Vacation Rentals Are Popular But Are They Profitable?
Vacation rental industry has rapidly evolved in recent years—largely due to advances in technology.
There are three groups of vacation rental owners, one of which already knows the ropes—the original group of VR owners and operators. These are folks who were up and running before the crash and ensuing entry of new groups of VR owners.
The other two groups—distressed homeowners and opportunistic investors—are having to learn about owning and operating VRs on the fly. Meanwhile, the vacation rental marketplace is continuing its boom, both on the demand side and the supply side.
When we strted in Dubai in 2016 , there were just few companies. Now the area has approximately 200 isued license from DTCM and listings counting to 5000 in booking.com and in Airbnb.
Needless to say, this market is really taking a bite out of the hotel business. VRMB.com data also show half of the people who have tried vacation rentals now prefer them to hotels.
Except for a few saturated markets, most regional markets continue to enjoy demand growing faster than supply. Investors who hope to take advantage of this have choices similar to what they have enjoyed in the single family residential and small multifamily residential markets: direct investment, partnerships, and passive investments.
But direct investors and those entering partnerships indeed have a lot to learn. As such, it’s the original, seasoned operators, and a growing set of regional branded operators who are producing higher returns.
Why Veteran Vacation Rental Owners Are Earning Even More
Despite the predominance of online travel agencies (such as HomeAway, Airbnb, and TripAdvisor) that make it easier for the average VR owner to list and rent their properties, it’s the experienced operators and regional brands that are leading the way with higher per-night revenues and higher occupancy.
This is largely thanks to what they’ve learned along the way about travelers and the hospitality industry that they can now apply to the VR niche.
As a passive investor, expect a secured investment in a VR to return 7 to 14 percent net before taxes, plus the tax benefits of depreciation—and not counting appreciation over time. Actual returns in a passive scenario will depend on whether you wanted regular and predictable cash returns or were willing to simply participate in the profits on a quarterly basis (including seasonal swings)
If you’ve been successful with flips, full-time rentals, or small multifamily properties, you had to learn a lot along the way. Expect to have to do that again if you want the superior returns you can get with vacation rentals.
Therefore, if you are looking to invest passively, seek out an experienced operator to invest with, one who knows how to source and operate the right kinds of properties.