Owning a vacation rental has become increasingly popular over the past few years. With the rise of Airbnb and HomeAway, booking a vacation rental for a trip is almost as commonly thought of as booking a hotel. Many homeowners have had their interest in owning a vacation rental piqued after seeing how much travelers enjoy their rental experiences.
According to TurnKey’s 2018 Consumer Travel Survey, over half of travelers prefer vacation rentals to hotels. To keep up with traveler demand and preference, homeowners are following suit. Over half of Americans own at least one house, and according to data from the National Association of Realtors, over 30% of those homes are second homes used as vacation rentals.
As vacation rentals rise in popularity, many homeowners are starting to question if they should explore vacation rental home ownership and management. Whether it’s renting out a current home for parts of the year or purchasing a home dedicated entirely to being a short-term rental, asking the below questions will help you make the best decisions for your property and get the largest rate of return.
How much does it cost to own a vacation rental?
The amount of money it costs to purchase a vacation rental property and manage a rental business can vary widely based on what type of property you’re buying, where you’re buying it, and how you plan to use it.
Before you start looking, we recommend setting a budget and deciding the upper limit of what you’re willing to invest in a vacation rental up front. This includes down payment, initial repairs, and total cost. Having this number in mind will not only help you communicate your parameters to your realtor, but it helps your realtor find homes that will not break the bank for you.
For example – let’s say your budget is $600,000, and your realtor finds a fixer-upper for that amount but the home requires about $25,000 worth of repairs before the home will be habitable. Knowing how much you’re willing to spend in total – home plus initial renovations – will help narrow down your list of possible properties.
One thing to keep in mind as you set your budget is that the requirement for down payments in the second home buying process is different than when purchasing a primary residence.
Investment properties usually require a larger down payment, according to Isabel Affinito, a realtor with JB Goodwin in Austin, Texas. Be honest with your realtor and your lender about how you plan to use the property – this can affect your mortgage and also create legal trouble if you’re dishonest.
As far as costs after you’ve bought and renovated your vacation rental, that can also vary. You’ll want to set aside funds for run of the mill repairs, supply restocking, and an emergency fund in case something unexpectedly goes awry.
Own a vacation rental already and want to see how much more revenue you could be earning? Get a free rental assessment here.
Where should I buy a vacation rental?
While there are always lists of hot and up and coming vacation destinations circulating on the internet, it’s important that you pick a destination that will not only help you generate revenue but that you personally enjoy as well.
Why? Buying a vacation rental is a substantial investment. When you purchase a property, you’re not just buying a house. You’re investing in a neighborhood, a community, a town. Additionally, if you plan to use your vacation rental from time to time… you’ll want to enjoy your visits.
Rentals near the mountains, beach, and city center are often popular choices for travelers. But, there are plenty of travelers looking for quiet peaceful getaways away from the hubbub of conventional travel destinations.
If you’re on the fence about where to buy your rental property, we recommend exploring vacation rental sites like Airbnb to see what types of homes are being rented out in that area. If you have a revenue goal in mind, this can help you see how profitable a certain type of house can be in a particular location.
Curious as to just how much you can make from a vacation rental? We have your answers here.
How will my taxes change?
One of the biggest things to note about tax law regarding vacation rentals used as short-term rentals is the federal 14-day rule. If you rent your home out for less than 14 days each year, you do not have to pay tax on the income you generated from it.
Always keep detailed logs of all of your short-term rental stays and expenses – future you will thank you come tax time.
While your federal tax obligations are fairly straightforward, local tax laws can vary widely. Some cities require you to obtain a business license, pay sales tax, or hotel taxes. Talking to other short-term rental owners or accountants in areas you’re looking to buy in can prove helpful in understanding how your tax obligations may change.
How do I create a listing for my vacation rental?
Once you’ve bought your vacation rental property, it’s time to start creating property listings on sites like HomeAway, Airbnb, and VRBO. Having a compelling, well-written, and visually appealing listing is key to securing bookings.
There are four main components to your vacation rental listing – the photos, description, pricing, and your calendar.
First, only use high-quality photos of your home in your listing. Professional equipment can produce better looking photos and give you a better starting point for any necessary photo edits. Before you start photographing your home, make sure it is staged properly. Clean up your bathroom, put away the dishes in the kitchen, and straighten up the pillows in the living room. You want your guests to be able to envision themselves in your home, feeling comfortable and enjoying their stay. This might also mean replacing torn curtains or adding colorful accents to the master bedroom. You always want to put your best foot forward.
Second, take the time to craft a well-written listing description. You want potential guests to truly get a sense of what it would be like to stay at your rental. Use catchy phrases and include details on each room, all of the amenities, and your location. If there’s something a traveler could possibly want to know about your property ahead of booking, include that information in your description. Make sure it’s clear how many bedrooms and bathrooms your rental has and, realistically, how many people can sleep comfortably in your home.
Third, always have current pricing on your listing. For many guests, cost can be a deciding factor in picking your rental over someone else’s. At TurnKey, we utilize dynamic pricing based on season, day of the week, and local events. Keeping your pricing current will always let guests know what to expect price-wise before inquiring to book.
Finally, you want to have an accurate calendar on every site that your property is listed on. Whether you’re using the home yourself or you have guests coming to stay, keeping your calendar accurate online will make it easier for guests to see when they can and cannot book a stay at your home. This will also prevent you from having to cancel a guest or turn a guest away.
And as with anything written, always proofread for spelling or grammatical errors. Definitely update your listing whenever any of your information changes. Even if nothing has changed, we recommend revisiting your listing every season to see if there’s anything you’d like to update before the next.
Should I hire a vacation rental property manager?
Hiring a full-service vacation rental property manager can be incredibly helpful in managing your vacation rental – especially if you’re managing your vacation rental remotely.
In today’s vacation rental era, it’s very plausible to own a rental property in a city you don’t live in or near with the help of a full-service vacation rental property manager. Property managers, like TurnKey, will handle almost every aspect of vacation rental management – creating your property listing, responding to questions from guests, cleaning your home between stays, keeping your availability and pricing up to date, and more.
Interested in learning more about your property management options? Here is a breakdown of what it means to manage your property on your own, what types of software and services are available to homeowners, and what a partnership with a full-service property manager like TurnKey could look like.
Becoming a vacation rental homeowner is an exciting journey – one that can be made easier with the right answers to questions like these.