Wondering how to make money on vacation rental property? As a hotel owner, I know this hospitality niche holds immense potential. But you can reap the rewards only through thoughtful preparation and relentless optimization.
I’ll go into proven strategies to maximize hospitality success in this guide. We’ll explore how to select an ideal location, design irresistible interiors, optimize pricing with data, and market your listing for explosive growth.
I’ll also share insider tips to mitigate risks, manage operational costs, and provide 5-star service that keeps guests returning.
You’ll have my playbook on how to make money on vacation rental property and transform it into a consistent cash flow machine. Ready to generate immense value from your vacation home investment? Let’s get started!
- Choose the right vacation rental property: Consider location, budget, and local regulations.
- Design an appealing vacation rental space: Invest in quality furnishings and amenities and make sure the space is visually appealing.
- Advertise and market your vacation rental effectively online: Use high-quality photos and videos and optimize your listing for search engines.
- Set competitive prices: Use dynamic pricing tools to set competitive but profitable prices.
- Leverage automation tools and professional management services to help you streamline tasks and maximize profits.
What is a Vacation Rental Property?
A vacation rental property refers to properties rented out for less than a year. Many people opt to acquire these properties for personal use and then use them as rentals during periods of non-occupancy.
Alternatively, some investors purchase these properties solely as investments. Typically, these properties are located in areas boasting exceptional features such as beaches, waterfronts, mountains, countryside retreats, or skiing destinations.
Reasons you need to know about how to make money on vacation rentals
Why should you care about knowing how to make money with vacation rental property?
Additional Income: Renting out a vacation rental can provide an additional source of income, allowing you to earn money from your property when you are not using it.
Back in high school, one of my friend’s parents owned a condo in Florida right on the beach. They used a property management company to rent it out most of the year. In today’s world, my friend’s parents could manage this with online listing platforms, software tools to manage operations, and remote smart home technology and have greater control over their cash flow and vacation rental business.
Investment Opportunities: Rental properties for vacation rental can be a cash-flowing investment option with the potential for high returns. Understanding how to maximize profits can help you determine if the property you are looking at is the right choice.
Financial Freedom: A vacation rental business can give you financial freedom and flexibility. It can be a way to generate passive rental income and achieve financial goals.
Entrepreneurship: Managing a vacation rental business can help yoyu develop entrepreneurial skills and build a sustainable income stream through positive cash flow.
Asset Utilization: Knowing how to generate income with a vacation rental business allows you to fully utilize your assets, such as a second home or spare rooms, and transform them into income-generating properties.
How To Make Money On Vacation Rental Property
There are six steps to follow to maximize profits from vacation rental properties. These include selecting the location and investment property, strategically using financing options, getting the vacation rental rent-ready, implementing effective advertising and marketing strategies, developing optimal pricing strategies, streamlining operations for efficiency and considering property management.
1. Choosing the Right Vacation Rental Property
To maximize profits from your vacation rental property, start by choosing a desirable location that’s accessible year-round. Conduct a market analysis of the local area to determine competition and stick to your budget. Check local regulations and HOA ordinances before buying an investment property.
Market Analysis for Choosing Profitable Locations
Market research is key to identifying properties with high earning potential. Look at tourist attractions, accessibility, and nearby amenities when investing in vacation real estate –but also be mindful of competition.
Travel is back in a big way, and listing sites like Airbnb show revenue increases, but there is also increased competition as more investors have brought properties to market.
Market Analysis: Comprehensive market analysis for rentals in thousands of locations worldwide. This includes occupancy, average daily rates, revenue potential, and more. This can help you identify markets with high demand and growth potential so that you make a good investment.
Comparative Analysis: Compare different markets and analyze their performance based on key metrics to evaluate the profitability and competitiveness of various locations.
Property-Level Insights: Property-level insights so you can analyze specific listings in a given market. This includes details on rental rates, occupancy rates, and revenue generated by similar properties.
Budgeting for Purchasing a Vacation Rental Property
Construct a budget based on expected outlays, such as loan payments, taxes, insurance premiums, upkeep costs, etc. Here is a list of typical expenses associated with the initial purchase and ongoing operations. Review these, research the costs for your potential vacation rental property and incorporate them into your investment analysis.
Using the data from market analysis tools and your research on the market, factor in rental income from vacation rental metrics to understand cash flow potential.
Finding Your Investment Sweet Spot: The 1% Rule
A popular rule of thumb among investors is the 1% rule. This guideline suggests that monthly rent should be at least 1% of the purchase price (or higher) so that you can cover all expenses related to owning and managing your vacation home investment.
Consider Local Regulations and HOA Rules
Research local laws governing shorer stay rentals and Homeowner Association (HOA) rules that may impact your vacation rental business. Regulations vary greatly depending on the area, and new rules are created regularly, so this will be an area you need to keep watching.
For example, regulations or proposed rules in 2023 in Arizona include:
- Scottsdale, Arizona, proposes a cap on short-term rentals, limited density in certain areas, and separation requirements between rentals.
- In January 2023, Sedona, Arizona, instituted a requirement that all vacation rental investment properties apply for a permit through the city’s portal.
- In March 2023, Tempe, Arizona, also instituted a permit requirement for each vacation rental.
HOA rules can change quickly as well. Many HOAs won’t allow vacation rentals and require at least a 30-day minimum. Some allow vacation rentals but can quickly change their rules. Given these organizations ‘ quick ability to make rule changes, I recommend that your investment preference start with non-HOA properties.
Also, think about your backup or exit strategy. What if something changes, and you can no longer operate the property as a vacation rental? What are some alternative uses of the property? Could you pay the mortgage and ongoing expenses if you changed strategies to a long term rental?
Including a backup plan or exit strategy in your analysis can help you set metrics for your investment approach. When I bought my first hotel, I thought through the options if market dynamics changed… how could I repurpose the property if needed, and what would it cost to make that change? These are all good questions to explore when buying investment property.
2. Leveraging Financing
Financing your vacation rental should factor into your strategy, and there may be opportunities to leverage creative and different approaches that will impact your ROI. Vacation rental loan options available include:
- Conventional Mortgages: Traditional loans from financial institutions.
- Short-Term Rental Property Loans: Specialized loans for Airbnb hosts.
- Home Equity Loan or Line of Credit: Using home equity to finance Airbnb properties.
- Small Business Loans: Small Business Administration (SBA) loans (which I use to buy hotels).
- DSCR Loans: Debt Service Coverage Ratio loans based on cash flow. This type is also used in commercial real estate properties.
- Refinancing: Using existing properties to finance new Airbnb investments.
Creative financing alternatives to consider:
- Partnering with investors: You can do this with private money lenders, passive investors, or even co-invest using a platform like Cher or Plumb.
- Rent-to-own agreements: This strategy works when the seller is motivated and isn’t able to sell the home via traditional methods.
- Seller financing: This is almost like a rental arbitrage strategy, except that you are making a purchase commitment instead of a lease.
- Using a self-directed IRA: Tap into your IRA to buy a vacation rental. Consult tax advisors and a custodian to see if this is the right approach.
3. Designing an Appealing Vacation Rental Space
A requirement for success in a vacation rental business is to create a visually striking and inviting space that meets guests’ expectations. This is an area to make sure your rental stands out and attracts more visitors.
Concentrate on designing stunning interiors with classic lines and neutral color palettes to cater to various preferences. Invest in high-quality furniture, comfortable mattresses, cozy bedding, wireless internet access, and luxurious amenities like hot tubs.
Check out your competition…. what do they offer? Do they have a pool table? Outdoor seating areas? Porch swing? You don’t need to copy the competition exactly, but you should consider what you can add to your property to benefit guests.
Interior Design Elements
Design elements can significantly impact how potential renters perceive your property. Consider incorporating local artwork or photography into the decor for added charm and character.
I once had an Airbnb investor on my podcast who stocked his property with locally-made products such as coffee and soap. He included a note about these products and details on the company. What a creative way to help set his property apart!
Maintain consistency in style across all rooms so every part of the home feels cohesive and well thought-out. You may even want to hire professionals specializing in staging vacation rental properties if you’re unsure where to start with interior design decisions.
Investing in Quality Furnishings and Amenities
Avoid cutting corners when furnishing your vacation rental property; quality matters. Guests will appreciate sturdy furniture made from durable materials like hardwood or metal frames rather than cheap particleboard options prone to wear over time.
In addition, consider investing in high-demand amenities such as smart TVs, fast Wi-Fi, fully-equipped kitchens, and outdoor spaces with grills or fire pits. These extra touches can significantly boost your rental property’s earning potential, making it more appealing to vacation rental owners looking for a solid return on their investment.
Designing spaces worthy of the cover of Home & Garden magazine has never been my forte as a rental property owner. If spending hours pouring over fabric swatches makes your eyes glaze over, too, you’re not alone! Luckily, services make vacation rental interior design effortless, whether your style is modern glam or farmhouse rustic.
Here’s a couple of sites to check out:
Awning: Awning offers furnishing and interior design services specifically tailored for Airbnb and vacation rental property. They provide stylish, durable, cost-effective furniture to elevate the property’s look.
Fulhaus: Fülhaus is an AI-powered interior design platform that helps Airbnb owners furnish their properties quickly and efficiently. With the help of Ludwig, an AI designer trained by professional interior designers, Fülhaus offers a one-click solution for sourcing furniture and creating a design that appeals to guests, leading to improved nightly rates and occupancy.
4. Advertising and Marketing Your Rental Property
Advertising and marketing are areas to prioritize. First, list your property on platforms like Airbnb and VRBO, which cater specifically to vacation rental business and offer a broad reach for potential guests. These are Online Travel Agencies (OTAs) that take a portion of the revenue from your booking through the platform.
Consider also setting up a direct bookings website to better showcase your rental property, move towards bookings that aren’t charged OTA fees and seek to create relationships with guests who can become repeat customers.
The following strategies apply for your online listing in general — regardless of platform.
Utilizing HDR Photography for Better Listing Visuals
A picture is worth a thousand words, so invest in professional High Dynamic Range (HDR) photography to showcase your property’s best features. High-quality images will help attract more bookings by giving travelers an accurate representation of what they can expect during their stay.
HDR photography combines multiple exposures into one image, capturing greater detail in bright and dark areas. This technique creates stunning visuals that make your vacation rental listing stand out. Connect with photographers specializing in real estate or vacation rental business to get high-quality pictures showcasing your home’s distinctive features, like large living areas, amenities, or stunning scenery.
You can find local photographers in your market or consider Airbnb’s offering called Airbnb Stays.
Advertising Your Property on Listing Sites
Create a Compelling Story: Craft a unique and engaging story about your rental property to promote it on social media platforms. Highlight the special features, design, location, or experiences that guests can enjoy during their stay.
Work with Influencers: Collaborate with journalists or lifestyle bloggers who can create content and share it with their audience, generating exposure and interest in your Airbnb listing.
Write a compelling property description: Highlight your vacation rental’s unique features, amenities, and nearby attractions or activities. Not sure how to write a great description? Check out these prompts from Tremento that you can use with ChatGPT to generate ideas for descriptions:
Keep your calendar up-to-date: Use a vacation rental property management software to make sure availability is accurate across various booking channels to avoid double bookings and disappointed guests.
Direct Marketing Strategies
Collect Guest Email Addresses: Capture email addresses from every guest who stays at your property. Utilize these contacts to send personalized promotions, updates, and special offers regarding your Airbnb listing.
Create A Direct Booking Website: Develop a dedicated website for your rental property to provide detailed information, high-quality photos, and direct booking options. Optimize the website for search engines to increase visibility using SEO strategies.
Build Excellent Guest Communication: Provide exceptional customer service and communication with guests throughout their booking process and stay. Positive reviews and word-of-mouth recommendations can significantly enhance your Airbnb listing’s reputation.
Gather positive reviews: Encourage satisfied guests to leave reviews on platforms like Airbnb, VRBO, or Google My Business. This will help build trust with potential future guests. ⭐⭐⭐⭐⭐
Think creatively about ways to encourage guests to write reviews. For example, you could offer a discount on future stays or create gentle reminders during checkout and follow-up emails.
Reviews are also critical in my hotel business. To make reviews more personal and also encourage team members and provide an incentive for excellent customer service, our hotels have postcards that housekeeping, maintenance and the front desk can use that ask for reviews on their interaction with the guest. The employee with the most positive reviews for the month receives a bonus.
Respond to negative reviews: Negative reviews are not fun but if you don’t respond to them, potential guests may think you don’t care. There’s also a nuance to responding as you don’t want to appear vindictive. I recommend using ChatGPT to help you come up with diplomatic answers to bad reviews.☹☹☹
Promote your property on social media: Share eye-catching images and engaging content about your rental property on platforms like Instagram, Facebook, and Pinterest to reach a wider audience.
Tips for Successful Social Media Marketing
Engage with your audience: Respond to comments and messages promptly, ask for feedback, and encourage guests to share their experiences on social media. This will help build trust and credibility among potential customers.
Analyze performance metrics: Regularly review insights provided by each platform (e.g., impressions, reach, engagement) to determine which strategies are working best and adjust your approach accordingly.
Consistency is key: maintain an active presence on social media platforms by posting regularly and engaging with your followers for optimal results.
5. Optimizing Pricing Strategies Based on Data Analysis
When setting pricing strategies for your Airbnb listing, you want to strike a balance between the highest rates possible while also maximizing occupancy. I recommend using dynamic pricing tools to automate and optimize your rates based on real-time market data, to help your pricing be competitive and reflect current market conditions.
Adjusting Minimum Stay Requirements During Shoulder Seasons
Avoid vacancies during off-peak periods by being flexible with minimum stay requirements. This approach helps you adapt to market conditions. Consider reducing or eliminating minimum stays when demand is lower than peak times but still significant enough to warrant occupancy.
Tips for Implementing Effective Pricing Strategies
Even if you use dynamic pricing tools, you can’t “set and forget it”. Monitor your strategy and the data you provide the software on an on-going basis. Analyze historical booking data from similar properties in the area to understand seasonality trends and adjust accordingly.
Maintain up-to-date knowledge of local events or attractions that may impact demand for vacation rental property, allowing you to capitalize on increased interest. Regularly monitor competitor pricing and adjust as needed to remain competitive in the vacation rental industry.
Use property management software or hire a professional vacation rental management company to help manage your rates effectively and increase your rental income.
6. Streamlining Hosting Tasks Through Automation
Maximize profits and minimize effort as a vacation rental owner. One practical approach is to employ property management automation tools that streamline repetitive hosting tasks, such as sending out guest reviews and organizing daily cleaning schedules. See an example of iGMS’ cleaning management feature:
Implementing Self-Check-In Options
In this hectic era, convenience is a must-have for travelers looking for places to stay. Offering self-check-in options at your vacation rental provides added convenience and helps you earn five-star reviews from satisfied customers who appreciate these thoughtful touches.
Digital door locks or lockboxes with keys are popular self-check-in methods that allow guests flexibility upon arrival without sacrificing security. Make sure detailed instructions are provided within the booking confirmation email or on-site signage so guests can access their temporary home away from home.
7. Vacation Rental Management Company
If you prefer not to handle the day-to-day operations or don’t have the time, consider hiring a professional vacation rental management company. These experts can manage everything from property listing optimization to guest communication and maintenance issues.
Successfully Investing in A vacation Rental Business
I’ve covered several areas to start investing and making money from a vacation rental. The biggest consideration in the current environment is to understand your competition and be aware of the changing regulations relating to vacation rentals.
Taking it to the Next Level: How to Add More Properties
Once you’ve successfully launched your first property, you might want to consider adding additional properties in order to grow your real estate investing business. Once you have the systems, automation and marketing strategies in place, the potential stopper to growing is funding. If you run into a roadblock with financing, consider the alternative options I have discussed.
Alternatives to A Vacation Rental Business
An alternative to vacation rentals is to look at a medium term rental strategy. Medium term rentals refer to rental agreements typically span anywhere from one to six months and provide a flexible and convenient housing solution for individuals or families who need temporary accommodation.
These rentals often cater to professionals on work assignments, students attending courses or internships, individuals relocating, or anyone in need of a temporary home away from home. These renters like the flexibility of a shorter lease commitment and the comforts of a fully furnished space which provides a convenient solution for people seeking temporary living arrangements.
Wrapping Up and My Experience With Hospitality
If you are wondering how to make money with vacation rental property, you’ll soon discover the keys are meticulous market research, smart operational strategies, and providing an outstanding guest experience.
As a fellow hospitality investor, I know firsthand that vacation rentals demand effort but unlock immense profit potential. The key is meticulous planning – from smart financing to standout design and marketing to streamlined operations.
Follow my hard-won advice: Research thoroughly, invest wisely, optimize pricing, simplify logistics, hire help, and provide five-star service. With diligence and creativity, your rental property can earn outstanding passive rental income. But never underestimate the work involved – success requires continuous inspection and strategy review.
FAQs: How to Make Money on Vacation Rental Property
How to Maximize Your Vacation Rental Profits?
To make the most money on your vacation rental, choose a prime location, invest in attractive interiors and amenities, advertise effectively with professional photography, and optimize pricing strategies with data analysis. By employing these tactics, you’ll be on your way toward making rental income from your investment property.
What Profit Margins Can You Expect?
Profit margins vary depending on location, rental property type, occupancy rates, and management costs. A well-managed vacation rental can yield 10-20% returns annually through rental income. Monitor expenses closely and continuously improve guest experience to maintain high occupancy rates for optimal profitability.
How to Make Your Vacation Rental Pay for Itself
Consistent bookings and optimized pricing are the keys to making rental income that covers your mortgage. Create an appealing listing with quality photos, market your property, use dynamic pricing tools to adjust rates according to demand, streamline operations through automation, and provide excellent customer service.
Offer promotions during off-peak seasons to attract more visitors, and consider hiring a reputable management company if necessary for efficient handling of daily tasks. This approach will help boost your rental income and maximize returns on your investment.