Investing in a vacation rental property can be a highly profitable venture as long as we use strategic, well-informed decision-making. “Location, location, location” is, perhaps, the gold standard when it comes to property investment enterprises. It also describes the threefold feasibility of getting into the vacation rental market. Given the pandemic-related setbacks, who is going to start renting vacation homes and when?

First, vacation rentals are an excellent place to start for those who want to get their feet wet in the property investment industry. Second, it’s a corner of the industry that offers great insight into the larger rental ecosystem’s inner workings. And finally, it can provide a solid base for generating extra income. 

Current trends in property investment, especially as the ongoing pandemic continues to exert influence, should be factored into your decision to buy or not to buy a vacation rental. Let’s explore the pros of investing in a vacation rental property, as well as its potential drawbacks. 

Vacation Rental Industry Statistics

A 2020 report by Grand View Research using 2019 data initially forecasted that the global vacation rental market size would reach $113.9 billion by 2027. But travel restrictions imposed due to the pandemic devastated the vacation rental industry. Long-term lockdowns with limited information about the future meant vacations and vacation investments were placed on hold indefinitely. 

The short-term rental market suffered a massive drop in booking volume during the first wave of the novel coronavirus pandemic — between March and June 2020. While a small bubble of relief during the third quarter of 2020 allowed some travel, the industry still failed to recover entirely as the year drew to a close. From canceled to altered bookings, occupancy rates and end-of-the-year revenue were much lower compared to 2019 numbers. 

As vaccine roll-outs finally began around mid-December, travel restrictions eased after prolonged home or community confinement and countless individuals were eminently eager to go on vacation. In the U.S., a joint survey conducted by the Travel Leaders Group and World Travel & Tourism Council (WTTC) revealed that 70% of respondents plan to take a trip in 2021. Of them, 45% said they have already made plans or are starting to make plans. 

Another survey conducted by the Morning Consult for American Hotel & Lodging Association (AHLA) has shown the business’s health and sanitation protocols heavily influence guest comfort levels. According to the survey results, 81% of respondents noted feeling more comfortable at a hotel with enhanced cleanliness protocols and standards. So, it’s key that vacation rentals follow suit.

Vacation rentals have the added benefits of limited contact (if any at all) between the guests and the property manager during check-in and check-out. They’re also less crowded compared to hotels. The fact that guests can remain isolated and self-sufficient within their rented property while enjoying luxury amenities is an even better reason to choose a vacation rental over a hotel. 

Pros and Cons of Investing in Vacation Rental Property

Investing in a vacation rental can be reliable means to build long-term wealth and even serve as a future retirement home. The property can also serve as your family’s vacation home. But beyond that, there are some pros and cons to consider before you invest in a vacation rental.

Pros

  • Domestic travel will become more popular, while air travel and international travel remain risky. Family travel with pets is also becoming more common, making traveling by road and renting a pet-friendly home the ideal option.
  • Domestic travels often mean longer stays, so vacation homes that allow guests to be self-sufficient may be the preferred choice, particularly for families.  
  • Given that remote work is continuing to gain global, large-scale acceptance, an increasing number of workers are going on “working holidays” that could last from one to several months. Vacation rentals will be in high demand for these travelers.   
  • In 2021, most travelers will continue to prefer lesser-known and less crowded destinations, which means they may also prefer the privacy of vacation rentals. 
  • Vacation rentals can often offer flexible check-ins and self-check-ins, and many travelers consider these a plus when shopping around for accommodations. 
  • Smart home automation tools and innovative home technologies have become increasingly important since the pandemic began. Remote property management, for example, limits contact with guests, thereby reducing operational costs. 
  • Plan on writing off several expenses for repairing and maintaining a vacation rental property. These include cleaning costs, utility costs, lawn management, supplies such as toilet paper, property management fees, mortgage interest and online platform hosting fees. 

Cons

  • A vacation rental property requires year-round, hands-on management. If you can’t do it yourself, you will have to hire somebody who can — and this will mean additional monthly expenses. 
  • If the property becomes a popular one, it will also require more work in terms of management and maintenance. 
  • You will have to actively market your property, which means listing it on multiple and popular rental platforms and optimizing each of your listings to reach a larger market — as well as the right market. 
  • You’ll have to choose the right location in terms of both value and whether or not the area allows vacation rental homes in their neighborhoods. 
  • A vacation rental property means extra mortgage payments as well as maintenance expenses. 
  • It is a substantial investment, and most lenders require a sizable downpayment. 

Is Buying a Home During the Coronavirus Pandemic and Renting It a Smart Move?   

In the current climate, there’s significantly less spending. Missing those rental investments at a time of economic downturn is not only risky but may also be ill-advised. With the travel industry still experiencing devastating setbacks, buying a home to convert into a rental property might seem like the worst idea. 

During an economic decline, however, interest rates are lowered to bolster economic growth. And travel restrictions are easing now that vaccinations are well underway. Countless travelers are eager to book trips, even if only domestically. You can further maximize your investment by choosing smart home automation. Well-informed, strategic decision-makers understand that smart homes greatly improve any property’s marketability while significantly reducing management and maintenance costs. 

Complete recovery of the travel industry remains further down the road. However, even with pandemic setbacks, the vacation rental market still shows itself to be on solid footing compared to other short-term holiday accommodations. Travelers are ready to start renting vacation homes. Whether it’s to satisfy the travel itch,  take a holiday after the stresses of the pandemic or finally visit loved ones once again, it’s no surprise that so many people are already planning long-awaited trips.  Will it be your vacation rental property?

Sources:

Grand View Research – Vacation Rental Market Size, Share Analysis Report 2020-2027

Travel Pulse – Consumer Survey Finds Strong Demand for Travel in 2021

American Hotel and Lodging Association – Survey: Frequent Travelers Cite Priorities for Hotel Stays