If you’re reading this, you’re either a beginner real estate investor wondering which type of investment property should be your first, or an experienced real estate investor looking for your next investment to build your portfolio. Either way, you might have thought of rental vacation homes and whether or not they make a good investment. To give you a straightforward answer: YES! For many property investors, short-term rentals have proven to be very profitable and, thanks to Airbnb, anyone can start making money with vacation homes.
How Rental Vacation Homes Make Money
Rental Income
There are a number of reasons why we recommend buying a vacation home as an investment property. The first and obvious reason is the rental income you’ll receive as a real estate investor. For beginner property investors, rental vacation homes provide a steady cash flow and they can also use this rental income to repay their mortgage and cover rental expenses.
If you’re considering buying a second home, then it being a vacation rental will also have its perks. As a real estate investor, you can list your property on the rental market during the hot season and make a passive income, and live in it throughout the low seasons – that’s a win-win!
If you’re looking to buy your second home, click here to search for and analyze Airbnb investment properties in your city of choice!
Tax Benefits
Another benefit of owning rental vacation homes is the ability to claim tax deductions. Tax deductions allow property investors to reduce their expenses and earn more profit from their investment properties. For example, an Airbnb rental will typically have high maintenance costs due to regular tenant turnover. However, expenses that are related to maintaining your investment property and keeping it in a hospitable condition are actually tax deductible!
To learn more on tax benefits and deductions on short-term rentals, read this: Your Guide to Short-Term Rental Property Tax Deductions
It should be mentioned, however, that how much property investors can deduct depends on a number of factors including Airbnb short-term rentals laws in their location, rental income, number of days that the investment property is actually rented out and days of personal use. Therefore, be sure to check out the taxation system and find out which tax deductions apply to rental vacation homes in your state or area.
Real Estate Appreciation
Appreciation means that the value of a renal property increases the longer a real estate investor holds it. Thanks to appreciation, property investors have a way to make money from rental vacation homes over the long-term! Basically, you just need to buy your second home and keep renting it out for a number of years until it increases in value. When the right time comes, you have a choice to either keep renting out your investment property for cash flow or sell it for a decent profit!
Related: Real Estate Investing for Positive Cash Flow vs. Appreciation
How to Assure Making Money with Rental Vacation Homes
Sure, owning a second home and renting it out as a short-term rental on Airbnb is a good investment strategy. Nonetheless, this doesn’t necessarily mean it’s an easy way to make money or passive income. If you’re interested in rental vacation homes, make sure to do the following:
Analyze The Market
How much rental income, tax deductions, and real estate appreciation you’ll get to enjoy when owning a vacation home all depend on one factor – location. Usually, the best places to invest in vacation rentals are those with a strong tourism industry and tourists’ attractions as they have a high demand for short-term rentals. Make sure you study and analyze the market in terms of Airbnb rental income and Airbnb occupancy rate in your market of choice. These factors determine how profitable renting out your second home on Airbnb is.
Analyzing a real estate market can take months without the right tools. With Mashvisor’s investment property calculator, however, property investors can search for and analyze investment properties to find which locations offer the best and most profitable investment opportunities (both traditional and Airbnb). To learn more about our product, click here.
Analyze The Property
With the increasing competition in the short-term rentals market, property investors need to set their rental vacation homes apart from the rest to get bookings and make money. Thus, conduct a proper home appraisal to make sure the property is in good condition and identify any major repairs that could cost you. Moreover, an important thing to do before buying your first investment property (and second home) is to analyze it in terms of Airbnb rental income, cash on cash return, and cap rate to get an understanding of your potential return on investment.
To find profitable Airbnb rentals in your city of choice, use Mashvisor’s Property Finder Tool. Using this tool, all you have to do is choose the city/cities where you want to buy rental vacation homes, set your budget, and use other filters (like rental strategy and numbers of bedrooms and bathrooms). The Property Finder will then provide you with a list of the best investment properties that meet your criteria AND have a high projected return on investment.
Do you have a free Mashvisor account? Click here to find investment properties in a matter of minutes!
Set The Right Rent
Your pricing strategy is an important key to success with short-term rentals. It’s not a smart idea to set an amount for rent and stick to it throughout the year. Instead, short-term real estate experts and successful Airbnb hosts recommend adjusting your rental prices according to demand and competition. Figure out how much other rental vacation homes are charging and set your rent in the same range.
To make this decision easier, property investors use the Airbnb profit calculator. This tool provides Airbnb data regarding rental income and occupancy rate (among others) of different Airbnb rentals in a certain location. With these numbers, a real estate investor can find the most profitable Airbnb rental and compare it to others in the market to determine the appropriate amount to charge for rent.
Related: Airbnb Profit Calculator: The Ultimate Real Estate Investment Tool
Making money in real estate through Airbnb rental vacation homes is a smart investment strategy in the business. Remember to sign up to Mashvisor and use our real estate investment tools to find the best investment properties (whether traditional or Airbnb) in the US housing market.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.