purchasing a vacation rental. This will ensure that it will be an investment you enjoy.