Real estate is an ever-popular — and largely safe — investment route.
While buyers have options around what type of investment property they’d like to own (long-term versus short-term rental is a common question second homeowners ask), recent traveler trends suggest investing in vacation rentals is the clear frontrunner for earning more income.
In the wake of the coronavirus pandemic, travelers are getting back on the road in staggering numbers. And in a recent survey of over 5,000 travelers, 86% of participants said they plan to book a vacation rental for their 2022 adventures.
Experts also believe these new traveler preferences are here to stay, making short-term rental an impressive investment in the long run.
That said, breaking into the market might be a fleeting opportunity. With demand exploding, competition among investors is growing, too — and inventory is waning.
“You’ll have to get in now or risk not getting in at all,” says Louis Olds, Evolve’s senior manager of Real Estate Services.
If you’re still unsure about the opportunity, here are six major benefits to investing in vacation rentals that underscore exactly why it’s your best option as a homebuyer.
Not only is the vacation rental industry showing unprecedented income opportunity right now, but it’s also always boasted what our Real Estate Services (RES) experts consider a “high-reward profile.”
Most investors look at cap rate — the ratio between a property’s net income and its market value — as a key measure of success, because it indicates return on investment. Our RES team says long-term rental cap rates can hover around an average of 4 to 5 percent in metro markets (where investors are typically drawn), but short-term rental cap rates can frequently come in at 10% or higher. (In hot markets like the Poconos, for example, a whopping 14% cap rates isn’t out of the question.)
This means your ceiling for profitability is significantly higher when investing in vacation rentals than it is with other property options — opening up the chance for a whole lot more money to land in your pocket.
While finding success in long-term rental generally requires a purchase near a major metro area, homeowners can find vacation rentals with major profit potential in virtually any market. (Evolve owners, for example, are successfully doing business in over 700 destinations across the U.S.)
And since vacationers’ favorite travel locations are scattered in every corner from coast to coast, that means your scope of opportunity extends into more areas, wider price ranges, and bigger profit margins.
Creating sizable revenue streams and growing an income property portfolio are the main investment goals for many second homeowners. But there’s also massive value, particularly for first-timers, in offsetting homeowner expenses from the start.
From mortgage payments and utilities to insurance fees and maintenance costs, solid rental income can cover monthly expenses and help your home pay for itself in a shorter time frame. Vacation rental owners are also eligible for certain tax deductions, which could help close the gap between income and expenses.
Bonus benefit: partnering with a vacation rental management company that has especially low fees (ahem, hi there) helps owners break even and start earning profit faster, because you’ll streamline the process and gain access to professional resources at a fraction of the cost.
The best part about investing in vacation rentals is that great guest feedback makes your home more lucrative over time.
When new listings hit the marketplaces, they have to compete with established competitors for visibility and bookings. But the more five-star experiences you deliver, the more sites like Airbnb and Vrbo will show your property to browsing travelers — making it more likely you’ll earn additional income.
Second-to-none hospitality standards also allow you to raise your nightly rates, increasing your profit margins on any given stay as you establish the value and superiority of your vacation rental.
Unlike long-term rental investments, a vacation rental is a place where you, the owner, can also escape. It gives you the luxury of carving out time to spend with family and friends, or to switch up your work-from-home space.
In other words, you earn rental income to boost profits when you’re not there, but then save money when you’d like a change of scenery or time off.
As with all good real estate investments, you can expect your vacation rental’s market value to appreciate over time. So if and when you become ready to sell, you’d likely earn more than the previous owners did when you purchased it.
Getting started might feel like a big undertaking. From how much you can afford to what style and location of home you’re after, there are a number of questions to answer.
And once you’ve actually closed on a home, there are a ton of components to vacation rental management you’ll need to start thinking about for long-term success.
That’s why we’ve put together a ton of resources to help you achieve your investment goals:
• Peek at our list best places to buy a vacation rental and our Vacation Rental Performance Reports to help find the exact right market for you.
• Explore our listings for sale page to look into buying a vacation rental that’s already proven to be successful.
• Use our vacation rental income calculator to understand all your income and expense variables, and confidently estimate your property’s success.
But above all else, remember that our real estate service experts are here to guide you. If you have questions about investing in vacation rentals or want to learn more about the process, our consultative approach can help you get the ball rolling with ease.
We’ll partner with you on defining your personal and financial goals, and take the stressful parts of the process off your plate — like choosing the right market and local real estate agent — so you can move right into a thriving vacation rental business.