Real estate is known for being a solid investment, and recent traveler trends highlight a clear opportunity to earn extra income by investing in vacation rentals. Plus, when we surveyed over 8,000 travelers, 82% said they plan to book a vacation rental for their 2023 adventures.
Experts also believe these traveler preferences are here to stay, making short-term rental investment a great play for long-term income.
Here are six major benefits that underscore exactly why vacation rentals are a good investment.
In This Article:
Increased Income Potential
Varied Market Opportunity
Offsetting Owner Costs
Even More Revenue Opportunity
A Built-In Vacation
Home Appreciation
1. Increased Income Potential
Not only is the vacation rental industry showing plenty of income potential, it’s also creating opportunity for 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 4-5% in metro markets (where investors are typically drawn), but short-term rental cap rates can frequently come in at 10% or higher.
This means your ceiling for profitability is significantly higher when investing in vacation rentals than it is with other property options — and that’s more money that could land in your pocket.
2. Varied Market Opportunity
While finding success in long-term rental generally requires a purchase near a major metro area, buyers can find vacation rental properties with profit potential in a wide variety of markets.
And since travelers’ favorite locations are scattered from coast to coast, you’re spoiled with choices for vacation rental investment properties –– whether you’re looking for a beachfront property, lakeside rental, mountainous ski house, or cozy cabin.
Ready to explore your options? Our team helps investors find success in markets all across the country.
3. Offsetting Owner Costs
Creating solid revenue streams and growing your income property portfolio are the main investment goals for many second home owners. But there’s also massive value, particularly for first-timers, in offsetting owner expenses from the start.
From mortgage payments and utilities to insurance fees and maintenance costs, vacation 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: using a vacation rental management company with especially low fees (like Evolve) can help owners break even and start earning profit faster.
4. Even More Revenue Opportunity (with Five-Star Hospitality)
The best part about investing in vacation rental properties is that great guest feedback makes your home more lucrative over time.
When rental properties hit new listing sites, they have to compete with established competitors for visibility and bookings. But the more five-star experiences you deliver (along with smart responses to any poor reviews), the more sites like Airbnb and Vrbo will show your property to browsing travelers — making it more likely to earn bookings.
Best-in-class hospitality also makes it easier to raise daily rates (when the market allows for it), increasing your profit margins on any given stay as you establish the value of your vacation rental property.
5. A Built-In Vacation
Unlike long-term rental investments, a vacation rental property is also a place where you can get away. It provides the luxury of carving out time to spend with family and friends, or to switch up your work-from-home space — without necessarily needing to spend money on accommodations each time you travel.
In other words, you earn rental income and boost revenue when you’re not there, but also save money when you’d like a change of scenery yourself.
6. Home Appreciation
As with all smart 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 bought it.
What’s more, when that time comes, Evolve has real estate experts who can help you sell directly to buyers who are looking to invest in vacation rentals.
Take the Next Step Toward Investing in Vacation Rental
Investing in vacation rentals might feel like a big undertaking, but Evolve’s RES team is here to guide you at every stage of the journey. Our experts can help you:
- Define your personal and financial goals
- Understand the nuances and earning potential of any market
- Connect with preferred real estate agents in the area for expert local assistance
- Manage your new property to maximize income and stay ahead of the competition
And if you’re hoping to buy a rental with proof of performance, our listings for sale page features homes that already have a track record of vacation rental success as Evolve properties.
No matter where you are or plan to buy, we’re here to help you reach your vacation rental goals.