Understanding what type of vacation rental homeowner you are is an essential first step in generating revenue from your property. People invest in vacation rentals for a number of reasons, each with a specific set of goals in mind.
Some homeowners like to stay in their own vacation rentals as often as possible to enjoy the home’s amenities and location, while others see their property strictly as a moneymaker. And, there are homeowners who fall somewhere in between.
No matter what kind of owner you are, you can still make money off of your property. In the U.S., 42% of vacation rental homeowners use rental income to cover their home’s costs, and 28% see steady profits, according to a report by vacation rental platform HomeAway and international real estate group Savills. More than two-thirds of owners rent out their homes at least part of the year to cover some or all of their costs of ownership.
The availability of a home, including how much you use it personally versus how often it’s available for guest stays, is one of the major determinants of what kind of vacation rental homeowner you are, says Mike Bohmer, vice president of revenue management at TurnKey Vacation Rentals. Availability ultimately also impacts revenue.
“The availability is driven by owner usage and the type of days that are available (for guests),” Bohmer said. “Weekends, events, and holidays are most desirable for a guest—just like it’s more desirable for an owner—to stay there. You can get more revenue from those sorts of days.”
To get the most out of your investment, you need to decide what type of vacation rental homeowner you are. Bohmer says, typically, vacation rental homeowners fall into 3 categories: the casual owner, the money-focused owner, and the balanced approach owner. Here’s a look at each type:
A place to stay is a casual vacation rental homeowner’s goal.
The casual vacation rental homeowner may have an emotional attachment to a home or a specific place. Maybe they have a favorite beach spot, bustling city, or relaxing ski town, or somewhere that they travel to often for other reasons. A casual owner may choose to invest in property in these places so they always have somewhere to stay.
Personal use is the primary goal for casual vacation rental owners, and this can be a money-saver for them when they travel, as well—especially, as hotels average about $130 per night in the U.S., according to Statista.
“Maybe they’re just looking to defer their expenses, defer some of their maintenance,” Bohmer said.
While owning a vacation rental could help owners save money on their personal travel, the more owners use a property, the less a paying guest can stay there.
ROI motivates money-focused vacation rental owners.
The money-focused vacation rental owner sees the property strictly as an investment and any personal use would be when it’s not already booked. Return on the home’s investment is their primary goal.
“They will typically never stay in their home at a peak time, such as Sundance week in Park City, (Utah),” Bohmer says. “They want to get the high-earning time periods. These folks are going to stay in their home on the non-peak times.”
ROI-motivated homeowners should target annual rental income of $12,000 to $14,000 for every $100,000 spent to purchase the home, said John Banczak, executive chairman of TurnKey. For example, purchasing a $500,000 home should bring in annual rental revenue of $60,000 to $70,000.
To achieve the highest ROI possible, these owners realize that keeping the home booked up as much as possible is crucial.
Some vacation rental ownerstake a balanced approach.
Casual and money-focused owners are the extreme types of vacation rental homeowners, Bohmer says. Most vacation rental owners take a more balanced approach—they want to enjoy their home, but also keep it booked as much as possible.
“They do want be in their home on the 4th of July in the mountains or at the beach, or whatever it may be, so they’ll stay there,” Bohmer says, but, not as often as casual owners.
He estimates that about one-third of TurnKey homeowners fall into this middle-ground category, and they often use the property personally, including allowing family or friends to stay, about 20% of the time.
“Typically, we say you want to keep 80% of your calendar open for rentals,” Bohmer suggests.
Finding some level of balance can give vacation rental homeowners the best of both worlds. They get to enjoy their home’s amenities and location, while also bringing in rental income and seeing some returns.
Most vacation rental homeowners need to generate some kind of revenue to be able to afford the home’s expenses, including mortgage, insurance, taxes, and maintenance. Using the property mostly for personal travel will bring fun, memorable vacation experiences, while focusing strictly on making money will yield solid ROI. But, finding a balanced approach offers the best of both. The key is deciding what type of vacation rental homeowner you are so that you can maximize your investment and get to enjoy the vacation rental yourself.