Short-term rentals (or “vacation rentals”) have steadily been growing in popularity in the last few years, positioning themselves as a more profitable alternative to long-term rental investing.
With the ability to easily raise rental prices according to season and local demand, benefit from generous tax write-offs, and build a profitable business from the get-go, short-term rentals are a hidden gem for real estate investors looking to generate a profitable passive income stream.
But are you still wondering how to actually make good money from your vacation rental property in a way that is sustainable for the long term?
From high-priced weekend stays during the high season to week-long getaways during the downtime, there are countless ways you can generate a reliable income stream from your vacation rentals.
But making your rental property profitable requires more than just listing it on a vacation rental platform like Airbnb or Vrbo. It requires a great eye for marketing, extensive knowledge of the local market and tourism industry, and a true passion for providing outstanding service to your guests.
In this article, we’ll break down how you can make money on your vacation rental property by following the best industry strategies, so you can dive into your new investment with complete peace of mind knowing that you’ll be able to make a sustainable profit!
Is Owning a Vacation Rental a Good Investment?
Before we dive into how you can make your vacation rental investment work in your favor, let’s get all the doubts you might have out of the way first: If making a profitable revenue stream from short-term rentals is so dependent on your skills as a host and investor, is owning a vacation rental a good investment in the first place?
The answer to that question is a resounding yes.
You don’t have to look that far to see just how popular platforms like Airbnb have become in recent years, and how much demand there is out there for travelers and staycationers looking for a more authentic, homey experience when visiting somewhere new.
On top of the increasing demand for more short-term accommodation, short-term rental properties make for a great investment due to the high earnings associated with owning and managing these properties.
It’s estimated that Airbnb owners can make as much as $900 in profit per month, with average earnings doubling the more popular your chosen location is — much more than what long-term rental landlords tend to make when you calculate all the repairs and tenant emergencies encountered along the way.
As the owner of a short-term rental, you’ll be able to avoid all the hassles of being a standard landlord (problematic tenants, payment defaults, evictions, constant hands-on managing, and emergency repairs) while reaping all the benefits of owning a property.
You can also write off a large number of expenses as tax season comes around, allowing you to make much larger profits if you play your cards right. Not to mention, owning a real asset will make exit strategies a breeze, as you can decide to sell whenever it suits you or even use the vacation rental as your holiday home or retirement home!
All in all, short-term rentals make for an excellent investment, as long as you familiarize yourself with how to choose the right location and the right marketing strategy to make it as profitable as it can be.
So, Can You Make Money on a Vacation Rental?
The key features of short-term rentals allow savvy investors to make great money in a shorter window of time compared to long-term rentals.
The real question is just how much will you be able to make and how to best optimize your strategy to make it all work through drops in demand, financial downturns, and long vacancy periods.
So, let’s look at some of the key variables that play into how much money your vacation property can actually command.
In short, the amount of money you can generate often depends on how frequently you have guests staying at the property, how long they are usually staying, and how in-demand and desirable the location you’re offering is.
If you need help in figuring out how much money your property could bring versus how much you have to spend on taxes, principles, and maintenance, you can take advantage of many tools available online. Those who are just starting can use Airdna, an online tool that can help you to calculate your property’s potential income based on occupancy rates and your property’s features. After figuring out that number, you can subtract your taxes, interest rate, and insurance cost, along with maintenance and other expenses.
This step will make crunching the numbers a bit easier, as it will show you what your potential income could be and help to avoid negative cash flow.
How Can I Get the Most Out of My Vacation Rental?
Once you’ve crunched the numbers and figured out a rough estimate of your profits, the best way forward is to invest in a vacation rental property that’s best positioned to bring in a stable cash flow and minimize the drawbacks of maintenance, vacancy periods, and unexpected slow seasons.
The key to making the most out of your vacation rental and turning it into a profitable investment is simply to plan your moves right. As a general rule of thumb, you’ll want to consider location, pricing throughout the year, upgrades, marketing, and several other factors that can make or break the investment.
Here’s a breakdown of the smartest strategies to employ to bring in the steady and reliable profit you’re after:
If you want to get the most out of your vacation rental, choosing the right location is the essential first step. As with everything else concerning real estate, a top-notch location is the name of the game!
In order to assess the profitability of your chosen location, you’ll have to consider not only the popularity of the vacation spot (which you can gauge from doing your research on the local tourism market and reaching out to a local realtor) but also the accessibility of the location and the amenities surrounding it, such as shops, restaurants, banks, and entertainment venues.
Generally speaking, you’ll want to avoid geographical locations with long winters and short summers and instead opt for areas that are desirable all year round, with plenty of seasonal activities to participate in.
While choosing a prime tourist destination seems to be the foolproof way of making your investment work, you shouldn’t fail to consider just how fierce the competition you’ll be going head-to-head with really is. The line between in-demand and oversaturated is quite fine, so make sure your property will be adding something new and something of value to the demand before jumping straight into the hottest tourist hotspot!
Keep in mind that busy urban centers are implementing stricter regulations on vacation rentals, so if you want to avoid paying higher fees and dealing with headache-inducing permits, you’ll fare best opting for a more remote location, perhaps an up-and-coming nature spot that will be in demand among locals and travelers alike.
Setting your prices right is also one of the most important factors to consider when trying to turn your vacation property into a money-making machine.
You should first make sure that your standard pricing can attract the kind of customers you want. You’ll have to toe the line between setting a price that is high enough to guarantee a profit margin, yet not so high to price out couples, families, or individuals that are more likely to leave your property with minimal wear and tear (as opposed to big groups of party-ready students).
Then, you’ll have to consider the price variations between weekdays and weekends, high season and low seasons, and times of high demand due to festivals, events, or other activities happening in the area.
Generally speaking, you’ll have to first calculate your total expenses for the property, see what weekend and weekday pricing you need to meet them and turn a profit, and finally cross-reference that rough pricing with other properties in the area. You can adjust your price depending on your offering, so properties with special features or nearby local amenities will be able to ask for more in return for prime location, outstanding service, and unique property features.
Don’t forget to set higher prices during peak season and around special events that will drive up demand in the area!
Smart Upgrades and Maintenance
Going back to the topic of making your rental attractive enough to draw in tenants at higher prices, you should consider investing in smart upgrades to improve the desirability of your property and raise your prices accordingly.
For example, you can choose to upgrade your furniture to create a signature atmosphere according to the location, create a beautiful patio for relaxing and enjoying the view, or making the appropriate upgrades for wheelchair accessibility. Once again, the key is bringing something new to the table to maximize profits and make your vacation rental stand out from the rest!
You should also pay close attention to maintenance, ensuring that the property is spotless and fitted with everything your guests may need at all times, so you can enjoy great reviews and the benefits of word-of-mouth. If you live too far away from the rental and can’t commute regularly to take care of maintenance and cleaning, it’s worth investing in a cleaning crew or enlisting the help of someone you trust to take care of your property’s needs.
Listing and Marketing
Not all vacation rental platforms are created equal, and while you’ll want to maximize visibility and have your property listed on as many websites as you can, you should always read the fine print to figure out which option is likely to result in higher profits.
Some of the best listing platforms you can use to showcase your vacation rental include Airbnb, Vrbo, Booking.com, and even some estate management companies' websites.
Nowadays, the most driven and ambitious vacation rental owners choose to have their own website, social media accounts, and Google ads to market their property to their ideal audience and make sure the home is booked for months and months on end. If you do have a knack for marketing and are keen to take matters into your own hands, these are all great options for boosting visibility and ensuring minimal vacancy periods between guests!
Short Vacancy Periods
Long vacancy periods are the bane of both long-term and short-term rental property owners, as having your rental empty for months will lead to major losses you’ll have to work quite hard to recover from.
From pricing your property right during peak season and weekends to offering more affordable and convenient prices during the slower months, savvy owners should always account for vacant periods as they come up with their budget and double-down on marketing if losses are likely to be unavoidable.
A great strategy when approaching down periods is also to change your approach entirely and start making the property available for longer periods of time, so you can target a different demographic that’s unlikely to follow the trends of tourism.
Guests like professionals stationed in a new area for a temporary contract, writers looking for a getaway while working on a new book, and couples waiting to close the deal on a new house need a place to stay in, too!
Vacation Rentals FAQs
So, it’s clear that by pricing your property right, picking a prime location, and making the necessary adjustments for dealing with vacancy periods, you can easily get around the most worrying downsides of owning a vacation rental and turn a consistent profit.
If you still have questions and doubts concerning just how profitable your property can be, let us answer some of the most common questions on everything short-term rental!
How Should I Pick the Right Vacation Home to Buy?
The key thing to keep in mind is that if you want to get the most out of your vacation rental, you have to do your fair share of homework before committing to buying it. First, you should assess the location of your property, making sure it’s a prime location that’s not too oversaturated with accommodation options, accessible to travelers, and close to the necessary amenities for a pleasant stay.
The best way to approach this is to consult with local real estate agents who can help you understand the dynamics of the local market and spare you from a really expensive mistake!
Is a Beach House a Good Investment?
An idyllic beach house in a scenic location might seem like a dream come true to many real estate investors.
While you can rent it out year-round, you can also stay in it when the guests are gone, especially over the winter months. Investing in a beach house might seem like a no-brainer to some. However, you should also keep in mind that it won’t be as profitable during the winter, unless it’s in a location blessed with long summers and pleasant lower temperatures all year round.
One of the biggest benefits of owning a rental beach house is that you’ll be virtually guaranteed a steady income throughout the peak season, especially if it’s located in a popular vacation spot for both tourists and locals. On top of that, you’ll be guaranteed that appreciation will work in your favor, as beachside properties are always desirable in the real estate market.
Finally, you’ll be able to benefit from generous tax write-offs, such as mortgage interest and business-related expenses, to turn an even larger profit in the long run.
As for the drawbacks, you have to keep in mind that maintenance costs will likely be much higher than other properties due to high occupancy rates, and that you’ll likely be taking on a higher mortgage rate and higher insurance.
As with all other vacation rental properties, the key to success is to research your projected expenses and monthly profit as much as you can, price your accommodation right, and boost the online visibility of the property!
Where Is the Best Place to Buy a Beachfront Property?
According to a 2019 report, some of the best places to buy a beachfront property are Myrtle Beach, South Carolina; Key West, Florida; Fort Bragg, California; and Dauphin Island, Alabama.
Surprised? While these destinations are scattered across the country, you will find certain commonalities if you look closely, such as low cap rate, high median home price, and high median annual gross rental revenue.
Can You Make Money on Vrbo?
Vrbo (or Vacation Rentals By Owner) is an excellent platform for listing your vacation property, especially if it is located in a popular area.
As part of the giant HomeAway, Vrbo is the largest website for vacation rentals in the world, allowing owners to make money from renting out their vacation homes just like on any other website for vacation rental.
Your profit amount will always depend on how big your property is, where it is, and what amenities it offers. You can choose between two different subscription offers: An annual subscription of $499 per year or a pay-per-booking option that takes between 8% and 10% of your fee with each booking you get.
What’s the Difference Between Vrbo and Airbnb?
The main difference between these two platforms is that, compared to Airbnb, Vrbo requires owners to rent the entire home and doesn’t allow them to rent shared spaces.
This restriction eliminates many listings from Vrbo. However, it provides an additional benefit to guests who can enjoy exclusive accommodations.
If you are looking to rent out an entire property you have invested in, it’s recommended to use both platforms to boost visibility and attract a diverse range of guests.
Turning Your Short-Term Rental into a Profitable Investment
While owning a short-term rental is one of the most profitable ways of making money in the real estate investing world, investors should first consider all their options carefully before diving into the first property they see.
Choosing the right location, the right price model, and the right marketing strategy for your vacation rental will ensure your investment turns out to be the predictable money-making machine you want it to be, rather than an expensive mistake!
If you’re ready to take the leap and see just how many profitable options are waiting for you on the other side, The Short Term Shop is your one-stop destination for everything vacation rentals and real estate investing — get in touch today to get ahead of the curve!