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Anyone interested in real estate investments should consider the vacation rental market. Although vacation rentals are nothing new, home-sharing sites have redefined the industry. By helping homeowners rent houses and condos to vacationers, online platforms have skyrocketed vacation rentals to a multi-billion dollar industry. Even companies like Google are trying to get in on the action. Here are some ways you can convert your home into a profitable vacation rental.
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Is a Vacation Rental Right for You?
Before diving into the latest real estate trend, pause to consider whether a vacation rental makes sense for your unique situation. Can you commit the time, money, and effort it will take to keep your property booked and your guests satisfied? Do you own or rent the property? Are vacation rentals legal in your neighborhood? (Hint: try googling vacation rental laws in your town or city.)
You should also consider the type of home and the location. How many guests can you accommodate? Is your property near any tourist attractions? Do tourists frequent your area? Check vacation rental sites to determine whether similar properties in your area are staying fully-booked or are primarily vacant.
Although houses might come to mind when you think of a vacation home, Forbes reports that 65% of Airbnb bookings in 2018 were multifamily units. That’s promising for condominium and townhouse owners. Another quick search of vacation rental properties in your area will help you determine whether houses or multifamily units are more popular with local tourists.
If you’d like to turn your home into a vacation rental, you may want to establish a legal business entity. LLCs are nice for their flexibility as well as the legal and financial protections they offer your personal holdings, and you can easily set one up in your state by using a formation service. Once you have your LLC, you can get your business bank account. This gives you an official "business" account for money to flow in and out... and makes your tax time much simpler.
Homeowners have several options when it comes to managing a vacation rental property. If you’re renting a room in a shared space, such as a guest bedroom in your home, you might consider managing the property yourself. Self-management is also an option if you don’t live on-site but are still within the local area.
If your schedule is too demanding or if you live too far from the rental property, you could self-manage the property but hire local contractors to assist with daily tasks. For instance, you might hire a local maid service to clean the home in between guests while you manage bookings, payments, and advertising from afar.
Another option is to hire a property manager. For a small fee, these experienced professionals will manage the property for you. You can expect to pay 4%-10% of your property’s monthly gross earnings in exchange for the property manager handling cleanings, guest bookings, and even coordinating repairs with local contractors. If you can afford property management, it’s the most stress-free way to enter the business.
When it comes to staying fully-booked and profitable, some home upgrades provide more bang for your buck. While pools and kitchen upgrades are popular among guests, simply adding smart technology to your home boosts ROI more than expensive renovations. Instead of installing that brand new hot tub, opt for a digital thermostat instead. You might purchase an Amazon Echo or Google Home. Companies like Vivint will even custom-design a smart home system for your rental property. Also hardwood floors can warm up any home, making it more desirable for visitors. Check in with Massud & Sons about their flooring products and the benefits of their dustless hardwood refinishing services.
Have a Plan
One final word of advice: if you want your vacation rental to be profitable, treat it like a business. That means writing a business plan, talking to an accountant, and doing your research. Just like homeownership, vacation rentals are a lot of work. However, rental properties are an investment that can pay off if you care for the home and satisfy your renters. With proper planning and maintenance, you’ll be on your way to cashing in on some extra income.