I'm considering buying a property to use as a vacation rental, either in a beach town or near a ski resort. This seems like it could be more profitable than traditional long-term rentals, but also more work.
What do I need to know as a vacation rental investing starter? How do you estimate occupancy rates and rental income? What about local regulations - I've heard some cities are cracking down on short-term rentals.
Should I manage it myself or use a property management company that specializes in vacation rentals? What are the biggest expenses beyond the mortgage? Also, how do you handle maintenance and cleaning between guests?
I own two vacation rentals, one near a ski resort and one at the beach. Here's what I wish I knew as a vacation rental investing starter:
Occupancy rates vary wildly by location and season. My ski condo gets 70%+ occupancy in winter but only 20% in summer. The beach house is the opposite. You need to look at annual occupancy, not peak season.
Income estimation: use tools like AirDNA or Mashvisor to get actual rental data for comparable properties. Don't trust Zillow's rental estimates - they're for long-term rentals, not short-term.
Regulations are a huge issue. Many cities are restricting or banning short-term rentals. Before buying, check: are short-term rentals allowed? Do you need a license? Are there occupancy taxes? What are the zoning restrictions?
Management: I tried managing myself for 6 months. It was a part-time job. Now I use a property management company that specializes in vacation rentals. They charge 20-30% of revenue, but they handle everything - marketing, booking, cleaning, maintenance, guest communication.
Expenses for vacation rentals are much higher than long-term rentals. Beyond mortgage, you have: property management fees (20-30%), cleaning fees between guests, utilities (guests leave AC/heat on full blast), maintenance (more wear and tear), marketing costs, booking platform fees (Airbnb takes 3%, VRBO takes 8%), insurance (more expensive), and furnishings (need to replace more often).
Also, you have vacancy between guests - turnover days where the property is being cleaned and prepared. This can add up to 10-15% vacancy even if you're fully booked back-to-back.
For beginners, I'd recommend starting with a property within driving distance so you can check on it occasionally. Or partner with someone who lives near the property.
Also, consider the tax implications. Vacation rentals have different tax rules than long-term rentals. You might need to depreciate furnishings separately, and there are rules about personal use versus rental use.
Tax considerations for vacation rental investing:
If you rent the property for 14 days or less per year, the income is tax-free. But you can't deduct any expenses.
If you rent more than 14 days, it's considered a rental property. However, if you personally use the property for more than 14 days or 10% of rental days (whichever is greater), it's considered a mixed-use property with different rules.
You need to track personal use days versus rental days. Expenses are allocated based on usage. Only the rental portion of expenses is deductible.
Also, if you have a loss from the vacation rental, it might be considered a passive activity loss with limitations on deductibility against other income.
For beginners, the tax complexity of vacation rentals might not be worth it unless you're making significant profits. Consider working with a CPA who specializes in vacation rental taxes from the beginning.