Purchasing a second home and using it as a vacation rental is a big decision. When done right, it can be a lucrative investment opportunity. If you have an interest in real estate investing, a vacation rental is a great place to start. Vacation rental properties can be a way to earn consistent income and begin building long-term wealth.
Making money with vacation rentals has become much easier, thanks to vacation rental websites like Airbnb and Vrbo. A recent report found that on average, Airbnb hosts earn $900 a month. Hosts in the most in-demand cities reported making four times that amount, if not more. A survey by rental marketplace HomeAway, found the average owner who rents out their second home collects more than $33,000 a year in rental revenue.
A recent client of ours, Nate Goth, worked with us to purchase a few vacation rentals of his own. Goth said he was first intrigued by vacation rentals when he saw the quick return on investment they offer, “if you purchase in the right community, you can get a positive cash flow fairly quickly.”
The income you receive from your rental will depend on which city you buy in and the type of home you offer. If you buy in a high-demand area you are likely to see a high return on investment.
Currently there is high demand for vacation rentals as more and more people are flocking to the outdoors and catching up on the trips they weren't able to take during the pandemic. A vacation rental can present a better experience than a regular hotel room, as they offer a home away from home experience for travelers. In fact, a recent study found that post-pandemic, many people prefer to stay in vacation rentals over hotels.
Another benefit is like any other real estate investment, a vacation property is subject to appreciation and the property will increase in value over time. In St. George alone, home values went up 21.7% over the past year. Pair high demand from consumers with the strength of the current housing market and a vacation rental makes for a profitable return on investment.
Real estate statistics can help you to identify which local markets have the best neighborhoods and properties to invest in. Southern Utah, specifically St. George and Moab, have become popular places in Utah to purchase a vacation rental. It’s important to note that each city has their own rules and regulations when it comes to vacation rentals so it’s crucial to become familiar with them before you make a decision to purchase.
In Goth’s experience it can be challenging to land a vacation rental in the right place. “They are not allowed everywhere, and certain places have local ordinances and a very selective process when it comes to owning them.” For example, the Southern Utah vacation rental market has very tight constraints.
If you are serious about getting into the vacation rental game, you’ll need to do your research and become familiar with local rental policies before jumping in.
Another important note to remember is like with any investment property, there are costs and downsides when it comes to purchasing and operating it successfully. For example, unexpected expenses that can accrue from breaks or repairs. When this happens, you as the owner are responsible for paying to fix it. You will have to keep up with regular maintenance as well as the set up before and after each guest’s stay.
Goth has found success with his properties by outsourcing his property management. If you have the means to do so a property management company will take of your day-to-day rentals and maintenance.
Like with any investment opportunity you should list out the pros and cons, to see if this is an opportunity that makes sense for your situation. Before you decide to buy, you will want to consult with me about available financing options.