In light of the global pandemic, many people are searching for potential side hustles and wonder how to make money on a vacation rental property. Owning a second home will not guarantee you an early retirement, but can generate you a steady stream of revenue.
According to John Banczak, the executive chairman of TurnKey Vacation Rentals, for every $100,000 you pay towards a vacation property, you should aim for an annual rental income of about $10,000. On the other hand, the data collected by Airbnb and Vrbo suggests that vacation rental owners can make anything from about $11,000 to as much as $33,000 per year.
We’ve created this practical guide on how to make money on a vacation rental property to help short-term rental hosts and property managers make the most of their real estate portfolio.
If you are wondering how to start a vacation rental business, we recommend that you begin with careful research. From buying a rental home to welcoming your first guests, we have identified the most important factors you must take a closer look at.
If you are planning to buy a property to rent out as a vacation rental instead of as a real estate investment, you will have to conduct more in-depth market research. Start by assessing the following factors when choosing an investment property:
Location is one of the main variables that will impact the profitability of your vacation rental. For instance, if your place will be close to a popular attraction like a beach or amusement park, you will be able to make a significant rental income.
Ideally, the destination that you select should be able to maintain year-round profitability. That being said, you should keep in mind that while beachfront rentals will generate more rental income, they are more expensive than, for instance, a family home in the suburbs. Besides, it might require a higher down payment, meaning that you’ll have to pay more for your investment property upfront.
When searching for a good investment option, make sure to check out local regulations and HOA ordinances. The local regulations and fees can reduce the income potential of a property. Some cities have very strict rules when it comes to short-term renting, while others prohibit it entirely. You also need to find out if there are any additional requirements like permits.
To get a better idea of the potential occupancy rate, you can reach out to a local realtor or property management company. Alternatively, you can simply peak at the calendars on booking platforms to get a better idea of the availability in a specific area.
According to Vrbo, the peak season for vacation rentals is on average only 12 weeks. Ideally, you want to buy a property that you will be able to rent out during off-peak periods as well. So, it is best to search for a location that is desirable 365 days of the year.
You can typically charge more per night if your property has more bedrooms and bathrooms. That being said, there isn’t a correct size. In short, you are searching for a property that you will be able to manage successfully and that will create sufficient revenue to exceed your property-related expenses.
While factors like the size of the property and local regulations are out of your control, you can have complete say over the interior design. By taking the time to create beautiful interiors, you can deliver a better guest experience. It also makes it easier to market your rental on listing sites. By going the extra mile and putting more effort into the design of your property, you can help it stand out in the vacation rental market.
Your vacation rental should be comfortable for everyone. One of the common mistakes is to decorate your property for yourself. So, it is best to get an objective opinion. Not only will a professional designer be able to give you that unbiased feedback, but he/she is much more experienced and skilled at decorating rental properties.
It is better to begin with classic lines and color schemes. By opting for more neutral choices, you will ensure that a variety of tastes will enjoy your property, and you will not have to redecorate or replace that often. If you will be buying second-hand furniture, ensure that it does not show any signs of wear and tear.
Your property needs to provide a full range of supplies to create a five-star guest experience every time. If your rental misses an amenity, vacationers could get frustrated and express their disappointment in a review.
To ensure that you remember to include all the key basics, like extra blankets and enough towels, you should create a checklist. You can, for example, create inventory checklists for the kitchen, bedrooms, and bathrooms that you share with your cleaning crew. This way, they can also make sure that everything is in working order.
There is a reason why your guests have picked a specific vacation destination. While it is best to use lines and color schemes that will appeal to most, you can still include subtle accents that bring to mind the feelings of the area. This way, your property can become an extension of its area. For example, if you have a beach property, you can include a subtle nautical theme.
It is always a good idea to go the extra mile and provide something on top of the basics. By upgrading your property with a few luxuries, you can take your rental to the next level. Basically, you want to ensure that your guests still have all the comforts that they have at their own home. Popular amenities include hot tubs and free Wi-Fi.
Being honest about your property is crucial. A well-written, informative description of your vacation rental property is one of the most valuable assets that will help you to make money.
Your photos will be the factor that decides whether or not your venture will succeed or fail. As it is so crucial, it is a smart move to leave this job to the pros too. You could even consider asking someone to create a virtual 3D tour of your home.
Your title is the first noticeable element that travelers will see when they search for accommodation. As there is no shortage of short-term rentals on listing sites like Airbnb, Vrbo, or Booking.com, you will need to create something unique and catchy to stand out from the competition. Two of the most common mistakes to avoid are using generic words and promising more than your property is able to offer.
Your description helps you to draw attention to amenities and features that are difficult to photograph. Plus, it goes a long way in managing the guests’ expectations. When writing your description, try to use the right keywords as this will also please the search engines.
If you will be responsible for marketing your property, it is key that you select the correct platform. That being said, every platform has its own advantages and disadvantages. So, it is best to list on more than one site. By listing on multiple sites, you will also increase your reach.
By setting the right pricing, you will be able to maximize your occupancy rate. Though, this is what several homeowners find the most challenging. The key is to look at market data, seasonality and similar properties. When setting your monthly rental rates, make sure to take management fees into account as well. You want to be sure that your rental income covers your expenses and you have money to scale your business.
Calculating how much money a vacation rental can generate is challenging. Therefore, it is best to use online tools like a vacation rental income calculator.
AirDNA has, for instance, created a tool that hosts can use to work out average daily rates, occupancy rates, and profit. You can then deduct other property-related expenses such as insurance, management fees, and tax to get a better idea of your potential cash flow.
When you are researching your competition, it is important to remember that you should compare your property to others that offer similar amenities. Just because you are in the same street does not mean you offer the same experience. You might actually want to price it just a little lower than your competitors. This way it will be rented out more often.
Hosts frequently make costly errors when they set their daily rates. One of the most common mistakes is to opt for a flat rate for the whole year. The objective is actually to maximize the total booking value instead of the nightly rate. You can do this by offering discounts for longer stays or special offers for weeknights.
To make money on a vacation rental property requires money and hard work. So, the last thing that you would want is for the investment that you have built over the years to be placed at risk by a single event. Vacation rental insurance can safeguard your physical property, its contents, and your business.
The right insurance plan will cover the following four aspects: liability, the property and its content, rental income, and additional coverage. The latter is especially important if your property is located in an area prone to natural disasters.
In the United States, vacation rental insurance can cost $2,000 to $3,000 on average per year. How the home will be used plays a factor. Usually, if you will be using the property more for your own use than for holiday renting, the cost will be lower.
Being a responsive host helps to boost your Airbnb ranking as response rate and response time are crucial for enhancing this metric. With automation software like iGMS, you can use the smart messaging features and templates to help you to establish prompt and efficient guest communication every time.
Offering self-check-in removes the need for you or a member of your team to be there in person to welcome your guests. This can save a lot of time as you no longer have to work out your schedule around when guests will arrive.
Guests also often prefer this as they can then choose at which time they want to arrive after your official check-in time. Often guests are tired after being on the road and they are actually not keen on making conversation. With self-check-in, they can unpack at a more relaxed pace.
A welcome book will help your guests to feel comfortable and improve their experience. It is a great place to share important information and local highlights. By taking the time to write a welcome letter too, your guests will perceive you to be a caring and thoughtful host.
Good reviews will help your rental to get more bookings and enjoy better visibility on listing websites. In fact, guests are more likely to book a property if it has received a number of positive reviews.
As they are so vital, you should make a point to ask for a review. This polite request can be included in a departure message that you send to your guests to remind them about the checkout procedure, inquire about their stay or simply to thank them for their support. Even a negative review can help you as they can offer valuable feedback about which aspects still need improvement.
Instagram, Facebook, and Pinterest can be used for marketing your short-term rental. Influencer marketing is also a popular strategy that can deliver great results. Generation Z and millennials are frequent users of social media. So, if you hope to get bookings from this age group, specifically, social media should not be overlooked.
This is an excellent strategy to use when you have a business website. To increase visibility on Google, you can start using sponsored pay-per-click ads to appear at the top of the search results on Google when your target audience searches for specific keywords.
A local partnership can offer a unique value as most of your competitors will not consider this marketing tactic. You can create a local partnership to create special discounts for your guests and spread the word about your rental property in the local community. Your guests will be only too happy that by booking with you they can take advantage of local discounts during their stay.
Property owners many times notice that after they have started to use vacation rental software, their revenue increases. In fact, they notice a return on investment much faster, while their workload and expenses were reduced at the same time. Vacation rental software is an affordable alternative to hiring an external team of property managers to help manage your rentals.
iGMS can help you to automate many of your routine tasks that you will need to complete. These include:
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