Our ultimate guide to investing in vacation rentals


Are vacation rentals a good investment?

In a word, yes. But you don’t need to take our word for it.

  • Vacation rentals are performing well overall. Of U.S. "vacation rental counties" (where at least 20% of the total housing inventory is vacation properties), 81% saw year-over-year sales gains in 2020.1
  • More travelers than ever are seeking out vacation rentals. Vacasa.com traffic and searches are up more than double year over year—as of spring 2021, searches are up 235% and our number of users is up 116%.2
  • Vacation rental revenue can be a valuable income source. Vacation rental income comprises 24% of the average owner’s annual income.3

Why are vacation rentals a good investment?

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

6 benefits of investing in vacation rentals

1. Income generation

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:

  • Location and seasonality: How many people travel to your home’s area, and when? How can your vacation home meet that demand?
  • Personal use: Is this a home you plan to visit? Or, will you forgo personal use and maximize profits by only opening the home to paying guests?
  • Optimization: What upgrades and amenities can maximize ROI and earn five-star reviews?

Learn More: Revamping a vacation rental to maximize ROI

2. Home appreciation

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

3. Tax benefits

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

4. Dual-use property

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.

Learn More: How we helped one homeowner make big gains in Galveston

5. Hands-off home ownership

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.

Learn More: How Vacasa gave one owner more time for fly fishing

6. Recession-friendly

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

Learn More: Find the top properties with the best ROI potential

Vacation rental deck in California

Gauging your expected vacation rental investment returns

Your potential for your return on investment (ROI) depends on a handful of factors.

6 factors that impact how much you can make on a vacation rental investment

1. Income triggers

  • What was the home sale price and down payment amount?
  • What is your break-even point?
  • What will you write off in tax deductions?
  • What cash flow can you expect?

2. Operating expenses

  • How much do you pay in property taxes, utilities, HOA fees, and insurance?
  • What fees do you need to pay to meet local regulations?
  • What, if any, property management fees will you incur?
  • What will you spend on discretionary repairs, upgrades, and general wear and tear?

3. Rental demand

  • How popular is your location? How many people visit, for how long, and how often?
  • What are the views like? Do you have beachfront or ski-in/ski-out access?
  • How close is the property to amenities like the airport, beach, or ski slopes?
  • What are the attractions in the region? How close are you to hiking, dining, or other entertainment?
  • What are the off-season draws?

4. Revenue levers

  • How well, and where, is the property marketed?
  • How easy is it to book? How supportive and engaged is customer service?
  • Are guest experiences captured in positive online reviews? How responsive can you be to any negative reviews?
  • How many people can you comfortably host?
  • Is your home pet-friendly?
  • Does your home have a hot tub, pool table, or other recreational amenities?
  • Is the home ADA accessible?
  • How well have you stocked your kitchen?
  • How thoughtful or inspired is the interior design?
  • Are you limiting your own personal use (especially during the high season)?

5. Home appreciation

  • What is happening to home values in your local vacation destination?
  • What is happening to home values in nearby metropolitan areas?

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

6. Historic business value

  • How well can you demonstrate historic short-term rental income and cash flow?
  • Can you offer a turnkey home, with everything from furniture to property management?
  • Can you sell your home with the value of pre-booked guests?

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

Vacation rental patio in California

Where should you invest in a vacation rental property?

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.

Learn More: Browse all the top vacation rental investment markets

Top 25 vacation rental investment markets, 2020
Back patio and pool view of a vacation rental in Scottsdale AZ
Top 25 vacation rental investment markets, 2019
Vacation rental in Princeville
Best places to buy a beach house, 2019

Tips for making good 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.

Steps to buying a vacation rental investment

1. Find your location, then search properties

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.

Learn More: Find great properties first with Vacasa’s Top Homes

2. Get pre-approved for a vacation rental investment

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.

3. Run your numbers and calculate ROI

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.

4. Make your offer

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.

Learn More: 5 things to know about 1031 exchanges for vacation homes

5. Negotiate the sale

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

Vacation rental with view of the water in Cape Cod

How to start your vacation rental business

Stay in your vacation rental investment first

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 bought the home as a turnkey vacation rental investment, what repairs and upgrades are still needed? Do the knives need sharpening? Do the linens need to be replaced? Do the blinds in the master bedroom work?
  • If you’re the first to make it a vacation rental investment, what changes would make the property more beautiful, comfortable, and profitable? Should you offer a high chair, a pack-and-play, or baby gates? How can you arrange the furniture to take full advantage of the views? Would extra parking be appropriate?

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.

Learn More: Explore travel destinations and book a Vacasa vacation rental

Choose the right property manager for your vacation rental investment

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.

  • Are you guaranteed a certain rental income?
  • Do they offer world-class marketing services and dynamic booking rates?
  • Does the management fee cover all marketing, booking, guest services, maintenance, and housekeeping?
  • What sorts of limits are in place for owner use?

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.

Property manager interview questions

If you’ve yet to partner with a vacation rental property management team, here are some key questions to ask during your screening process:

  • What upfront, monthly, and other “hidden” fees (booking channel fee, management fee, credit card fee, etc.) do you charge?
  • Can you guarantee I’ll make more money on my vacation home than I did last year?
  • Do you charge for house visits?
  • Do I have to sign a long-term contract?
  • What is your marketing strategy for my short-term rental?
  • Do you have any owner usage restrictions?

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.

Learn More: How Vacasa tripled one owner’s income and saved the family home

You might also like...

Vacation rental with outdoor patio and private pool in Key West, FL
Four reasons why you should buy a vacation home
Sunny Florida vacation home located in Destin
What to expect when buying a vacation home
a couple meeting with their tax professional
Vacation home mortgage loan options
vacation home with mountain views in Big Sky, MT
2020: Top 25 best places to buy a vacation home

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 LLC, Dana MacCord, Principal Broker, ph 504.252.0155 (Licensed in LA); Vacasa Michigan LLC, 947-800-5979; Vacasa Missouri LLC, Susan Scanlon, Designated Broker; 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; Vacation Palm Springs Real Estate, Inc., California DRE #01523013, Joseph Czapkowicz, California DRE #01380722; Vacasa Real Estate LLC (licensed in Colorado, Daned Kirkham); Vacasa Real Estate LLC (licensed in Idaho and Oregon); Vacasa Real Estate LLC (licensed in Tennessee, 615-671-9916); Vacasa Real Estate LLC (licensed in Texas, Debra Brock, Designated Broker); 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.

Note: The ability to rent out a vacation rental property is subject to local market regulations and restrictions.

Sources (09/23/19 and 07/06/21): 1National Association of Realtors, 22021 Vacasa Vacation Rental Search Report, 3vrbo.com, 4nbcnews.com and cbsnews.com, 5investopedia.com, 6cnbc.com