Leisure travel accounted for 80% of all U.S. domestic travel in 2018.1
Millennials are predicted to spend $1.4 trillion on travel each year by 2020.2
Vacation rental income comprises 24% of the average owner’s annual income.3
The rise of the sharing economy and the development of online marketplaces have reset the travel industry. (We can thank Millennials for this growth.) Staying in someone else’s home has become desirable and normal. Travelers are extending business travel for pleasure. Plus, they have new standards for affordable, beautiful accommodations. As their economic power continues to grow, it’s expected the vacation rental industry will continue to grow, too.2
A good vacation rental investment can pay for itself. A great vacation rental investment has the potential to turn you a profit. Here’s what separates the good from the great:
Learn More: Revamping a vacation rental to maximize ROI
Over time, the right vacation rental investment in the right location can significantly increase in value. When you compare vacation rental real estate to residential real estate, vacation rental property can increase in value relatively quickly, too.5
Meanwhile, investing in upgrades to the home can make for happier guests (and more compelling guest reviews). Plus, these types of investments and updates can help with value and appreciation.
Learn More: Advice and tips from a vacation rental investor
When it comes to tax benefits, a vacation rental investment is a lot like a primary residence. You may enjoy tax deductions related to mortgage payments, property taxes, rental income, insurance premiums, and so on. But, how you use your property, and how often you use it, can impact what expenses you can write off.
For instance, if you rent out your second home for more than 14 days a year, you may be eligible to write off some, or all, of your rental expenses. A certified public accountant (CPA) can help you understand the vacation rental investment tax codes and tax deduction eligibilities for your state and your situation. (We recommend you consult with your CPA for all of your potential tax obligations and advantages. We’re not CPAs.)
Learn More: Guide to vacation rental taxes
Let’s get back to basics for a minute. One of the greatest benefits of owning a vacation rental investment property is that you can use it for business and for pleasure. Visit your vacation rental investment for a little “me time.” Get away for a romantic weekend. Host lively events for family and friends. With a vacation home, you can make money and make memories. You don’t have to choose.
That said, if you do think of your vacation home primarily as an investment, you’ll want to minimize personal use (or save it for the shoulder season) and prioritize guest access.
Many homeowners live miles from their vacation property, making self-management impossible. Other homeowners who live close by think self-management is the way to go… until a guest gets locked out in the middle of the night, bookings drop off, or repairs add up after a cluster of storms.
With a local, full-service team managing your property, you can enjoy all the benefits of a vacation rental investment—with none of the hassles.
A vacation rental investment in the right location can generate valuable income, even during a recession. We know, based on the lessons from the 2009 recession, that people don’t stop taking vacations when the economy slows down. Travelers simply plan shorter trips, share expenses with larger groups of family or friends, and book vacation rentals closer to home.4
Your potential for your return on investment (ROI) depends on a handful of factors.
Over time, homes increase in value. In many markets, vacation rental real estate can also increase in value higher and faster than residential real estate. (This is, in part, due to supply scarcity and buyer demand.) So, if you decide to sell, home appreciation trends can work in your favor.6
Again, if you ever decide to sell your vacation rental, your big-picture ROI is impacted by how well you can demonstrate the historic and potential business value of your property.
Learn More: Create the perfect vacation rental listing
That is the billion-dollar question. There are a couple of ways to choose a location for your vacation rental investment. But, once you decide on a location, your search gets a lot easier. Your decision-making process can become easier, too.
The first—and perhaps best—way is to buy in a top vacation rental investment market.
Another way to think about your investment is to buy where you want to vacation or retire. If you love it there, there’s a pretty good chance other people love it there, too.
That said, it’s important to work with a local agent with expertise in vacation rental real estate. Their relationships, insights, and experience can help guide you toward the right homes for your goals and budget. They can also help you navigate the local regulatory climate. Most expert agents can also connect you with lenders who are friendly to vacation rental investments.
Before you start the process of buying a vacation rental investment, you need to define what kind of buyer you are. Are you looking for a vacation home that helps pay for itself between your many visits? Are you looking for a home you hope to retire in, or leave to a loved one? Or, are you looking to buy a vacation home that's a revenue-generating machine? It’s rare, but not impossible, to find a vacation rental that can be all three.
Once you know what kind of buyer you are, there are a dozen or so steps to follow as you prepare to make your vacation rental investment.
Location is the number one factor that influences your potential profitability, and every location has unique short-term rental regulations. So, before you start evaluating individual properties, it's a good idea to identify the location that meets your goals. You can start your search in a location that interests you. Or, you can explore the top vacation rental investment locations in the U.S. But, keep in mind that your search may not end where it started.
If you’re not planning to make a vacation rental investment with cash, you’ll want to get pre-approved by a lender familiar with vacation rental lending. Once you’re clear on your budget, you can also double down on a location (or pivot to a higher- or lower-value market). In hot vacation destinations, a pre-approval puts you in a position of strength because you can move on a property quickly. It also lets sellers know your offer is one they can trust.
Note: It’s a best practice to work on steps 1 and 2 simultaneously. Start your search and your conversation with a lender at the same time.
As you find vacation homes you like, it's a good idea to calculate their potential return on investment (ROI). We can give you customized reports based on your home's unique location and features. Plus, we can customize your reports based on upgrades and revenue levers like pet-friendliness. An in-depth report goes beyond gross income projections. Look for in-depth reports with monthly cash flow estimates, operating expense estimates, and net income potential.
As with most real estate, cash makes for a compelling offer. If you are offering cash, some sellers may request as much as 10% in earnest money. But, if you plan to finance, expect to put 1–2% of the offered price down as earnest money. Depending on your loan and local regulations, you may be able to put down as little as 10%. The more common down payment scenarios run from 20% to 60% down. If you already own a second home, you may leverage a 1031 exchange, too.
Once your offer is in play, your negotiations can hinge on your agent’s expertise. Without helpful insights into the local vacation rental landscape, you may be offering too much or too little. Accurate estimates on the home's vacation rental investment potential are also key to making a strong offer.
Learn More: See the full list of 12 steps to buying a vacation home
Whether you plan to self-manage or you’ve already got a property management team in mind, it’s a good idea to stay in your vacation rental investment for a few nights. Be your own guest. You can better prepare for your guests and beat out the competition when you understand a guest’s needs firsthand.
If you can stay at the home before you even make an offer, that can be advantageous, too. Understanding and being responsive to these details can really make a difference for your guests’ experiences and your ROI potential.
If you bought your home as a turnkey business solution, you want to think through the pros and cons of the current property management partnership.
If you’re not satisfied with their answers, it may be time to consider changing property managers. It's important you feel empowered to rent with ease and earn the highest profit possible.
If you’ve yet to partner with a vacation rental property management team, here are some key questions to ask during your screening process:
You and your vacation rental investment deserve top treatment. As you search, look for a company that takes care of every detail you can imagine and offers you the option to cancel at any time.
It takes a team of dedicated experts to help you find the right property and optimize it for your goals. It’s absolutely okay to stick to your standards. After all, you’re hiring a real estate team that can help you find the right property. Plus, as savvy vacation rental owners know, you deserve a full-service property management team that’s here to help protect your investment, save you time, and help you make a healthy profit.
Vacasa offers property management and other real estate services directly through Vacasa LLC and through Vacasa LLC's licensed subsidiaries. Click here for more information about Vacasa's licensed real estate brokerage/property manager in your state. Vacasa’s licensed real estate brokerages/property managers include: Vacasa Alabama LLC; Vacasa Arizona LLC; Vacasa Delaware LLC, 302-541-8999; Vacasa Florida LLC; Vacasa Louisiana L.L.C. (licensed in Louisiana); Vacasa Michigan LLC, 947-800-5979; Vacasa Nevada LLC; Vacasa New Hampshire LLC, P.O. Box 283, Conway NH 03818, Dave Grant, Broker of Record; Vacasa New Mexico LLC, 503-345-9399; Vacasa New York LLC, 888-433-0068, Susan E. Scanlon, Real Estate Broker; Vacasa North Carolina LLC; Vacasa Pennsylvania LLC; Vacasa Real Estate Corporation, California DRE #02105811, Joseph Czapkowicz, California DRE #01380722; Vacasa Real Estate LLC (licensed in Colorado, Daned Kirkham); Vacasa Real Estate LLC (licensed in Idaho, Oregon, and Utah); Vacasa Real Estate LLC (licensed in Tennessee, 615-671-9916); Vacasa Real Estate LLC (licensed in Washington, Robert Brush, Designated Broker); Vacasa South Carolina LLC; Vacasa Tennessee LLC; Vacasa Vacation Rentals of Hawaii LLC, 3350 Lower Honoapiilani Road, Suite 600, Lahaina, HI 96761; Vacasa Vacation Rentals of Montana LLC, Patrice Tompkins, Licensed Property Manager; Vacasa Virginia LLC; Vacasa Wisconsin LLC; Vacasa Wyoming LLC. In Canada, this advertisement is provided by Vacasa Canada ULC, CPBC lic. number 75826, 172 Asher Rd. V1X 3H6 Kelowna, BC.