We’ve all seen viral videos about Airbnbs with huge deposits, massive tenant cleaning lists, and even longer lists of house rules. Are people over the hype and going back to hotels?
Even though revenue dropped in 2023, research by AirDNA shows that the short-term rental market saw record-breaking demand in June and over 1.6 million listings by September.
This year, demand for Airbnbs is rising, and revenue is expected to grow. So, is Airbnb actually dead, or is it a good time to invest? We’ve asked the experts.
Why Invest in a Short-Term Vacation Rental?
If you’re new to real estate investing, you might wonder why you would invest in a vacation rental rather than other types of property.
Higher Nightly Rate
Vacation rentals have a significantly higher earning potential than traditional rentals. People are willing to pay a premium for an Airbnb, so you could make a higher ROI if you have a good location and high-end property.
This does depend on your occupancy rate. Remember that a typical tenant occupies your property for months at a time. You’ll need to market your vacation rental to ensure a high occupancy rate.
More Flexibility
Investing in a vacation rental gives you more flexibility with your schedule and rental type. You could decide to switch from a short-term to a long-term property and even block out time when you don’t want guests to stay.
This gives you the freedom to enjoy your vacation rental whenever you want to and make money off it at times that suit you.
Better Control
A short-term rental also gives you more control over who stays in your property and the type of guests you’re willing to host. For example, you could turn down large parties or pets if you were worried about damage.
You also have full control over your nightly rate and can adjust your prices to match demand. This means you make the most out of your property during high season and then encourage people to stay at a discount during low demand.
How to Invest in Vacation Rentals: Tips From Experts
If you think investing in a vacation rental is the right financial move for you, here are some top tips from real estate experts.
Understand Your Financial Goals
Most investors look into vacation rentals for one of three reasons:
- They want to generate positive cash flow
- They want a house to eventually retire in
- They want to help subsidize their own vacation home
Finding a vacation rental that can fulfill all three criteria is tough, so start by understanding your financial goals for the property.
Location, Location, Location
Not all cities are right for a vacation rental, so do your research and make sure there’s enough demand for an investment to make financial sense.
There are also cities with hefty restrictions on the Airbnb market. For example, New York City requires short-term rentals to register with the Mayor’s Office of Special Enforcement (OSE) and imposes an almost complete ban on the Airbnb platform.
“Location is everything when investing in vacation rentals. Start by researching the number of rentals already in the city and look into their occupancy rates. This is a good indicator of both competition and demand.” – Ryan Fitzgerald from Raleigh Realty
AirDNA is a great analytics tool for checking occupancy rates, local prices, and market demand in different cities. Remember, just because your city has hundreds of Airbnbs doesn’t mean it’s a good investment area — occupancy rates and demand are both crucial factors.
Work with Local Specialist Real Estate Agents
You might be an expert on your town and already know that it’s a tourist hotspot. You can probably name the best restaurants, point out the best walking trails, and know all the hidden gems that tourists love.
But you probably don’t know the average rental prices, nightly rates, or seasonal trends – that’s where a specialist real estate agent comes in.
“Rental real estate has made more millionaires than any other investment type. But just like you wouldn’t invest in crypto without a financial adviser, you shouldn’t invest in a short-term rental without advice from a specialist short-term real estate agent.” – Ryan Nelson from Rental Real Estate
A specialist will guide you through questions you might not consider, like what’s the potential market growth? What are the local market trends? Are there any plans for new hotels that could impact rental demand?
Utilize the expertise of local agents to help you make savvy, informed decisions. They’re also there to help you get the best price for your new vacation rental and may even have recommendations for the best property manager.
Run the Numbers
When you do find a potential vacation rental investment, run the yearly numbers to see if it has the potential to meet your goals. You’ll need to know the average nightly rate of the area and the average occupancy rate to get rough figures.
These are just rough figures, so you might be able to get above-average figures with the right marketing. But it’s always good to know that your investment is in the right ballpark.
“A great way to get a better nightly rate for a vacation rental is with great staging. People want high-end accommodation when they book an Airbnb, so it’s important to invest in quality interiors to draw customers in.” – Judi Kutner from Virtual Staging
The average cost to furnish a vacation rental ranges from $1,000 to $20,000, depending on the size of the property and the level of accommodation you plan to offer.
But no matter how much you plan to spend on your vacation rental decor, a professional photographer is essential. The better your listing photos, the more clicks and bookings you’ll get.
Invest in the Right Property Manager
Property managers handle the day-to-day operations of a vacation rental. From maintenance to guest check-in and services, you’ll depend on your property manager and work as a team to maximize your occupancy.
Take your time choosing the right property manager for your new rental. They should have a track record of successful properties, experience with marketing, and a friendly attitude.
“Your property manager can make or break the success of your vacation rental. Always look for a team with experience in your niche, and ask to see testimonials from previous projects.” – Joy Aumann from La Jolla Life
Most property managers work on a commission basis, so it’s in their best interest to promote your property and get it booked up. On average, property managers cost between 20 and 30% of the rental cost, so you’ll need to factor this in when working out your profit margins.
Is the Vacation Rental Market Right For You?
Vacation rentals can be a great investment, but they require serious work to make a success.
Before you dive in, spend time doing in-depth research to make sure you choose a hot location, attractive property, and reliable manager and you’ll put yourself on course to make a winning investment!