Owning a vacation rental can be a rewarding investment, offering the potential for additional income, property appreciation, and personal enjoyment for you and your family. However, like any investment, it comes with its share of challenges. If you’re thinking about purchasing a vacation rental, it’s essential to weigh both the benefits and drawbacks. In this article, we’ll explore the key pros and cons of vacation rental investments, along with tips to make sure it’s the right move for you.
The Benefits of Owning a Vacation Rental
1. More Income
One of the main reasons people invest in vacation rentals is the potential for extra income. With the rise of short-term rental awareness with the rise in platforms like Airbnb, Vrbo, and Booking.com, homeowners can generate significant revenue by renting out their properties. In fact, vacation rental owners can earn an average of $924 per month. Insert classic “results may vary” line. The location and amenities of the property play a crucial role in boosting earnings—properties with unique features like pet-friendly spaces or luxurious extras (think hot tubs or ocean views) can demand higher prices and attract more bookings.
Location and Seasonality
The location of your vacation rental is crucial. Popular destinations tend to have higher demand and allow for higher rental rates. For example, if your property is in a place like Oregon’s coast or near Portland, you could attract guests year-round. Additionally, seasonal demand plays a role—beach homes may see peak bookings in the summer, while ski cabins are more in demand during the winter. When search for a location make sure to follow proven demand, we have access to tons of demand data and can assist. While you can always use supply as a proxy, demand pays the bills looking at booking volumes and reviews helps find where guests want to stay.
Amenities and Inclusions
Offering amenities such as high-speed internet, fully equipped kitchens, or even a private pool can make your rental more appealing and help boost reviews. The more you cater to guests’ needs, the better your chances of commanding higher rates. Think of the guest funnel, as they are applying filters you want to make sure you survive the next round of filters and have amenities to for everyone in the group. Is there a hot tub or fire pit for the adults? Are there games and activities for the teenagers? Are there toys, space and games for the little ones? Or are your designing your place as a couples getaway? Or a dog owners dream getaway? Make sure to think about the amenities the guest you are trying to attract would be looking for.
Personal Visits
Another perk is that your vacation rental also serves as a personal getaway. When not rented out, you can enjoy the property as your own private retreat. This dual-purpose property allows you to both earn income and create lasting memories with your family or friends.
Reach out to us if you have a property in mind and we can assist with a rental projection. Or we can help with advice on what to look for if you are shopping.
2. Equity Appreciation
Over time, vacation properties generally appreciate in value. Unlike many other forms of investments, real estate typically appreciates faster than inflation. If your vacation rental is in a sought-after area, you could see the value of your property increase over the years, providing you with long-term financial gains. Additionally, making upgrades such as adding a hot tub or updating the kitchen can further boost the value of the property and increase rental revenue. We have helped our homeowners make more money to reinvest in the properties to drive improvements that cause appreciation. We also have the contractor network to help get it done! Lets talk!
3. Tax Deductions
Owning a vacation rental opens the door to numerous tax benefits. As a business, you can deduct a range of expenses, including:
- Maintenance costs
- Property management fees
- Mortgage interest
- Utilities
These deductions help to lower your taxable income, allowing you to keep more of your earnings. It’s wise to work with a tax professional to ensure you are maximizing these benefits. Make sure to talk to a trusted CPA to learn all that can be done.
4. Recession-Resistant Investment
During economic downturns, people still seek affordable getaways. Vacation rentals are often more cost-effective than hotels, making them appealing during recessions. Many people opt for domestic vacations instead of expensive international trips, keeping the demand for vacation rentals steady. As a result, your investment could be more recession-proof compared to other forms of real estate. It is important to keep in mind that with a recession the majority of people are still employed and take vacations, they may drive to the Oregon Coast or Mt Hood instead of flying to Europe and that is why drive to rentals tend to fare well in recessions.
The Downsides of Owning a Vacation Rental
While there are many advantages to investing in a vacation rental, it’s important to also consider the potential downsides.
1. Unexpected Expenses
Owning a vacation rental can come with unforeseen costs such as repairs, property damage, or unexpected maintenance. Regular upkeep is essential, but sometimes issues arise—whether it’s a plumbing problem, weather damage, or wear and tear from guests. These expenses can affect cash flow, so it’s a good idea to have an emergency fund set aside.
Working with Cascadia Getaways can help! We have damage protection between $1,500 – $5,000 for each reservation to help cover guest accidental damages. We also have contractors and maintenance teams to help small issues before they become big issues.
2. Varying Local Vacation Rental Laws and Regulations
Each area has its own set of rules and regulations when it comes to short-term rentals. Some cities or counties impose restrictions on vacation rentals, including limitations on the number of days you can rent out your property, requirements for permits, or even complete bans. It’s crucial to research local regulations before purchasing a vacation rental to avoid legal headaches down the road.
Cascadia Getaways will work with you on licensing, permitting and taxes. Looking for help on the research side, we are here to help!
3. Higher Taxes and Insurance
Renting out your vacation property for more than 14 days a year triggers federal taxes, and you may also face local taxes on rental income. Additionally, owning a vacation rental can lead to higher insurance premiums, particularly if the property is in an area prone to natural disasters, such as wildfires or floods. Be sure to factor these costs into your investment plan.
Like all investments it is a good idea to have protection, especially from liabilities. We have a whole article on short term rental insurance here. Regarding taxes, a CPA can help with what can be written off, but taxes come with making more money so this is part of life.
4. Property Upkeep and Maintenance
With frequent guest turnover, your vacation rental requires regular cleaning, maintenance, and repairs. If you’re managing the property yourself, this can be time-consuming. Many owners opt to hire a property management company to handle these tasks, to have professional help and avoid taking on a second job. It’s essential to decide if you’re prepared to manage these responsibilities or if you’d prefer to delegate.
Cascadia Getaways handles cleaning, revenue management, marketing, 24/7 guest communications and coordinating maintenance and repairs so you dont have to. Don’t sign up for a part time job, let us take the hassle off your plate. Learn more about what Cascadia Getaways does!
5. Nonstop Marketing Effort
To maintain a steady stream of guests, you need to constantly market your vacation rental. This includes creating appealing listings on platforms like Airbnb and Vrbo, taking high-quality photos, responding to reviews, and keeping the property updated. If marketing isn’t your forte, a property management company can handle this for you. While a property management will charge a fee, this is an investment if choosing the right partner.
Cascadia Getaways has guest and prospective guest funnels using targeted messaging, drip campaigns, retargeting ads, look alike audiences, Wifi based marketing and email capture, review management tools to collect the best reviews and passionate hospitality professionals working hard to earn those high reviews. Learn more about how Cascadia Getaways markets your home here.
Vacation Rental Ownership FAQ
Is it a good idea to buy a vacation home?
Buying a vacation home can be a great investment, especially if it’s in a desirable location. Not only can it generate income, but it can also serve as a personal retreat. However, it’s important to consider the potential expenses and management responsibilities that come with owning a vacation rental. We fine many people choose their first rental to be a destination they visit often so they get a free place to stay while covering their maintenance. From there, many people widen their radius to look for returns or double down on their investment area.
For example, we have several homeowners who have purchased homes next to each other allowing for them to be rented together. Or when they visit, their friends can have one rental and while they get their own.
How do you manage vacation rentals?
Vacation rental management involves overseeing marketing and third party connections, guest communication, bookings, cleaning, maintenance and much more. Many owners choose to hire a property management company to handle these tasks. However, if you prefer hands-on management, platforms like Airbnb and Vrbo make it easy to handle bookings and communication directly. Many DIY managers will stick to one platform for simplicity. While hiring a property manager with sophisticated tools will get you a much wider marketing reach.
What makes a good vacation rental?
A good vacation rental is located in a high-demand area, offers desirable amenities, and is well-maintained. The property should be equipped with features that appeal to your target market, whether that’s a beach house with stunning views or a pet-friendly cabin in the mountains. Location, cleanliness, and guest reviews are key factors in determining the success of your vacation rental. We always recommend focusing on being the rare rental, if a destination is mostly 3 bedroom rentals, being a 6 bedroom can earn an premium. Focusing on being there there is a demand and supply mismatch will drive better results.
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If you’re ready to explore the world of vacation rental investment, Cascadia Getaways is here to help. We specialize in finding the perfect vacation homes for investment in the beautiful state of Oregon. Get in touch today to start your journey toward a profitable vacation rental!
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Still unsure about whether vacation rentals are the right investment for you? Contact Cascadia Getaways for more detailed insights and guidance on how to navigate the market and make the most of your investment.
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Investing in vacation rentals can be a lucrative opportunity, but like any investment, it requires careful planning and consideration. By understanding both the benefits and drawbacks, you can make an informed decision and set yourself up for success in the world of vacation rental ownership. Happy investing!