The Vacation Rental Hypothesis

by |

The links to third-party products and services on this page are affiliate links, meaning that BiggerPockets may earn a commission (at no additional cost to you) if you click through and make a purchase.

I probably don’t need to tell you all that much about the vacation rental industry.

Skyrocketing companies like HomeAway  (click here to list your place for free on HomeAway—only pay when you get a booking), AirBnB (rent my room for your vacation) and HomeExchange (use my home for vacation while I use yours) have indicated a decisive shift away from traditional hotel travel.

I probably don’t need to introduce you to the vacation rental industry industry because if you have ever rented a beach or a lake house for a few nights or a week: if you’ve ever used an agency to find your family a ski condo: if you have ever browsed classified ads and randomly stumbled upon a flat that fit your short-term needs: if you’ve done any of these things, then you’ve already participated in the marketplace. And whether you realized it or not, on the receiving end of your participation sat an investor (just like you and me) somewhere going cha-ching.

Download Your FREE Tenant Screening Guide!

Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.

Click Here For Your Free Tenant Screening Guide

Vacation Rentals are the New Kid on the Block.

From a travel perspective, they’re gaining in traction because they offer cost-effective options for groups (no longer does Uncle Jerry have to rent the entire hotel floor to accommodate his family).

Immersion-wise, rentals provide a more authentic and “local” experience than sanitized hotels, giving travelers the ability to cook their own meals, shop at the local market, and mingle with real-life neighbors.

Rentals are also sitting on the cusp of popularity bringing with them an underground buzz (“We found this amazing rental nobody knows about in Vienna”): which is to say, as a lodging option, vacation rentals are still not entirely mainstream and to a bulk of early-adapter travelers, this makes them indisputably cool.

Investment Benefits of Vacation Rentals

But from an investment perspective, the upsides of owning a vacation rental are even more pronounced…

The evolution of the industry has spawned a new breed of property manager – the Super Property Manager – allowing owners half-way across the country to sleep well at night knowing that everything – from marketing to maintenance to bill pay – is safe, sound, and in supremely capable hands. Armed with strong internet connections, online reservations systems, and remote controlled locks, owners can now do “virtually” everything to keep their rental in tip-top shape from practically anywhere on the globe.

While the ROI of vacation or “short term” rentals can vastly surpass that of traditional real estate returns, herein lies an inherent challenge: finding enough guests to fill one’s vacation rental…consistently. But not to fear: directory sites such as FlipKey (TripAdvisor’s newest vacation rental venture) generate unlimited inquiries for fixed annual fees and similar marketing agencies tend to cap their commission fees at 10-20%.

And it’s not like the properties don’t exist! According to Radius Global Market Research, of the roughly 18.5 million households owning second residences or investment properties in the US in 2011, a mere 3.9 million (or just over 20%) actually rent those properties out to vacationers.

Related: Buying a Vacation Home as an Investment: Fun, Sun, and Income?

Meaning, many investors are sitting on potentially lucrative vacation rentals – rentals that, with some love, would cater perfectly to a massive growing demand – and they don’t even know it.

Have these numbers piqued your interest?

Good! I probably don’t need to tell you much about the vacation rental industry, but I’m going to anyway. This blog series will focus not just on the rapidly-evolving industry as a whole, but also on the myriad of beginner’s resources available online to assist first-time owners in marketing their property and earning maximum returns.

Photo: msprague

About Author

Matt is the Founder of the Vacation Rental Marketing Blog, the largest database of vacation rental marketing articles on the web.


  1. Hello. I have owned a vacation rental company for several years in a small resort town. A couple things your article did not point out: Vacation rentals tend to be really seasonal. For instance, our town is a ski resort community. So we are really busy in the winter, but very little income the rest of the year. Vacation rental owners need to be aware of that. Also, they are more costly to set up and run: Must completely furnish the house, including silverware, dishes, towels, sheets, entertainment, etc. And, the owner must pay all the utilities, which tend to be high because vacationers don’t turn the heat down when they leave. Overall, a very good article, thanks.

  2. We thought about buying a vacation rental, but we love to go to different places and figured we would always feel obligated to go to the place we owned. Plus we really like to be right on the beach and that is pricey.

  3. Good article. We live in southern California where VR are quite common. I have considered turning my Shasta County home into a vacation rental. It’s a large 4600 sq. ft. house with a 2100 sq. ft. guest house, pool, seasonal pond, and 20 acres. Best of all it’s right down the street from a ministry school that draws people from around the world, and host conferences. Also minutes to one of the largest lakes in America, caverns, two of the main lands volcanoes, huge river, and much more! Right now we have it rented month to month. But.. still considering the VR. If I added a large barn type building it would rent for weddings from May-September. However; being so far away it seems it would be difficult, but you’ve given me a new perspective. Thanks!

  4. Hi Matt:

    We had a fabulous vacation rental here in the mountains of North Carolina. It was 20 minutes from downtown Asheville which is a huge tourist destination – 2700 sq. feet – 1200 sq.ft. deck overlooking the mountains and Tennessee with spectacular sunset views every night. Right on the 9th tee of an 18 hole golf course – one of 600 homes on 5000 acres – completely secluded – and part of a ski resort. Amazing!

    Thing is, still very seasonal and takes years to become a “destination” with repeat clients. Also, cost to set up – totally furnished, all the necessary bedding, sheets, towels, etc. as required by the rental/management company.

    Plus, everytime we stayed there, the usual owner maintenance and face lifting to be done. We personally find vacation rentals to be far less, overall, income than home rentals from our own experience and those of our friends.

    • Hey Karen, that’s definitely true that your own personal performance (occupancy rate) is directly proportional to your income. For my subscribers, the shoulder or low season can be a time to promote more ‘summery’ activities, festivals, and offer discounts to local business owners who’ll then refer more guests. I think most destinations have those lulls in the season, but the best owners figure out ways to best leverage that time.

  5. Matt – You really got me to thinking again about turning my house into a vacation rental! Can you point me in a direction to help with doing some kind of financial analysis? Also, is there a site where you can look up a region and see what the average vacancy rates and rents are in an area? Though I know it depends on the quality of the property, amenities, etc.

    • Hi there, I’d recommend you browse the Community Forum by HomeAway ( which has a giant amount of information from owners just like us. Next best thing would be to keep an eye on FlipKey (mentioned in the article) as they do reports on a semi-regular basis that are very revealing into various local markets. For the most part however, the market is so very new that things like “Occupancy Calculators” or other tools you may be familiar with for other types of real estate investments, have yet to be developed.

      • John Todd

        Matt, as this article and your response is 4 years old, are there now calculators available to help vacation rental owners assess a property for purchase or to assess the ongoing financial success of a weekly rental that one already owns? Thanks

  6. Thank you Matt for this informative article. We live in Seattle, Washington and own two vacation rental homes in Costa del Sol, Spain. We figured it would be good to combine our love of travel with our need to diversify our portfolio. While we are half a world away from our vacation rental properties we find it very easy to manage.

    We have previously owned duplexes and normal rental homes in California, and would recommend vacation rentals over regular rentals to just about anyone. If we ever do a bad job of picking a tenant we are not going to be stuck with them for more than a week or two. Out of the hundreds of guests we have had this far there has only been twice were we had to hold back part of the deposit.

    Our vacation rental homes both pay for themselves, and our 25 year loans are expected to be fully paid off in just 9 years. When renting by the month you are lucky if you cover your mortgage and insurance!

    When we first started out we were unsure of how to handle all the different aspects of the vacation rental business, from where to advertise, and how to write property descriptions, to dealing with rental contracts, and collecting money. However, this all became a lot easier after reading guides provided by the rental portal websites (some listed above), as well as the expert guidance by Matt and his vacation rental blog. He has 95% free information, and 5% paid products. Thanks Matt, for making it all so easy!


  7. We have a house in San Antonio that we rent as a vacation rental for the past 2 years. It is a competitive market but we manage to keep it booked more than half the time which is enough to net a small positive cash flow while the house pays for itself. As others mentioned, it is a lot more work than a straight rental. In addition to utilities you have to provide all the amenities like digital cable TV and internet to be competitive. We charge $100 non-refundable cleaning fee for each rental, regardless of lenght of stay. Because you have to wash all the sheets on all the beds plus all the towels, the cleaning can take the better part of a day, so that $100 hardly covers the trouble. Sometimes we hire out the cleaning, but usually my wife just does it.

    We have been using both FlipKey, HomeAway, and for marketing. They all add up to about $1,000/year. By far, we get most of the inquiries through VRBO–so much so that we are going to drop the other two services next year.

    Another thing for investors to be aware of in this market is there are significantly different tax treatments depending if you ever use the house for your own personal use–even using it one day a year means you can lose many tax advantages such as the ability to deduct maintenance and utility costs. So, we strictly rent it out to others and do not use it for personal use.

    Another consideration, depending on your city and state: you likely will have to charge hotel occupancy tax for any stay of duration less than 30 days. In San Antonio, this amounts to 16% on top of the rental fee that we have to collect and send to the city and state agencies. Anything over 30 days is considered a straight lease and you don’t need to collect the tax. All this amounts to extra work.

    I much prefer the monthly renters even though it is less cash flow, and they get a pretty sweet deal with the reduced monthly rate plus the avoidance of the hotel tax. We charge $2000/mo for this 3br/2ba house plus $100 cleaning fee, compared to the rate of $950/wk plus 16% tax plus cleaning fee.

    This is getting long. Sorry if I hijacked your article, but thought folks might be interested in some of the other details.

  8. joe sillaman on

    I own and operate a vacation rental in Haleiwa, HI. Buying that property was the best investment I ever made. Using only VRBO I’ve been able to constantly fill my place year round. But I also put my heart in soul renovating the place to ensure it’s the best rental in my condo complex. It’s amazing what paying a little extra on decor & amenities will get you in vacationer’s attention. Only bummers are high GE/hotel taxes (13.95%) and super high hawaii property costs. It still blows my mind tough, I can manage a successful vacation rental from anywhere in the world without ever having to visit the property! I had many skeptics tell me if was a bad idea before I went with it, and now I get questions about how they can get into it.

    • Agree with you, Joe. We purchased a condo in Kauai and it’s the best thing we’ve ever done. We are looking to add a second one later this year. Only two things I’d add for a new investor: 1) if a condo is being considered, be aware that you are purchasing the condo complex as well as the condo. The financial health of the HOA, what the fees cover, etc, are factors to consider that are just as important as the condo itself. 2) The price point of the condo is important, but also consider the price point of the average nightly rents. A good rule of thumb–one week’s rent during the high season should be at or above your monthly mortgage payment (P + I).

  9. So much information on such a fascinating subject, thank you. We’ve been tossing and turning the idea of turning some of our metro Japan studios into short-stay vacation/business rentals too (the business aspect, if you’re central city located, solves the seasonal issue) – but for us too, at this stage, unless you’re prepared to really “get into it” with decor, added services, and a pretty full-on job renting it out and maintaining it in between stayers, it does seem like a lot of work.

  10. Matt,
    My Wife and I are considering buying a beach house/vacation rental on the gulf coast. We are incredibly flexible in our location but would like something between Dauphin Island, AL and Seaside, FL. This encompasses all different styles of beach community from sleepy Dauphin Island and Seaside to lively and more touristy areas like Gulf Shores and Destin. Our primary objectives are highest rental return for dollar invested (ROI) and to own a place that we would enjoy staying in. Any idea if the return on beach front is better or worse than 2nd tier? I can pull rental rates to get a per week reference but can’t make out whether the beachfront might rent more weeks per year or not. Also, any guidance on which would be better, hip and happening vs sleepy beach town? Obviously, touristy areas like Destin would draw more potential renters BUT you are also competing against a thousand condos for rent in the dozens of high rises. Any particular geographical considerations which we need might need to think about? Does a home in a gated swim/tennis community such as Watersound or Kiva Dunes rent better than a one off on the beach?

    I honestly think that there are opportunities to make a profit all along the coast, but our aim is to maximise out investment as much as possible. I would be interested to get your perspective.

  11. Its easy to own from a distance here on the Outer Banks. The rental companies are well established and understand they have to leave enough money to make it worth while for investors. Our better properties can easily produce $250k in gross rents. Generally, these houses need the expertise of the rental company to market them properly. On the supply side the Outer Banks is in short supply of upscale vacation rentals. That is the heart of demand growth here.

  12. Interesting article. Smart thermostats are a great way to manage your property remotely and ensure that your guests are not taking liberties with the heating bills. As an owner of a vacation home renting it out, heating systems run by smart phones are an essential way of keeping tabs on it and controlling it from afar if necessary.

  13. Thanks for all of the information. My wife and I purchased a home that became a rental when we purchased our second. We are now considering selling one of the two as I have accepted a job in a resort town. Our plan would be to purchase a home in our new location that would turn into a rental when we leave in a couple of years. I’m trying to determine which direction would be best: Vacation rental vs long term.
    I’m enjoying the learning process and appreciate everyone’s input.

  14. I agree that vacation rentals can generate more income than renting it long term but that depends on the type of property you have and your market. My place out here in San Diego gets $125,000 in rents as a vacation rental but would only get about $60,000 in rents as a long term rental. My electric, water, and cable add up to about $4,000/year. My marketing adds up to about $2,500/year. My maintenance and deep cleans adds up to about $5,000/year. Since I manage it myself I don’t have to pay the commissions so I’m still way ahead in rents as a vacation rental versus long term renting it. Great article Matt!

  15. kevin Mays

    Looking at a lake front home in Northern Michigan so I love all the comments.
    How/where do I find out about utilization rates. That is, it’s definitely seasonal (with strong winter and summer seasons), so how can I get an accurate idea of how often it will rent?
    Thanks, great stuff.

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here