Determining the Ideal Property Type for Your Vacation Rental Business

There is no single “best” property type for vacation rental investment. The ideal property type will depend on various factors such as your budget, location, target audience, and investment goals. It’s essential to research the local market, analyze occupancy rates, and identify demand and seasonality trends to determine the ideal property type.

If you’re considering entering the vacation rental business, one of the most important decisions you will need to make is choosing the right type of property to invest in. There are several options available, each with its own advantages and disadvantages. In this article, we’ll explore the various types of properties to help you determine which one is the best fit for your investment goals.

Vacation Rental Property Types:

When considering what type of property to buy, you have several options, each with their own pros and cons. We go over three main property types below:

  • Houses
  • Multi-Family Units
  • Apartments / Condos

Why Houses are Ideal for Vacation Rental Business?

Houses are a popular choice for vacation rental business due to several reasons. Firstly, they offer privacy, space, and a home-like atmosphere, which is ideal for families and groups. Secondly, houses have yards, gardens, pools, and other amenities that can enhance the guest experience. Thirdly, houses can be located in quiet neighborhoods, providing a peaceful and relaxing environment for the guests.

However, owning a house as a vacation rental business comes with some challenges. Firstly, houses require more maintenance and repairs compared to other property types. Secondly, houses are more expensive to purchase, which can limit your investment opportunities. Thirdly, houses have stricter zoning and regulation laws in some locations, which can make it challenging to operate a short-term rental business.

Why Multi-Family Units are Ideal for Vacation Rental Business?

Multi-family units, such as duplexes, triplexes, and fourplexes, are another popular option for vacation rental business. Multi-family units offer several advantages, such as lower purchase prices, multiple rental units, and lower maintenance costs. Additionally, multi-family units can provide a steady rental income, even if one of the units is vacant.

However, multi-family units come with some disadvantages as well. Firstly, multi-family units might have smaller living spaces, which can limit the number of guests you can accommodate. Secondly, multi-family units might have shared spaces, such as driveways, yards, or walls, which can affect the guests’ privacy and comfort. Thirdly, multi-family units might have stricter regulations and zoning laws than single-family homes.

Why Apartments and Condos are Ideal for Vacation Rental Business?

Apartments and condos are also popular choices for vacation rental business. They offer several advantages, such as lower purchase prices, shared amenities, and convenient locations. Additionally, apartments and condos are often located in urban areas, making them ideal for short-term rentals.

However, apartments and condos have some drawbacks as well. Firstly, they offer limited space, which can affect the number of guests you can accommodate. Secondly, they might have stricter rules and regulations regarding short-term rentals, which can affect your business’s profitability. Thirdly, apartments and condos might not offer as much privacy and tranquility as houses or multi-family units.

Strategies to Consider When Acquiring Vacation Rental Properties:

Turnkey Short Term Rental (STR) Properties As A Vacation Rental:
A turnkey short-term rental (STR) property is fully furnished and ready to rent out as soon as you purchase it. With no need for rehabbing or renovations, you can start generating rental income almost immediately. In some cases, a property management company may already be in place to handle the day-to-day management of the property.

While turnkey STR properties can provide fast investment returns, they typically come with a higher purchase price. This can result in a lower return on investment (ROI) compared to other types of properties. However, the convenience of having a property that is ready to rent out without any additional work may outweigh the lower ROI for some investors.

Holiday Apartments with Established Business As A Vacation Rental:
If you’re looking to invest in an STR market property that already has an established track record of generating steady income, buying a holiday apartment with an established business may be a good option. Websites like AirDNA can help you find properties that perform well on popular vacation rental platforms like Airbnb and VRBO.

While the initial investment for a well-established vacation rental property may be higher, the potential for steady income can be attractive to investors. However, it’s important to note that it may take longer to see a return on investment compared to turnkey STR properties.

House Hacking As A Vacation Rental Proeprty:
House hacking involves buying a property in a desirable location and renting out part of it to travelers, tourists, business people, or temporary visitors. This can include converting a garage or basement or buying a multi-family unit. House hacking is a popular option for those looking to enter the short-term rental market with limited funds.

If you’re considering house hacking to invest in the vacation rental market, it’s important to analyze local trends for occupancy rates, demand, and seasonality. Additionally, you’ll need to consider whether you will buy a second home to use as your primary residence or if there is demand in your local area to rent out your current home for a steady income.

Second Home As A Vacation Rental Property:

Another option is to become a vacation rental landlord by buying a second home in a desirable location. This allows you to use the home during off-peak seasons and rent it out during in-demand tourist seasons. Second homes can be an attractive option for investors who want to enjoy the property themselves while still generating rental income.

When considering a second home as a vacation rental property, it’s important to analyze the local market to ensure there is demand for short-term rentals. Additionally, you’ll need to factor in the cost of maintaining a second home and any additional expenses associated with owning a vacation rental property.

Additional Factors to Consider for Vacation Rental Properties:

Determining the ideal property type for your vacation rental business requires a thorough analysis of several factors. Here are some additional elements to consider:

1. Vacation Rental Property Goals

Before investing in any vacation rental property, you must identify your goals. Are you looking for a long-term investment or a short-term profit? Do you plan to use the property for personal use as well? Are you looking for a seasonal or year-round rental income? Your goals will determine the type of property that’s suitable for your business.

2. Vacation Rental Property Budget

Your budget is another critical factor when choosing the property type. Determine how much you’re willing to invest and how much you expect to earn from the rental income. Remember to include other expenses, such as mortgage payments, taxes, insurance, maintenance, and repairs. Based on your budget, you can decide whether to buy a single-family home, a multi-family unit, an apartment, or a condo.

3. Vacation Rental Property Location

The location of your vacation rental property is essential for your business’s success. Consider the proximity to tourist attractions, public transportation, shopping centers, restaurants, and other amenities that your target market might find attractive. Also, research the local regulations and zoning laws for short-term rentals to avoid legal issues.

4. Vacation Rental Property Management

Managing a vacation rental property requires time, effort, and expertise. If you don’t have the resources or knowledge to manage the property yourself, you might want to hire a professional property management company or build out a team. A property management company can handle everything, from marketing and booking to cleaning and maintenance but will be more expensive than if you set a team up yourself.

5. Vacation Rental Property Marketing

Marketing your vacation rental property is crucial for attracting guests and generating income. You can use various marketing strategies, such as listing your property on vacation rental websites, social media platforms, or partnering with local tour operators. Make sure to showcase the unique features and amenities of your property and target the right audience.

6. Vacation Rental Property Pricing

Pricing your vacation rental property can be challenging, as you need to balance your expenses with your income. Research the local rental rates for similar properties and adjust your pricing accordingly. Consider the seasonality, demand, and length of stay when setting the price.

Short Term Rental FAQs

Is investing in a turnkey short term rental property the best option for maximizing ROI?

While turnkey short term rental properties can provide fast investment returns, they typically come with a higher purchase price, given that they are being sold already as a short term rental property. This can result in a lower return on investment (ROI) compared to other types of properties. However, the convenience of having a property that is ready to rent out without any additional work may outweigh the lower ROI for some investors.

What are the advantages of buying a holiday apartment with an established business?

Buying a holiday apartment with an established business eliminates some guesswork regarding the short-term rental market analysis. For example, AirDNA can help you find properties that perform well on popular vacation rental platforms like Airbnb and VRBO.

Should I buy a fixer-upper or a turnkey property for vacation rental property investment?

It depends on your investment goals, budget, and experience in property management. A fixer-upper may require significant renovations and repairs, but it could offer a lower purchase price and higher return on investment in the long run. On the other hand, a turnkey property may have a higher initial investment, but it’s ready to rent out and provides instant rental income.

Is house hacking a good strategy for a vacation rental property investment?

House hacking can be an excellent strategy for starting real estate investing in the vacation rental industry. It involves buying a property in a desirable location and renting out part of it to travelers or temporary visitors. However, it’s crucial to analyze the local market trends, demand, and seasonality before investing in a house hacking property.

What are the risks of investing in vacation rental properties?

Like any investment, vacation rental properties carry certain risks, such as market fluctuations, changes in regulations or taxes, property damage, and low occupancy rates. It’s essential to research the local market and consult with a professional before investing in a vacation rental property.

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