Buying & Managing A Vacation Rental: The Ultimate Guide

One of the most popular ways to earn some extra income is by investing in a property you can let out as a holiday rental. If you’re considering this path, there are a few steps you have to follow and some tips you can use when managing a vacation rental. This ultimate guide will help you navigate the property market and implement management strategies to optimize occupancy and make sure you get the most out of your property investment. 

When you are buying vacation rental properties, you have to consider several aspects before finalizing the purchase. Let’s start by taking a look at some of the things you have to look at before deciding to invest in a vacation rental property.

Before you buy a vacation rental: things to consider

Owning a property is a big responsibility in itself, and owning a vacation rental is arguably an even bigger one. Before you buy a property to rent it out as a holiday let you need to make sure you understand the property market and vacation environment within the area. Make sure you have an idea about the following criteria before finalizing any purchases.

Research the location

When buying a vacation rental property, understanding the location in which the property is in will be one of the most important selling points when marketing the property. For this reason, you must do your research on the location of the property beforehand. 

Understanding the location will help you to market the property more effectively, both privately and through vacation rental agencies. For example, if your property is close to a ski resort, you should make sure your property is readily available during the ski season. The ski culture will become a selling point of the property, and a possible reason someone would rent your property out. 

Similarly, if your property is close to the beach, this should be a point you advertise in the summer months. If the location of your prospective rental property is in a popular holiday area, it’s more likely you will have maximized occupancy during the peak holiday times of the area. 

Some areas will also have restrictions on short-term rentals, especially in prominent residential areas. Some neighborhoods do not allow vacation property owners to let out their properties as vacation rentals, so you must be familiar with the regulations in place before you finalize your property purchase. You may also need to investigate the planning permission procedures that need to be in place before you start renting out your new property as a vacation let.

Examine the market

Knowing about the vacation rental market in the area is also a vital part of buying a vacation rental property. Through analyzing the market, you will get to know your rental competitors and the general demand for vacation rentals in the given area. This will allow you to get an idea of what you can charge for the facility your prospective property will offer and the amenities you can advertise based on the area. 

If the property you’re planning on investing in is one of the few vacation rental options in the area, there may be an opportunity to maximize occupancy. However, if you’re looking at an area where the vacation rental market is potentially saturated, you need to make sure your property investment has a competitive edge before purchasing it. Forgoing market research before your purchase may be detrimental to your investment. It is an important step to take.

Calculate your expected income and expenses

If you’re buying a vacation rental property as an investment and income-generating prospect, you need to make sure that you build a viable business model around the property. 

As a property owner, there can be large costs associated with maintaining the property in any case. With vacation rentals, you need to think about all the expenses related to running accommodations for short-term stays. There will also be additional payable taxes on the income generated from your vacation rental property. These will vary depending on your property’s location and in which country or state you pay tax.

One of the biggest expenses for vacation rental properties is insurance costs. Insurance will be more expensive for a vacation rental than it will be for a standard home. This is because there is usually more risk linked to multiple people occupying a property at different consecutive times. Insurance costs for vacation rental properties range between $1500 and $2500 per month.

Other expenses you will also have to consider are the maintenance of the property and cleaning expenses. Unlike residential properties, the condition of vacation rentals will heavily influence the success of the vacation rental. The home must remain clean and well-maintained so that guests feel like they can relax in a pleasant environment during their stay. 

Having completed some market research and gained an understanding of the area, you should also be able to make income projections and weigh them up against the property’s expenses. These figures will also help you build a comprehensive business model.

Get advertising your property

When a property is well-advertised, it makes the vacation rental more visible to possible guests. There are several online travel and accommodation agencies where you can list your property. These agencies will have advertising opportunities for your property too. 

It’s also important that you scope out other advertising platforms to make sure you optimize the visibility of your property too. Vacation rental property owners should make sure their websites have detailed information about the property and booking processes. This is also where property owners can advertise the property’s amenities and nearby attractions. 

Platforms like booking.com, and Airbnb are great for vacation rentals located in the city or close to popular tourist destinations. The app allows guests to view properties on a map based on the location therefore central properties will get a lot more online visibility than country escapes in more remote locations. 

Agencies will charge homeowners a small fee if their property is booked through their site or service. If it’s possible to set up a site of your own for booking, this is the cheapest way to manage them. However, using an online booking agency does increase the chances of your property being booked.

Use property management software

Now that you have your vacation rental property, it's time to start generating income and getting guests into your home. Property management software like Hospiria’s can help you with all aspects of managing your vacation rental property including managing bookings, marketing your property, generating invoices, processing payments and managing the property’s availability. 

When you use property management software it makes it easier to track your earnings on the property as well as your expenses, helping you manage the property like an effective business. Using software can also assist you in blocking off dates when the property is not available, allowing you to spend time at your vacation home whenever you want to. 

Hospiria can also help you assess where your property lies in the overall market of the area and therefore can assist you with pricing your property effectively to maximize your earnings.

Vacation rental property ROI

Before buying a vacation rental property, you have to have an idea about what your property’s Return on Investment (ROI) will be when you start renting it out for holiday rentals. Buying a vacation rental property to rent it out a short term before understanding what your return on investment would be is not a wise business or economic decision. 

There are several ways you can work out the ROI on your holiday rental property before you purchase it. It involves having a financial goal in mind that you want to reach in terms of earnings from your property. 

Having a full understanding of your ROI before you commit to buying a vacation rental property will also mitigate the risk of you falling into debt or running into cash flow issues. If you are buying the property as a business venture, external investors and shareholders will also need to know what they can expect in terms of ROI, so the figures and projections are important to have in place, 

Rent to qualified vacationers

Now that you have your property and are ready to start renting it out, it’s time to establish to who you will be renting out your property. Not all customers are the people you want staying in your home, even if they are paying you the full rate for the accommodation. 

It’s recommended that you have some kind of vetting process in place to assess whether or not the enquiring parties are ‘good customers’ or not. 

Although you will not be able to go into as much detail as a tenant screening process, screening your guests is important even if you only rent out your property on a short-term basis for holiday rentals. 

When you know you are only renting to qualified holiday-makers, it gives you as the property landlord peace of mind when the property is occupied by another party. Qualifying renters are less likely to cause any severe damage to the property, steal from the property or fail to make any outstanding payments. A vetting process therefore also makes any rental agreements far simpler to navigate and negotiate.

Should you invest in a vacation rental?

If you have the capital to spend on an additional property, then purchasing a home to rent it out as a vacation let can be a great investment. Owning a vacation rental is also an ideal way to earn additional income. 

Many people think that letting out a property for holidaymakers is an easy job. However, it requires a lot of time and energy, and you need to make sure the property is well-maintained at all times to ensure all guests are satisfied with the quality of their stay. You should not be under the illusion that investing in a vacation rental is an easy way to make a quick buck. 

The amount of work that goes into marketing, money management and maintenance is a massive reason that many homeowners choose to hire a property management group to take care of the property on their behalf. A property manager will take a small percentage of the total rental rate as commission and look after your property in return. 

This is also where Hospiria can save homeowners a lot of time and money. Our property management software helps you to monitor the amount of time and money you’re spending on maintaining the property, how frequently the property is occupied and how much money you are making off the property. The software also has facilities that help you track and manage invoices and inward payments from guests. With the software, it makes your property easier to manage without employing a property management firm.

The advantages of investing in a vacation rental

If you’re considering purchasing a property to rent it out as a holiday rental, there are several things you need to take into consideration. However, there are also loads of advantages to owning a vacation rental home. Let’s take a look at a few here.

Additional income

If you’re the landlord of a holiday rental, it means you will get all the profits gained from the property’s rental. If you do choose to have a property management team take care of your property you will have to allocate a percentage of the profits to the property management team to cover their commission. However, a holiday rental property can generate a healthy additional income if the property is run correctly.

You gain an asset

Having a holiday rental in your asset portfolio is a great addition to your property portfolio, especially if the home is run well and your guests have good experiences. Having property assets contribute positively to your credit score and makes you more appealing to banks and loaners as a prospective client.

Less risk than other types of real estate investment

Given the higher insurance costs associated with getting coverage for a holiday rental, the companies are more likely to pay out for more costs associated with the let. You can also request security deposits from your guests, meaning any unexpected expenses can be covered by these, instead of absorbing the costs out of your funds.

Easier to manage than long-term rentals

Long-term rentals require a very hands-on approach from the landlords and the property management team as the home needs to meet the standards of someone who is occupying the space as their home. However, with holiday rentals, you can maintain them more easily given their different layouts and differing facilities.

You will still have to answer the emergency calls issued by your guests, but if the property is consistently maintained properly, these will become less and less frequent. It may also be worth hiring a property management team with offices close to the property especially if you do not live close to the property’s location.

The disadvantages of investing in a vacation rental

As with all investments, there are some risks associated with purchasing a new property. When it comes to holiday rentals, there are of course some drawbacks that can be avoided. If you know what the disadvantages of buying a holiday rental property are before going ahead with the deal, then you shouldn’t have a problem. Here are a few things to keep in mind before buying your holiday rental property.

Unexpected expenses

Even though you may have accounted for many expenses associated with the property, renting it out to different people can mean you incur some unexpected expenses. For example, breakages of valuable objects and property damage may be unexpected expenses. Covering these can be done by charging security deposits, and by getting insurance to cover anything overly expensive.

Higher insurance costs

Getting insurance coverage for holiday rental properties is more expensive than insuring your own home, since there is more damage risk in renting a property out to strangers than there is in covering damage to your own home.

Marketing and advertising costs

Because you want to make sure your property is occupied as much as possible to ensure you make a profit, you will need to spend time and money on marketing your holiday rental. 

To make sure your property features higher on search results on different platforms, you also have to be prepared to pay higher advertising rates, especially if you are marketing your property on digital platforms. 

If you want to market your property to a select audience, you will also have to spend time and money on a good marketing campaign to make sure the right type of guests sees your property as a potential option to let over the holiday period.

Additional Taxes

As a landlord of a holiday rental property, you will be required to pay additional tax. The rules and regulations vary on this depending on where your property is located. Usually, holiday rentals in residential areas incur more taxes than other homes. This is something to bear in mind when you’re looking to buy a property as a holiday rental.

When is the best time to buy your vacation rental property?

Before looking for properties to buy, you need to keep track of the property market in the area you intend to purchase your holiday rental home. Purchasing holiday homes in the peak seasons will usually be more expensive. The more you pay for your property the less your return on investment will be so you’ll want to make sure you are paying the best price possible for your property. 

If your desired property is in a popular holiday area, it’s more likely you will pay more. For this reason, it's better to purchase holiday property in the low season if you consider price only. 

However, if you want to make sure you optimize your vacation rental property as a guest experience, you should buy in the high season. When you purchase a property and live in it for a short while during the high season, it means you can get a feel for what you can offer your guests in the home and the surrounding areas. 

You’ll then be able to personalize any marketing and advertising campaigns based on your own experience of the home and what you can do close by. When you stay in the home over a busy tourist season, you will also learn how to keep up with property maintenance. It's advisable to stay in the property for a short time before you rent it out to guests for the best opportunity to get to know what makes your property special. 

Living in your property in the same way as your guests will also make it easier for you to leave guests clear instructions especially if you want to offer a self-check-in service, for example. You will also be able to provide tips about staying in the property once you have had sufficient time in the property yourself.

How to eliminate short-term vacancies

As a vacation property owner you will want to make sure your home is occupied as much as possible. For this reason you’ll want to avoid short-term vacancies as much as possible too. To do this, there are a few simple steps you can take and rules you can implement. 

You should always make sure your property listing is up to date on all platforms at all times. This should include information about the property’s availability, and the current pricing. 

Always make sure you research holiday rental prices in the area to make sure your nightly rates remain competitive with other properties in the area. You don’t want to undercharge and lose out on potential profits, however overcharging will also deter guests from your property, negatively impacting occupancy. 

Many holiday property owners also run promotions for bookings over a longer period of time. For example, if guests want to book your home for over a week, you may want to consider reducing your nightly rates as an incentive to stay longer. 

These simple strategies will ensure you don’t get any short-term vacancies in your property.