Vacation Rental Investment: 4 Simple Tips to Earn More

There’s a lot of buzz right now about the real estate market. Low interest rates, diminishing inventory, the switch to work-from-home, and good old-fashioned fear of missing out (FOMO), all factor into the recent growth. While the largest percentage of buyers are looking for primary residence, Stay Floreo is seeing a massive increase in buyers looking to invest in vacation homes.

The demand for vacation rentals for drive-to markets has hit record heights since the COVID pandemic, many companies including those in the traditional hotel markets, are now investing in the vacation rental market, seeing 2020 as a bellwether year, demonstrating that many consumers are choosing vacation rentals instead of hotels. Vacation rentals are no longer niche accommodations favored by savvy travelers, they are now mainstream.

We get emails and inquiries almost every day from guests who’d like more information about buying a real estate vacation rental property. The biggest problem is finding the right property, especially in a heated market. We thought it’d be a good idea to jot down some notes we’ve learned after spending years in the industry.

It’s important to consider all the factors that make a vacation rental successful. Some will be surprising and even challenge assumptions.
 
At Stay Floreo, we spend a lot of time sifting through data gathered from our vacation rental booking and management system to find how to maximize our clients’ bookings and guests’ satisfaction.

There’s nothing more rewarding than high occupancy rates and positive guest reviews. Here are 4 tips that will can guide you on your vacation rental investment journey.

Location, Location, Location

What three things matter in a real estate investment? - “Location, Location, Location.” This adage is as true today as it was a hundred years ago. While that pithy saying is true, it’s not very actionable when deciding what qualities make one location better than another.

Real Estate agents often divide their market areas into zones. In these zones, unique properties are organized by types. Once an area has been divided into zones and property type, you can compare the strengths and weaknesses of the individual properties. 

The Goldilocks Problem: Finding the Optimal Square Footage

Bigger is not always better, and more rooms or a larger property may not translate into more profit.

Larger properties do trend toward higher gross revenue numbers, but other costs can offset your net revenue. Why? Larger properties cost more, your initial investment will be higher. Also, your operating costs—utilities, insurance, taxes, upkeep, interior design — may be higher. These costs can slow down your return on investment if left unaccounted for.
 
Larger properties do well in Orlando, because they cater to families. An Island like Ambergris Caye may cater more toward adventurous younger couples or retirees. Domestic travelers may want slightly larger units as they drive to the location. International vacationers may prefer a smaller house.

Understanding this market-fit is key to finding the right sized vacation rental property.

Pet-Friendly?

 
Pet friendly properties are always in demand. Why? Because most hosts don’t want to deal with the extra hassles of allowing pets in their vacation rentals. So, there’s more demand than supply in most markets.

Does this mean you should allow pets? Maybe. But also maybe not not. There are some markets and properties that don’t need the extra revenue. But if you’re looking to turn an average property into a brilliant investment, you may get more bookings by allowing pets. In our experience, pet owners are responsible guests. You’ll find a lot of fears of property damage unjustified.

If you're not allergic to animals, you will financially benefit from allowing at them at your property.

Competitive Sets

Definitely take these into account. We do, and so does everyone else, but don’t treat them as gospel.

Large companies like Airbnb, Expedia, and VRBO offer tons of up-to-date data. But this data suffers from being so large and smoothed out that it’s tough to apply to niche markets. Also, this data is widely available and offers less of a competitive advantage. The biggest downside — overly competitive pricing. Nobody wants a to leave money on the table.

You lose a lot of the granularity from these data. A local management firm like Stay Floreo and local real estate agents have insider information. We use custom pricing models that consider owner bookings, maintenance, and seasonality.

 
This is not an exhaustive list of factors that make one vacation rental investment better than another. But they are a useful shortlist of important decisions that you can use to make investing in a new vacation rental easier.

2021 is has been an extremely exciting year for us. Demand is growing as are potential investment opportunities for purpose-built vacation homes.
 
If you are thinking about entering this market in West Michigan, Florida, or Central America, get in touch. We’ve been serving these communities for over a decade, drop us a line and we’ll be happy to help.