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Vacation Homes: The Pros & Cons of Investing in Short-Term Rental Properties

What Exactly Are Vacation Rentals?

Vacation rental properties are homes that are fully furnished (as opposed to normal rental properties) and are rented to tourists and travellers on a temporary basis. This is why they’re also known as short-term rental properties because they can’t be rented out for more than six months at a time by the same person— in most cases. In a way, they work like hotels and other types of lodging options for those looking for a place to stay during their vacation.

Beach houses are probably the most common type of vacation rental home, but vacation rentals can be in the form of any type of home, and even apartments, condominiums, and townhouses. Vacation rentals are a pretty popular type of real estate investment, but there are some things that you should understand before investing in one.

Pros: Why You Should Invest in Vacation Rental Properties

Passive Income

Arguably the most common reason people choose to invest in vacation rentals (and other types of rental properties) is because of the potential to earn passive income. Passive income is income that you don’t have to work for— at least not “work” in the same way that you’d work a full-time or even a part-time job. However, it also doesn’t mean that you don’t have to work at all. When it comes to vacation rentals, there’s work in finding a good property, financing it, and marketing it to gain tenants. You also have to work to maintain the property.

You Don’t Have to be the Landlord

Although being the owner of a vacation rental property means that you’re responsible for all of the maintenance of the property, you don’t have to do it yourself. You can pay a property manager or an entire property management company to help you take care of the property. This is much more convenient, especially if your vacation rental is in another city or state.

A professional property manager will know exactly how to take care of maintenance issues, such as broken appliances, and will have the property cleaned between your tenants. Some companies may even help you with marketing efforts to get more people interested in your vacation rental.

It’s Easy to Get Started

It’s actually fairly easy to get started with your vacation rental investment. The first thing you’ll need to do is find a real estate agent to help you locate a desirable vacation rental. Usually, the most successful vacation rental properties are located in or near cities that have thousands of tourists year-round. The next step is to receive financing for a vacation rental, and just like buying a home, there are many options for this.

Cons: Be Aware Before Investing

Short-Term Rental Restrictions

One of the downsides to investing in vacation rentals is that they aren’t allowed everywhere in the same way that residential and commercial rental properties are. In the United States, several cities, such as New York City, San Francisco, and Maui (Hawaii), have very strict restrictions when it comes to vacation rental properties. For this reason, it’s important to make sure that you research and understand all of the laws and regulations regarding vacation rentals/short-term rentals before you invest in one.

Immediate Success is not Guaranteed

Although vacation rentals (and other types of rental properties) are very successful, immediate success is not always guaranteed. It takes time, patience, and some amount of work to guarantee that your vacation rental will be a success. A big part of your success as a vacation rental property owner is that you establish a good reputation as being someone worth renting a property from— whether you’re the actual landlord or if you hire a property manager. Word of being both easy to rent from and hard to rent from gets around quickly, and you want people to know that you’re easy to rent from.

You May Have to Spend Money on Renovations

There’s a chance that you won’t find the “perfect property” and so you may have to consult a contractor for renovations and remodels. Keep this in mind when looking for a vacation rental. It’s also good to know which property renovations will increase the property value (allowing you to charge more) and which renovations will cost you more money than they’re worth.

Overall, investing in a vacation rental property is a good investment if you’re wanting to get into real estate investing. Just remember that it takes a lot of work upfront (researching rental laws, looking for a property, marketing, building a reputation as a respectable property owner), but it does pay off in the end.

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