Are Vacation Rentals a Good Investment?

Are vacation rentals a good investment? Overall, owning a vacation rental can be an excellent investment. You can create an additional revenue stream from rental income, build equity in a real estate investment, and have a “home away from home” in a fun location, like a big city, the mountains, or the beach.

However, vacation rental ownership is not for everyone, which is why it’s essential to explore the pros and cons before jumping in to determine if this financial move is right for you. Below, we’ll explore the benefits and drawbacks of owning a vacation rental, as well as some tips to make vacation rental ownership more manageable and more profitable.

Benefits of Vacation Rental Properties

Owning a vacation rental property comes with its fair share of perks. These are some of the lucrative benefits you’ll enjoy from your vacation rental investment.

Rental Income

Most vacation rental owners buy a rental property for one primary reason — to generate extra income! The best way to maximize your revenue is to choose a rental property with attractive amenities in a desirable location. Consider choosing properties with appealing amenities in domestic leisure destinations that draw visitors during more than one season, like Scottsdale, AZ, to generate the most consistent vacation rental income.

Equity Appreciation

While the primary goal of a vacation rental property might be to generate rental income — it’s also wise to consider the long-term benefits of owning a vacation property. Buying a vacation home in the right rental market at the right time is almost a guarantee that it will appreciate over time. Consider investing in value-boosting upgrades while you own the property to attract guests now and future buyers or homeowners down the road.

Personal Getaway

What good is purchasing an investment property if you can’t enjoy it? Whether you’re interested in investing in vacation rentals in beach towns, the mountains, or destination resort towns, a good vacation rental investment is one that you’ll not only use to generate income — but also make memories with your friends and family. Just remember to stay in your vacation home during the off-season and another residence during the peak season to maximize cash flow.

Tax Benefits

There are several tax deductions and write-offs for business-related expenses you’ll incur from owning a vacation rental property. Possible deductions you can claim include hosting fees, housekeeping, utilities, property management fees, occupancy taxes, mortgage interest, and insurance premiums.

We recommend consulting a tax professional to discuss your tax obligations and learn how to maximize deductions for your vacation rental.

Disadvantages of Short-Term Vacation Rentals

Investing in vacation rentals offers many benefits for smart real estate investors. However, there are some potential drawbacks you’ll want to consider before determining if renting out short-term rental properties is the right business move for you.

Unexpected Expenses

Owning a vacation rental is just like owning a home — you will be faced with unexpected expenses, including property taxes, repair costs, and operating expenses. The best (and easiest) way to cover these expenses for a short-term vacation rental is to set aside an emergency fund to cover unforeseen costs.

You’ll also want to remember that if you ever want to sell your investment property for a profit, you’ll be required to pay capital gains tax. The only way to avoid capital gains taxes is to make your vacation home a primary residence for two years or to reinvest the funds into the down payment for another investment property. You’ll also owe federal taxes on any profits generated from your rental property.

We suggest talking with a financial expert to learn about the tax laws and tax implications of owning short-term rentals before getting started.

Rental Laws & Regulations

Each destination has different vacation rental laws and regulations that can either make investing in a vacation rental property a good investment — or a bad one. Local real estate agents should be able to provide the best insight into the local rental regulations.

You’ll want to avoid purchasing vacation rentals in cities with strict rules that will minimize your earning potential. States with limited restrictions (or no restrictions) are ideal vacation rental markets. Owning vacation homes in these destinations tends to be more favorable for property owners. Arizona removed all restrictions on short-term rental properties in 2016, making a vacation rental in Scottsdale, AZ, a fabulous investment.

Property Maintenance

Property maintenance for vacation rentals can be a major hassle if you plan to do everything yourself — prepare to be the housekeeper, repair technician, customer service advocate, bookkeeper, and more. However, property maintenance should never deter you from owning a vacation rental. There are dozens of local property management companies, like Stay With Style Scottsdale, who would be happy to manage these “day-to-day” tasks, so you can sit back, relax, and watch your property generate revenue.

Marketing Efforts

Guests have to find your property before they can book it, which can require you to write a compelling property destination, take eye-catching listing photos, and promote your property on major booking sites like Booking.com, Airbnb, and Vrbo. If the thought of marketing deters you from vacation rental ownership — just know that most property management companies are experts in marketing and can completely take this time-consuming task off your plate.

Find the Right Property Management Company to Make Vacation Rental Ownership Profitable with Stay with Style Scottsdale

The truth is — only you can decide if vacation rental properties are a good investment for you. However, choosing the right property in the right market and partnering with an established property management company, like Stay With Style Scottsdale, is a dependable way to guarantee success as a vacation rental property owner.

If you are a homeowner or property owner looking for a trustworthy and efficient vacation rental management company to manage your luxury vacation rental — you have come to the right place. Stay With Style Scottsdale exclusively focuses on luxury properties in Scottsdale, AZ, making us the area’s premier boutique property management company. Contact us to learn more about our property management services — we would love to help you succeed with a short-term vacation rental!