Vacation Rental Ownership: Pros and Cons
Owning a vacation rental is a great investment decision. However, like other big decisions, there will be downsides, especially if you don’t plan well. You just have to be more discriminating with the help you render toward other people. Making up a list of pros and cons helps you make a good decision. Investments should not be driven by peer pressure but rather by facts. You need to be sure that there is a higher chance of winning than losing when you put your money into something.
Here are some advantages and disadvantages of owning a vacation rental that you should be aware of:
Benefits of owning a vacation rental property
It earns you an extra income
One of the significant benefits of owning a vacation rental is additional income. Extra income is a big plus, especially if you want to achieve financial success. Also, you will have something to fall for if you lose your main job. On the same note, if you want a break from daily work, owning a vacation rental property could be your first step towards achieving this long-term goal. However, be careful when setting your nightly rates, do not overload or underload. Look at the popular rental listings for an idea of prices in your area.
Increase in property value
When you buy a property, the hope is that the value will increase and you will appreciate it, which will help you a lot when it comes time to sell. Every year the value should increase, especially if you are buying in a high demand area. Before deciding on the best vacation rental to buy, check out the past and current market trends to understand what the future holds in terms of property value.
Tax deductions
Holiday rental property is a business just like any other. If you pay taxes based on the income you make from the property, then you can also deduct all business expenses you incurred. Deductions can be payments made to property management companies, repossession, or even management. However, don’t forget to keep the receipts, or you could get into hot water if ever revised.
Applying for a business credit card to pay for business expenses makes it easier for you to provide records when you file your taxes. You can also deduct your insurance, property taxes and mortgage interest. A tax professional can do a better job of helping you advance this. Use an auditor if you are unsure how to proceed because tax fraud is a serious matter, even if it was done incorrectly.
You never have to pay for accommodation during a holiday
Getting away from your daily life is sometimes a great thing. It allows you to disconnect and restore so that when you return you can be more productive. However, one of the reasons why most people do not vacation is the high housing costs. With your vacation rental, you never have to worry about that. Go during the off-season so you don’t miss out on rental income during the peak season.
You can also let your friends and family stay there for a holiday for free, half price or full price. It’s all up to you.
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Various management options
Managing holiday rental property is not easy, especially for first-timers. However, there are management services available that you can take advantage of to make your job easier. You can focus on more important things like marketing the property or even scouting for the next investment property allowing a property management company to do all the time-consuming duties.
In addition, it removes the pressure from the equation, especially for first-time vacation rental owners. You can even buy property overseas and make sure the administration is safe because local professionals will take care of your property. You will not have to travel back and forth all the time to check the rental property.
Easy to find guests
There are several websites where you can list vacation rentals to find guests easily. You don’t even have to market it. After the first guest leaves a positive review, you’ll see people piling up the property, and your job will be easier. You have to work hard to get that first review, and the rest is easy. You can also select the dates you want to rent the property and block dates for you, family or friends to visit the home. If you’re worried about not finding guests, it’s time you dumped that thought. While the property is up to standard and in a popular place, you can be sure that they will come.
You learn about real estate investing
There’s so much you can do in real estate besides buying a holiday rental property. However, you will learn to practice faster than read about other people’s experiences. The best part is that you learn by enjoying the benefits of being a vacation rental owner. You can then expand your business and earn more when you have learned the ropes.
Disadvantages of owning holiday rentals
Unexpected expenses
Unexpected expenses are not a surprise in a holiday rental, as well as at the main residence. Whatever doesn’t work or needs a replacement is your responsibility. Expenses such as utilities, regular maintenance taxes and resupply can be expected. However, huge expenses like burst pipes or a broken air conditioner have considerable costs to replace or repair, and they may catch you off guard. You need to set aside a certain amount each year to provide unexpected maintenance and repairs. You can rate it at 1% of the total purchase price of the property.
High down payment
Primary housing may require only a 3-5% down payment. However, this will not be the case when you are buying a holiday rental property. While you may not plan to live there, lenders will charge a 20-30% down payment, which can be difficult to cough up. On the same note, the requirements for your credit score will be much higher as you take on more debt.
More fees and taxes
Some taxes you may have to pay include property taxes, local and state taxes. Depending on the tax laws in your area, you may require a business license as well as a hotel and sales tax.
In terms of fees, you’ll need to pay a backup fee for the websites you use to market your home. Looking back at what you spent on taxes and fees for the holiday rental, you may be shocked at how high the figure is. Most likely, the biggest fee you pay is property management. For short term rentals, this can be anywhere between 15% and 30% of the gross rent. So, you have to control these expenses and ask yourself if you are making losses or gaining anything by renting the property. If you do not control your expenses, you may notice that you are taking care of the property at a loss.
Maintenance is time consuming
Owning a vacation rental property is not as easy as posting it online and cashing the checks. You need to perform regular care and repairs and respond to the needs of the guests.
When the vacation rental property is not in the same area as your main residence, it will be a great hassle to manage it if you are not hiring property management services. It takes a lot of time and money to travel back and forth to run a business. On the same note, you’ll have to deal with marketing if you don’t have someone to help you. Responding to reviews and questions in a timely manner is essential to staying relevant, not forgetting to update the availability calendar and nightly rate.
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It is made easier with reliable property management services. However, after you get several vacation rental properties, it is highly recommended that you get property management services for a better result unless this becomes your main job.
Meanwhile, if you want to read more such exciting lifestyle guides and informative property updates, stay tuned to Feeta Blog — Pakistan’s best real estate blog.
Vacation Rental Ownership: Pros and Cons
Wide Open Doors: How to Capitalize on the Still Booming Market
As if out of the challenge, the house Booming Market seemed to operate under its own set of laws through the COVID-19 pandemic. The factors supporting the price increase are easy to understand. The already low supply in the market was further limited by supply shortages, the astronomical rise in the cost of timber, and the health and safety complications that delayed new constructions. At the same time, historically low mortgage rates have spurred market demand. Families, recently free from the boundaries of schools and office districts, and still metabolizing the work-from-home transition, quickly needed more space. With low rates and high list prices, many did not have to be said twice.
Established investors rarely have to be reminded that when one door closes in the market, another opens. With minimal exceptions, the real estate market accelerated over the course of the COVID-19 crisis. Consensus flow and revenue appear to be hampered. If the new normal arrived, it came with giving gifts. Here are some important ways post-COVID homeowners and investors can position themselves as grateful recipients.
Your Address Is an Asset
Homeowners and investors alike are under new pressure to observe their home addresses as a functional asset in their personal financial portfolios. It’s not just an asset, it’s an asset more valuable than it probably has almost ever before. And to take it a step further, its gratitude is currently accelerating.
In some cases, just that information was enough to catalyze important decisions. Supposedly, the question of selling or refinancing has been a popular topic in market houses across the country. But a third option must be added to the sell / not sell dichotomy: renting a home or investment property was a winning strategy in the COVID era, and especially short rentals were some of the best results. the beginning of the pandemic.
With almost no barrier to entry, established investors and existing homeowners can quickly orient themselves towards a short-term rental strategy. But any good investment, regardless of ease or availability, benefits from a strong diligence strategy. By comparing your property to similar rentals in the area, and studying the seasonal monthly income for your area, you can list your offer – a bedroom, an entire floor – at a price and stay that will position you for optimal returns. Large margins, consistent demand and less time between payers of tenants have made short-term rentals one of the most investing entry points in the aftermarket.
Real Estate Changed
The success of the Airbnb model – the comfort with and preference for more local hospitality offerings – has certainly foreshadowed a change in our way of thinking about travel. But that model also changed the future of the real estate, and COVID-19 was a catalyst; the future came faster than anyone thought.
The millennial generation is a growing force in the housing market. In the face of bloated housing, renting remains the preferred option for many young professionals. Among that group, short-term rents give the greatest flexibility, and that flexibility is worth paying for; whether they travel for work or prepare for the final re-office call, tenants will pay above-average market prices for shorter, more flexible stays.
Unknown Horse: 40 Doors or Less
Even with their growing success, short rentals are reminiscent of the image of a holiday destination. But a look at the numbers shows that demand has infiltrated the markets in almost every segment. The multi-family sector did particularly well; buildings with 40 or fewer doors capture some of the steepest edges on the market. The National Multi-Family Housing Council reported that 65% of functional Airbnbs are located in multi-family buildings, and Airbnb CEO Brian Chesky reported that the company will need millions of more hosts to meet the current demand.
Landlords also have a new choice as the future of real estate continues to materialize. A hybrid model – a game strategy that supports long-term tenants while designating other units as short-term leases – could put landlords in the best position to take advantage of long-term relationships without losing the market reward for the short-term strategy. Automated marketing strategies can help adapt unit pricing and stay long to the market ideal, and partnering with management companies for hospitality management can easily offset the cost of more frequent tenants.
These accelerated changes in the real estate market provide homeowners, investors and landlords with unforeseen potential. Whether it’s renting a spare bedroom, pivoting to a hybrid model, or acquiring new rental properties in the multi-family sector, the accelerated arrival of the new era of real estate is full of opportunities. With the right attention to their positioning, every market observer can find new avenues to financial freedom and portfolio diversity – two major silver roofs after the trials and tribulations of COVID-19.
Meanwhile, if you want to read more such exciting lifestyle guides and informative property updates, stay tuned to Feeta Blog — Pakistan’s best real estate blog.
Wide Open Doors: How to Capitalize on the Still Booming Market
- Published in airbnb, International, Real Estate, Real Estate Investments, short term rentals, vacation rentals