Can a vacation rental home pay for itself?

March 3, 2014

One of the most common questions we here in this industry is “Can a vacation rental pay for itself?”  In this post I’ll examine this question and things that factor into the answer to this.

The first thing is to assume ‘pay for itself’ means owning the property costs little to nothing after the initial purchase and set up.

There will be a handful of factors to consider in answering this question, and some major ones are:

1) How will the home be managed?  Are you going to use VRBO and market it yourself or enjoy the convenience of one company handling everything for you?  The difference in cost of Lake Tahoe property management can be as much as 30% or more.

2) Marketing – whether its you, or a rental agency marketing your property, the quality of marketing and quantity of reservations will have an enormous impact.  Effectively, how much money can the home generate?

3) The nature of the home. Typically, larger homes have more value in vacation rental real estate investment.  This is for a few reasons:  first, most parties renting vacation homes are large groups – either big families, multiple families, reunions, celebratory events, and even corporate retreats.  As such, larger homes (4+ bedrooms) are more enticing to travelers.  Moreover, you can charge significantly more money for larger and newer homes compared to the smaller, dated alternative – so much more in fact, that this can be the key to whether or not the home pays for itself or not.

In lake Tahoe, with the housing market dip since 2008, we’ve seen many new homebuyers purchase a home, and turn around and meet and even exceed annual costs of ownership.  Work with a veteran Realtor, ideally one with vacation rental sale expertise, to examine what the costs of ownership for a particular property would be and what to expect in revenue as a rental.

In general, the best way to make a vacation rental pay for itself is:

1)  Find a larger, ideally newer house (or one that you can remodel!) that has great value.  Think of 4+ bedrooms and optimal location.  Bedrooms are key!

2) Manage the home yourself.  By using VRBO and similar marketing means, you can easily rent the home – sometimes better than a professional manager can!  Then partner your services with a company like ours that compliments your booking efforts.  The result can be as little as 5% management cost.  This puts a ton of the money back in your pocket!

3) Be an expert at managing your rental.  Get professional photos taken, write detailed, professional listing page text.  Answer inquires fast, and be competitive with your pricing and rental options and work with a quality service provider that cares for your home well!

With this system, you should be poised to hopefully meet or even exceed the annual costs of owning the home.  This is one of the reasons vacation rental Real Estate investment is gaining so much popularity, and Lake Tahoe is one of the best places in the world to own a rental because of its two explosive tourist seasons.

Please note these opinions are my own, and I am not nor represent myself to be a licensed and trained Realtor.  Always consult with your Realtor and think heavily before making any financial decisions.  Each person, and each home is a different scenario and all aspects must be considered carefully.

Thanks for reading, and let me know if you need anything at all!

-CF

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