All business ventures have risks… some are greater than others, nonetheless, the risk is still there. The same risk applies to investments. When you invest in something or even someone, you’re vetting a substantial amount of money towards the financial success of that investment. This is especially true for the real estate industry, particularly, vacation rentals.
Now, with vacation rentals, there is indeed some risk involved, and it’s nowhere near as risky as investing in commercial real estate, but the reality is that you’re in control of how successful your vacation rental property can be… and that’s the part that can make you breathe a little easier.
However, it’s important that you understand that because you’re in control of its financial success, it will only be as successful as the amount of work you put into it. Only after you weigh out the pros and cons of this type of investment will you be able to calculate your earnings as a host. Here are the pros and cons of investing in vacation rental properties that you need to weigh out.
Pros of Investing in a Vacation Rental Property
Additional Income Every Month
The perk of having additional monthly income is the true motivation behind most people’s investment. A study from the Pew Research Center revealed that 24% of Americans earn income from the digital platform economy from sites like Airbnb. Hosts have the potential to earn upwards of $900 or more per month on average. And depending on where your property is located, and the amenities you have, you can make three to four times more than that.
Some areas of Your Investment Can Be Written Off
Most guest stays for vacation rental properties are only a few days up to a week or so, but, of course, some make reservations for longer than that. For tax purposes, if your rental is booked for over 14 days, the law considers it as a business, meaning you’ll have to pay taxes on the income it generates. But, with that, you’ll also be able to write-off any expenses you incur for the upkeep and maintenance of the property… So there’s a bit of a silver lining there.
Here are a few items you can write-off as an Airbnb host:
- Premiums for insurance
- Cleaning fees
- Any interest on your mortgage for the property
You Have Your Own Vacation Home
When you’re ready to go on your own family vacation or host a special occasion there, simply block off those dates so no one will book your property while you’re there so you can enjoy it yourself!
Cons of Investing in a Vacation Rental Property
You Do the Promotion of Your Rental
Unfortunately, the whole “If you build it they will come” saying just doesn’t work in this industry. If you want your property to stay booked, you’re going to have to promote it. Things like posting to social media accounts, taking high-quality photos, and giving detailed descriptions will definitely draw-in vacationers. You also want to invest in luxury furniture as well. The goal is to really give people the experience of being on vacation in a home away from home.
You’ll Have an Additional Mortgage Payment
All too often, people tend to only see the perks of buying a vacation rental property and forget that it also means you’ll be taking on an additional mortgage payment as well. You only want to take on this type of investment if you’re going to be able to afford it. Remember, this is supposed to earn you extra income, not drain your pockets. Take the time to really assess this type of investment and if it will truly bring back a good ROI.
Vacation Rental Properties are Prohibited in Certain Areas
Before you invest in a property you want to turn into a vacation rental, be sure you check your city laws, regulations, and especially the Homeowners Association (HOA) for your area to make sure you can even do that there. Depending on where the property is located, these entities have very strict rules and regulations about vacation rentals.