With the cost of living increasing due to inflation, more and more people are looking to rent their second homes or even primary residences as short-term rentals. Excited by the high-income vacation homes can generate, vacation homes have brought their owners ever-increasing profits in recent years.
Explosive Growth of Short-Term Rentals
The most recent report from the short-term rental industry website, AirDNA, showed staggering figures for July 2022.
- Demand was up 18.2% YOY.
- The average daily rates (ADRs) were up 3.7% YOY.
- Revenue was up 22.6% YOY.
- Nights booked were up 19.1%
- Last-minute bookings were up 69% YOY.
In an otherwise sluggish economy, the vacation rental business is on fire. As a result, more of the population is becoming involved as property owners to bring in additional income. In many cases, it can provide a full-time alternative to working in the rat race. A recent article in the Wall Street Journal, revealed that the proportion of homeowners under 30 registered with one vacation rental management site grew by 100% between June 2019 and June 2021.
With the vacation rental market showing such growth, it’s hardly surprising that big financial institutions are also looking to get in on the action. For example, New York-based investment firm Saluda Grade partnered with STR rental operator AvantStay Inc. to buy about $500 million of homes. In addition, Chilean investment firm WEG Capital intends to buy $80 million of properties in the US, partnering with Andes STR, which buys and manages STRs in the US on behalf of investors.
Why Vacation Rentals over Long Term Rentals?
If you own an investment property, you generally have two choices. You can either use it as a short-term rental/vacation property or a long-term rental with a tenant on a yearly lease. The demand for vacation rentals has surged in the gig economy and remote-working business, where neither companies nor customers want to invest in lengthy relationships.
Here are just some of the reasons to invest in a vacation rental:
High earning potential: As with any rental, the price is determined by location. A well-furnished, attractive rental with great photos in a great place will always perform well and far out-earn a long-term rental.
Regular maintenance: One of the drawbacks of owning a long-term rental property is its wear and tear over time. Because the vacation rental business is the same as the hospitality business, homes must be cleaned and repaired between guests. Because of this, the properties remain in meticulous condition.
Flexibility: Owning a vacation home doesn’t preclude you, the homeowner, from enjoying it too. Blocking out calendar dates you want for your use allows you to have the best of both worlds and still utilize it for its intended use while deriving an income.
Appreciation: Yes, the monthly and annual income is lovely, but if you are in an appreciating area, the increase in equity is also a huge attraction.
Tax Benefits: Tax advantages must be considered when calculating a vacation home’s profitability. There are many. These include:
- The interest paid on the mortgage can be deducted.
- Any expenses to renovate, upgrade or furnish the property.
- Depreciation — a term used to account for the wear and tear of a home which is always a fixed percentage
- Any additional expenses on marketing and buying products such as towels, snacks, and drinks
According to the Daily Telegraph, vacation rentals can earn around 30% more in net profits than long-term rentals. MAK Realty has vacation property management down to a fine art. We utilize cutting-edge technology, a top-notch professional cleaning crew, and a dedicated customer to exceed our guest’s expectations.
As for our investor clients, we always meet their expected ROIs. Our continued stellar reviews have placed us at the top of most vacation rental websites in the Miami Beach area. This makes our business both profitable for our clients and pleasurable for our guests.