The concept of vacation rental investment has gained in popularity over the recent years, and for good reason. The growth of the private accommodation sector has made it easier for people to stay at vacation rental properties during their vacations. Over the past few years, there has been a shift from conservatism and people are more inclined to spend money on leisure activities such as vacations than on anything else. That is why those with vacation rental properties may be in a great position to capitalise on the new trend.
However, since it is a relatively new investment sector, not many are aware of vacation rental investment. Even if they know, they may not know where to begin. Being a relatively uncommon type of investment does not mean that vacation rental investment is difficult to start. The industry is growing fast in recent times and offers great opportunity to investors to profit from this relatively new investment opportunity.
In terms of occupancy, a vocational rental property is occupied by tenants for a relatively shorter period of time, compared with the traditional letting properties. At present, the vacation rental industry is experiencing massive growth and it is probably the right time for investment in this lucrative sector. There is an abundance of short-term vacation rental platforms which have it easy to invest in the sector. Rising home prices at many top tourist destinations are contributing further to the growth in the industry.
Why is vacation rental investment a good opportunity?
A study done by Technavio found that the global vacation rental market is expected to grow by more than 7% annually from now until 2021 when its total worth will peak at $194 billion. As an added bonus, vacation rental properties come in all sizes and price points, ranging from studio apartments to mansions on the beach. This means that there are plenty of opportunities for you to make money from a vacation rental investment.
Advantages of vacation rental investment
Vacation rental investment is attractive since the investor can potentially book more profit compared with the traditional rental sector. This is particularly so in case of tourist places where demand is high. Vacation rental properties are in high demand at popular tourist places as these places enjoy higher levels of tourists each year. Investors can also turn their short-term tenants into long-term recurring revenue through a number of ways. This is possible through the selection of the right type of property at the right tourist location. Add to it, competitive rents, quality infrastructure with the latest facilities, value additions and services, and the property should yield high rental income. This may enable tourists to choose the property as their preferred accommodation every time they visit the location. Investors can follow up with their customers by staying in touch with them and offering discounts, freebies and other benefits. This way, investors can create a loyal customer base who will prefer the rental property over other such properties in the area which opens up potential recurring streams of revenue.
Though vacation rental investment is a good option for any tourist location, some locations may offer more potential compared with some of the others. This may be so for locations which draw tourists round the year, while some of the other locations may be season-specific and see a rise in tourist activity during specific periods of the year. Although, the places which draw tourists round the year offer a great opportunity for vacation rental investment, the seasonal locations are also a good option as they witness a surge in tourism during the peak periods, resulting in full occupancy at the property during the period.
Another advantage of vacation rental home is that the investor can make money without having to necessarily buy an investment property. When buying a vacation home and using it as a short term rental, the money from bookings helps investors pay the mortgage and other expenses such as property tax and insurance. Apart from this, the income out of the vacation property can be used for maintenance and repairs.
However, it is a good idea to check the local housing regulation such as the short-term rental laws in the area before moving ahead with the vacation rental investment. This is a necessary step as some areas do not allow for short term rentals. Apart from this, investors may need to obtain certain permits as well as pay occupancy taxes for vacation rental investment in these areas. It is important to consider these expenses when calculating the investment costs as the operating costs for the vacation rental investment will raise the overall investment figure significantly.
A vacation rental investment may double up as a residential property as well, which investors can use as their second home during times of the year when the tourist numbers in the area is potentially low or if the investor simply wants to use the property for own vacation purposes. The dual purpose nature of vacation rental homes is a clear advantage for investors.
In addition to the rental income in the short term, a vacation rental property appreciates in value, potentially a high value, over the long term as a vacation property is real estate which usually appreciates in value over time. There is no effort required for this value appreciation as it follows the natural appreciation trend found in real estate. Investors can further appreciate the value of the property by implementing add-ons. These include modifications and improvements to the property to push up the market value of the vacation rental property and book more profit when selling the property.
Vacation rental property is considered a business. There are significant tax benefits pertaining to the investment and the investor is allowed to write off most of the expenses.
Vacation rental investment offers a significant source of passive income. However, investors should not commit to the investment without a plan and due diligence is required along with awareness on the purpose of investment. An informed decision into vacation rental investment is one that may pay off for years to come.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.