What is vacation rental investment?
Vacation rental investment is a type of real estate investment which falls under the category of short-term rental properties. Vacation rentals are an alternative to hotels that are rented out for a period of around 30 days.
Vacation rental investment has become synonymous with money making. All the popular holiday destinations across the UK offer potentially high rental income through vacation rental investment. A relatively uncommon option, vacation rental investment provides a lot of opportunity to investors as there is very less competition in the sector. It is an attractive investment option as, apart from providing an opportunity to investors to diversify their property investment portfolio, vacation property may also acts as vacation accommodation for the investor’s own use for many years down the line, or maybe, even a lifetime. While as an investor you can rent out the property to holidaymakers, it is also a place where you can stay during your own vacations. This dual use of vacation property makes vacation rental investment an attractive option.
Therefore, vacation rental investment has opened up new opportunities for relatively smaller investors also as they can book profits out of passive investment in this asset class.
Vacation rental investment is also easier than investing in traditional rental properties since the latter involve higher levels of commitment such as tenant-screening and dealing with long-term tenants or evictions, which may be hard to deal with as a first-time landlord. Therefore, vacation rental investment offers an opportunity to get started in real estate investment.
However, as with any other property investment, you need to consider a number of factors before committing the investment. Some of the factors include:
Before moving ahead with vacation rental investment, do a feasibility study and compare expenses to income. While expenses will include property tax, insurance, maintenance and repair costs, mortgage repayment costs at times when the property lies vacant and other unexpected, urgent costs, the income from your vacation rental property will include the rental income which may be very high depending on certain variables.
You should also take into account the fact that vacation investment is a short-term rental business and that, there are void periods of tenancy, and you will need to repay the monthly mortgage during these vacant periods of tenancy. Your financial health will also determine the feasibility of investing at certain locations since investment levels are higher at popular holiday locations compared with some of the other places where demand is relatively low. Although, investing at popular tourist places also means higher occupancy levels and higher rental income, which means you can pay off the mortgage faster and start saving for your next property or vacation home.
Apart from location, the type of property in term of costs, is yet another factor to consider since any vacation locations will have cheap as well as expensive areas. So, you need to have a clear understanding about your financial health before you set off for the buying process as the selection of the vacation location and type of property you should buy, will depend on your savings etc. You can either use your cash reserves or get the investors for the purchase. However, finances should be secured before committing to the investment.
Why vacation rental investment?
The tourism industry is growing fast which has led to new opportunities for investment. There are more people travelling to destinations across to tourist places than earlier. People are now shedding conservatism and spending more on leisure activities such as travel and tourism.
Advantages of vacation rental investment
Vacation rentals attract holidaymakers as they offer a number of advantages. While the costs of staying at vacation rentals is low compared with staying at a hotel, it also means extended stay for the holidaymakers on the same budget compared with staying at a hotel. Holidaymakers can stay at vacation home just the way they want and not according to restrictions imposed by hotels. Vacation rentals fall under hospitality law and people on vacation will go home elsewhere, so the eviction process does not apply at such a property which saves on much time, money and other resources as well as hassles on the part of the owner. There are no delayed rental payments since reservations are done through credit cards and reservations contract operate under hospitality law. In case of undesirable occupants, there are problems as well, since the occupants stay for a short-term which may be a week or two, which means you do not have to wait for the lease to end. In the worst case scenario of occupants damaging the property, you can deduct the damages from their credit card. As opposed to the traditional tenancy, maintenance at the vacation rental properties is easier as you can carry out repair and maintenance between two occupancies when the home lies vacant and also utilise the time to show the property to estate agents.
Vacation rental home pricing
In order to maximise the rental income from your vacation property, it is necessary to price the property appropriately according to rental standards in the area. A higher rental demand according to the location of the property will push away potential renters, whereas a low rent may set the price lower for future rentals. Pricing the vocational properties appropriately is necessary if you want to ensure that it stays booked most of the time during the year. Therefore, optimum pricing is the key to maximising the rental income from vacation property. While, this will ensure maximum occupancy, the price will stay at competitive levels in accordance with the local market. As the local hotels as well as other vacation rental in the area are going to be your competitors, you will need to outdo the local hotels in terms of price, convenience and other facilities. You need to stay updated on what they are doing and implement the necessary changes in order to stay competitive in the local market. Vacation homes have an advantage over hotels as they offer more space at relatively low prices so you need to make sure that there is relatively sufficient space at the home along with other facilities for ensuring repeat clients.
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.