The key to smart business decisions is information. Research as much as possible about the industry you want to enter so you can sidestep problems and common mistakes.
And it’s no different when it comes to entering the real estate market; more specifically, using a vacation home to start your own vacation rental business. The more you know, the better you can prepare to ensure a positive cash flow from the start.
So, what would the expert real estate investors advise you regarding your vacation rental property? It’s a wise investment, but what are the risk factors?
We summarised it all in an easy-to-understand pros and cons list.
Table of Contents
The Pros of a Vacation Rental Business
Let the benefits of a vacation rental business be the strengths on which you build your new venture.
Best of all is that the asset you acquire—whether you buy a vacation rental or fix up an existing asset—will bring you regular rental income. Unlike purchasing art and waiting for years before you enjoy a true return on investment, with a vacation rental business you can receive an income on a continual basis.
There are also long-term benefits in the vacation rental business: over time, chances are that your property will increase in value. Simply make sure you invest in a property that’s near amenities, in an area with respected schools and in a popular holiday zone.
Did you know you’re allowed to deduct expenses related to your vacation rental business? Paying a property management company to assist with logistics is just one of many you can mention on your tax submission. Just remember to keep all those receipts!
Effortless Marketing & Promotion
NOW is the time to start your vacation rental business! There’s a high demand for holiday accommodation that’s not as clinical as hotels.
You can market it yourself for a personal touch. But remember that technology and online platforms such as Airbnb, make it easy to reach your audience: guests will come looking for you as the peak season approaches. So, simply make sure you’re listed where it matters.
The Cons of a Vacation Rental Business
As with any financial matter, there are challenges that come with real estate investing, so take cognizance so you can plan ahead.
Property and Repair Expenses
Any property needs maintenance and repairs from time to time, so include those expenses in your budget. The added risk is that your guests may cause more damage than you anticipate when they don’t heed your house rules and directions on using certain appliances. So, make sure your insurance covers it all.
Even with a sensible budget in place, there may still be costs that you didn’t plan for. Think of the impact of the following:
- A natural disaster in your area
- Bad press that causes fewer people to visit your town—you’ll need to market more to counter the effect
- Appliances that wear out sooner than you think, especially with multiple short-term rentals each month
Experts advise you to allocate up to 10% of your rental income to an emergency fund.
Challenges with Securing Guests
Technology helps you reach your future guests, but it can be a nightmare keeping all your bookings organized. For example, guests tend to change their minds about their holiday plans. Employ vacation rental managers as well as specialized software to help you.
Be warned: not all cities and homeowners associations are welcoming when it comes to vacation rental businesses. You may have to obtain a license or be limited to how many days each year you’re allowed to operate. This will affect your rental income and budget.
As stated, guests change their minds often. You have no guarantee that all your guests will go through with the reservation. And even if they pay deposits, you then have to try and find other guests to ensure a full rental income for that period. So, be prepared to invest time in administration or paying vacation rentals managers to help you cope.
The investment property you pick today may not be as sought after in a few years’ time, which affects resale values. Holiday attractions may move to another part of town, or a natural disaster can strike your area. Be aware of potential risks and plan how you’ll handle it if does take place.
A vacation rental business can be an exciting and profitable investment. There are many success stories. For yours to be one of them, plan well and monitor your business on a regular basis so you can take action as soon as it’s necessary.