Investing in a Vacation Rental – the Whys and Why Nots

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Photo by Tierra Mallorca from unsplash.com

A vacation rental investment can have many appealing benefits on the surface; you own a home you can visit anytime, you can make money, and you can easily manage the listing on popular websites like Vrbo, Airbnb, and HomeAway.

Try not to let these advantages blind you. There are many issues beneath the surface that you may not consider when investing in a vacation rental. Fortunately, we are going to go through why you should or should not invest in a vacation rental.

The Whys

1. Additional Income

Any investment that brings in additional income is definitely a reason why you would want to invest in a rental property; and today, vacation rental homes can be found worldwide. As long as people continue to vacation (and we don’t see that ending anytime soon), there will always be a need for vacation rental properties. If the demand is always there, then why not add to the supply and bring in some extra money?

2. Dual-Use Property

One of the biggest rewards for investing in a vacation rental property is that you will own a vacation rental property that you can visit anytime. Owning a vacation rental means you do not have to spend hours searching for the perfect rental that is available at the right time and will accommodate your family accordingly.

With a vacation rental you own, you can immediately block out the dates that you want to keep for your family while renting it out to guests during the remaining time.

3. Less Risk than “Flipping” or Other Real Estate Investments

While flipping homes and investing in fixer-uppers can yield big returns, they also have more risks. Investing in a vacation home has a greater chance of generating immediate income quicker than other real estate investments.

Offering your vacation home as both short-term and long-term rentals can mean your vacation rental property is occupied more than it is vacant.

4. Less Maintenance for You

With a vacation rental, you can hire a property manager to handle each area of the rental process so that you don’t have to. This means cleaning, repairs, upkeep, installations, or any other service that needs to occur within the home can be handled without your presence.

The Why Nots

1. Location

If the vacation rental property you choose to purchase is not located in a desirable vacation destination, the property may be less likely to remain reserved. There may be more slow times than you anticipate, which can lead to less income from your investment.

2. Local Laws, Regulations, Taxes, and Insurance

Your vacation rental will need to be up to code, so you will need to hire an inspector to ensure the property is safe. You will also need to learn real estate laws to determine if your property can be used as a vacation rental in your area.

You will also need to know the tax benefits and disadvantages of investing in a vacation rental property. Lastly, you will need to discuss the added insurance that your property will need in order to be a vacation rental property.

3. Added Costs

While you can hire a property management company to oversee the rental process of your vacation property, you may need to approve certain unexpected expenses directly related to maintenance or repairs.

As a homeowner, you know that anything can happen. Hot water heaters can burst, heating and air systems can go out, or a swimming pool pump needs replaced. No matter the issue, the responsibility is up to you to pay for the repairs.

If you do not plan accordingly, you can find yourself spending more money than your rental property is making.

Should I Invest in a Vacation Rental?

Investing in a Vacation Rental – the Whys and Why Nots
Image by Sebastian Staines from Unsplash

Only you know your financial position you are in. If you are financially able to invest in a vacation rental, the vacation rental is in a highly popular destination area, and you have the means to cover unexpected operating costs, then you should make the investment.

If you want to purchase a vacation home for you and your family to take advantage of because it keeps you from having to search for vacation homes, but you do not have the financial ability to keep it maintained, you may not want to invest in a vacation property for rental purposes.

As the owner of a vacation rental, you are responsible for making sure that the vacation rental remains safe and functional. If your vacation rental is neither, you can quickly find yourself in a disagreement with a guest who has had a negative experience.

A vacation rental will only be reserved if it provides a positive experience to guests. Just because the vacation rental is good for you and your family does not mean it will have the same effect on guests. You need to make sure you are putting guest satisfaction high on the priority list when choosing to invest in a vacation rental.

The Bottom Line

You should prioritize your reasons for wanting to invest in a vacation home to decide if it is the right decision for you.

Investing in a vacation rental property can be rewarding in many areas of life. Owning a vacation rental property that you can visit with your family anytime is a reward in itself. Additionally, owning a vacation rental property that generates income is another added bonus.

If you go into this process thinking of only the benefits, you may be quickly disappointed when you learn of the disadvantages that can come with it.

The best way to determine if you should invest in a vacation rental is to know what all goes into the property and decide if you can handle the responsibility. A vacation rental is a home, so you should expect the unexpected when it comes to homeownership.

Make sure you have a way to take care of anything that may go wrong within the property. Having a plan in place can mean the difference in dreaming of owning a vacation rental and realistically owning a vacation rental.