Benefits of Buying a Vacation Property as a Real Estate Investment
Looking for the best way to earn passive income? How about real estate investing?
Becoming a real estate investor can be intimidating but buying a vacation property as an investment has been gaining a lot of popularity. We think it might just be the best way to enter the real estate business and become an investor.
There are many benefits to buying a vacation property and we have put together a list of the top reasons that we think you should consider this as your first real estate investment:
OWN A DUAL-PURPOSE PROPERTY
You can use it as your second home and spend your own vacations there with your family, and then rent it out to guests the rest of the time.
EARN PASSIVE RENTAL INCOME
Real Estate is a cornerstone to a balanced investment portfolio. Enjoy a second source of income to give the ability to enjoy that overdue vacation, buy that new car or pay off some lingering debt.
BUILD VALUE THROUGH APPRECIATION
In addition to earning passive income in the short run, a vacation rental also makes money in the long run. Real estate generally appreciates over time. When you are ready to sell your vacation property, you can usually sell it for a higher price and cash in on the profits.
PAY-DOWN YOUR MORTGAGE
Paying off your mortgage with other people’s money is a great way to build your wealth.
CONTINUE TO ENJOY YOUR VACATION HOME WHENEVER YOU WANT
Renting out your home to guest’s is a great way to earn extra income but you still can use it when you want. Keep your house for family birthdays or special events simply by blocking off the dates.
EARN TAX DEDUCTIONS
Similar to your primary residence or an investment property, a second home also provides tax deductions. These apply to mortgage payments, property tax, utilities, insurance, and other rental expenses. We suggest that you consult a tax accountant for advice.
TAKE ON LESS RISK
Investing in vacation rentals exposes you to lower risk than other types of real estate investments. Vacation homes are in top tourist destinations, so you can attract lots of guests, reach high occupancy rates and charge a high nightly price. One way to reduce the risk is to choose a location and property that works as either a traditional-long term rental or as a vacation rental.
THEY’RE EASY TO MANAGE
While some people take on vacation management as a full-time job, you don’t have to do this in order to start making money in real estate. Hiring a professional vacation property management company can help turn your investment to a completely hands-off passive income source.
Niagara Smart Stays is reinventing vacation rental management by offering homeowners better performance, lower fees and unrivalled flexibility. Our marketing and reservation systems allow us to leverage several hundred leading websites to outperform traditional property managers with a positive financial impact. Our network of on-the-ground partners is available to handle everything from housekeeping to maintenance. The real estate results are unprecedented and it exceeds the expectations of even the best performing portfolio.
What Metrics Matter to you, a Vacation Rental Owner
As a vacation rental owner, you know that measuring return on investment (ROI) – or how much you’re getting out of your vacation property after you spend on necessary expenses – on your property goes beyond just calculating what your annual bookings bring through your bank account. However, newer and more seasoned property owners alike might be surprised at some of the details that can contribute to (or detract from) your annual ROI. Let’s have a look at some metrics you can establish to make sure that you’re seeing your vacation rental’s revenue from every possible angle in all circumstances.
What Rental Property Metrics Matter and Why
Gross Bookings: Make sure you know the income your annual bookings, pre-expenses, each year will bring in. It’s the best baseline metric you can establish!
Property Expenses: You’ll need this for tax time. Hold all of your property’s service providers accountable for getting you monthly receipts or annual statements of account. Include everything from utility and property tax bills to booking fees paid.
Net Booking Revenue: This is calculated by subtracting all expenses from your gross booking revenue – the bottom line for every vacation rental owner.
Seasonal Bookings: How do you fare in high and low seasons in your market each year in comparison to the last? This is a great metric for setting financial goals, as you can experiment with everything from new photos to pricing strategies to increase these numbers each year.
Repeat Bookings: Do you have a way to measure repeat bookings? Loyalty is an often overlooked metric and can help you determine whether your bookings and occupancy rates are coming from just a few loyal sources or a more widespread client base. A powerful tool for shaping future marketing efforts and revenue goals.
Let’s Talk Dollars and Cents
Booking & Listing Fees: How much are you paying and to whom each year for marketing, booking and/or listing your vacation rental? This metric alone is the one where you stand a significant chance for improvement, especially after the first year you’ve had your property in the vacation rental market.
If you’re using a local property manager, you’ll want to determine what portion of your commission payment is going to marketing and booking. If you’re renting on your own, it’s important to determine which sites offer the best return on your listing fees. These metrics will help you determine where your money is best spent moving forward.
Pricing Strategy (Average Daily Rate): Did you experiment with different pricing strategies throughout the year? Make sure you are tracking bookings and the cost of each booking to evaluate which pricing trends offer the best opportunity to increase your occupancy rates and gross bookings year-round.
The great thing about metrics is knowing that there are multiple financial angles from which to view your vacation rental property. While this list certainly isn’t exhaustive, it can help get you in the right financial mindset to determine what’s the most important measure of ROI for your property and the things you can look at improving this year. At Smart Stays, our model analyses the major metrics that indicate your properties success and provide a transparent monthly financial report. Contact us for more information on the benefits of having Smart Stays manage your rental property.
Case Study: Tung Ho
Trying to manage two vacation rental properties on your own can be a real challenge, especially when it comes to managing renters. After spending some time managing his rentals on his own, Tung Ho decided that it had become too much of a burden, “we had a really hard time finding tenants that were open to respecting the property”.
Mr. Ho is married with 3 children. He was born in Vietnam and moved to Canada when he was five. His parents chose to settle in the Niagara Region and as an adult, Tung chose to stay and invest in property here because of the natural beauty and amenities that the region provides. Tung has been a Smart Stays property owner since September 2018.
After connecting with Mike from Smart Stays through a mutual friend and investing in his second property, Tung chose to partner with Smart Stays to manage his short term vacation rentals because of the convenience it provided him and his family.
Part of what made Smart Stays stand out to Tung was that their partnership with booking platforms like expedia.ca and booking.com along with the ability to book organically through their website ensures that Smart Stays renters are respectful of the property, contentious of the space, and a genuine pleasure to work with.
Not only was he able to hand off all of the renter management, but he also earns more with a short term rental model in comparison with long term rentals. By trusting Smart Stays to manage his properties, he was able to increase his profits while doing less work, allowing him more time with his children.
Why Positive Reviews Matter for your Vacation Rental Property
Online shopping is king in 2019. People are used to being able to buy everything from their groceries and pet food to a car online, so of course, they are looking to book their vacations online, too. When it comes to buying anything online, reviews play a major part in the buyer’s decision-making process. But when it comes to vacation rentals, just how much do positive reviews matter?
With the influx of Millenials booking for themselves and their families and the accompanying increase in the availability of short term vacation rentals, the importance of reviews have increased tenfold for potential renters’ vacation research.
What do reviews do for me?
Online reviews add trust and credibility to a listing because potential renters can hear about the experiences of others who have stayed in the vacation rental they are considering. It is important to include a variety of reviews on your property’s listing, from one-star to five-star, because otherwise, potential renters may be sceptical of censorship.
During the buying process, potential renters look for variety in reviews, in similarities or glaring differences in other people’s experiences, and they look for a decent number of reviews because it reflects a larger number of past guests. A good rule of thumb is to have about 10-12 reviews per property.
The difference between securing a booking and not may come down to the reviews. Think about if you were viewing a property online and they were identical in amenities, pricing, and location but one was rated 4 stars and the other 5, which would you choose?
How do I get reviews?
Ask! It’s that simple. Because we live in the age of online shopping, people are conditioned to leave reviews. Guests are more likely to leave a review if prompted by the host in some fashion. Don’t be afraid to get creative with your ask. It could be as simple as a quick email after their stay or a small sign by the door next to the wifi code. Do what works best for you.
It’s simple really, reviews help secure bookings which means higher search results, resulting in more money in your pocket. Reviews are a great tool to utilize when it comes to setting your vacation rental apart from the rest. At Smart Stays, we have open communication with guests that includes a review request. We know the importance of having those positive reviews and position the ask at an optimum point in the checkout process to make it easy for guests to leave a review. Contact us for more information about how working with Smart Stays can grow your vacation rental income through opening lines of communication with guests.