Buying a vacation rental property can be a smart choice for a second home while also providing income that offsets the cost of ownership. Airbnb, in particular, has opened up ample opportunity for investors looking to do exactly this.
But as with any investment, vacation rentals aren’t without their drawbacks. Before you purchase a property (regardless of how great a deal it seems), consider the following factors to get the best ROI for your investment:
#1 — Location Matters
Anytime you buy real estate, whether it’s for your primary home or an investment, the location will always be the most important factor. For a vacation rental, consider areas that will ensure the highest occupancy. Popular tourism destinations will help you keep a full reservation book, but they can also mean steep competition.
It’s important not to choose a location based on the amount of tourism alone. Rather, also consider lodging availability in the area, local occupancy rates, short-term rental rates, and what your total investment potential looks like.
#2 — What Is the Realistic Income Potential?
Pricing your Airbnb listing isn’t as easy as slapping a price on your rental. Whatever you decide to charge, count on bringing home much less than your list price. There are several costs associated with any vacation rental that will eat into your profitability:
If you’re not buying the property outright, a portion of your monthly earnings will go straight to the mortgage. This is one of the largest expenses you’ll incur, but only until you pay it off.
You’ll want to maintain landlord or homeowner’s insurance at all times to protect your investment. The type of insurance depends on how often you rent your property vs how often you use it as a vacation home.
All properties will require ongoing maintenance, everything from painting and floor repair to replacing appliances and HVAC systems. You should plan to set aside a portion of your earnings for annual maintenance costs.
Your vacation business property will need to be cleaned between renters. While this cost can be minimal, having multiple short-term rentals per month can skyrocket this fee. Consider building a cleaning fee into the rental price to offset your costs.
If you’re using an Airbnb booking site, remember these platforms take a portion of each booking they assist with. You’ll want to account for this cost when you set your rental price.
Taxes can vary between cities. Property taxes can cost hundreds of dollars per year. As a landlord, you will have to pay rental income taxes at the end of the year, based on your total earnings. Also, your Airbnb rental is susceptible to the local hotel tax, which can range between 5%-19%!
Toilet paper, sheets, kitchen essentials, and furnishings can quickly add up. Take a careful inventory of what you will need to provide for each renter, as well as any ongoing expenses.
Other Operational Expenses
Power, water, internet, and cable TV are just a few of the operational expenses you’ll incur. To reduce some of these costs, you may want to invest in home automation (e.g. thermostats, lighting) to keep your utilities in check.
#3 — How Will You Manage Your Vacation Rental?
Websites like Airbnb make it easy to manage your vacation rental from anywhere in the world, but there may be times you need someone to physically handle things at your property. Connect with local service providers that can assist with maintenance, landscaping, cleaning, and other tasks. Also, you can use Airbnb management soft as Hosty is.
Also, you’ll need an easy way for your guests to gain access to your property. Consider using coded lockboxes to make the transition smooth and simple.
#4 — How Will You Market Your Property?
Airbnb has made it easy to market your property for a small finder’s fee. As a host, you’ll want to create stunning listings to attract an endless supply of guests. You can learn more about Airbnb rental best marketing practices here.
Bottom Line: Is a Vacation Rental Property a Sound Investment?
Buying a vacation rental can be a great investment opportunity, as long as you’re able to offset your costs. Give the process some thoughtful planning to set yourself up for maximum success.
For more ways to boost your vacation rental income, check out our other resources on HostyApp.