Is vacation rental property a good investment?

The big advantage of buying a vacation rental property is the potential rental income you could earn by renting out your investment property. Rental property websites such as Airbnb, VRBO and HomeAway have changed the way people vacation. Vacation rentals create unmatched income potential. Investing in vacation rentals is a great way to earn passive income if you do in-depth market research and come prepared.

A vacation rental property that can generate enough rental income to pay for itself is a good place to start if you're interested in investing in real estate. Buying a vacation property can be a good long-term investment if you buy at the right time. But to capitalize on your investment, you must earn income from renting or selling. If that's the case, are you really buying a vacation property for a better lifestyle, or are you just buying an investment property to make money? I hope you can do both.

In general, a “good capitalization rate” (or a good ROI) really varies depending on the vacation destination you're shopping at based on factors such as demand, home prices, and property types. Even if you rent your vacation home for part of the year (and it's not your main home), it's still a personal residence in the eyes of the IRS if you use it yourself often enough. The occupancy rate for a vacation rental is calculated by dividing the number of nights the property is booked by the number of nights available. We all know that real estate is all about location, location, and the same goes for vacation rentals.

They are much stricter with mortgages for vacation and investment properties because they assume that you need rental income to pay the mortgage. If you're still unsure of the opportunity, here are six main benefits of investing in vacation rentals that underscore exactly why it's your best option as a homebuyer. Vacation rental properties are usually located in areas with high and low seasons with varying levels of demand throughout the year. The best part of investing in vacation rentals is that good guest reviews make your home more lucrative over time.

Since it's a vacation home and you'll be operating it remotely, it's best to leave with a maintenance-free community that takes care of common items and land. That said, predicting rental property income is difficult and predicting vacation rental income is increasingly difficult. Factors such as the number of bedrooms and bathrooms, the size of the home, amenities, and proximity to outdoor attractions can help investors keep the occupancy level of a vacation rental high. If you plan to rent your vacation home, another advantage is the possibility of earning more income, but you'll want to consider the downsides, such as marketing your home to guests (which can be a lot of work) and navigating complex local short-term rental regulations.

Some investors prefer to buy vacation rentals with an existing guest list and a proven track record of success, while others decide to buy a home and try to convert it into a vacation rental. One of the challenges of investing in vacation rentals is finding the right property in the right location and at the right price. Every time I checked the ROI numbers, it always makes more sense to invest in a long-term local rental and then pay out of pocket for a vacation.

Cathleen Testa
Cathleen Testa

Typical travel ninja. Hardcore food enthusiast. Evil webaholic. Avid internet expert. Unapologetic social mediaholic.