5 Things No One Tells You About Owning Vacation Home Rentals

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Owning a vacation home can be a great investment opportunity, but it is one that does have some risk associated with it. Before you ever purchase a vacation home, you should do your homework and plan accordingly. Here are 5 things that can go wrong when owning a vacation home.

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5 Things No One Tells You About Owning Vacation Home Rentals

Annual Returns Can Go Negative

Oftentimes vacation homeowners are faced with a negative annual return especially if they had a down year for bookings or if they had a major repair. Before you ever purchase a vacation home, you should look at all the monthly bills associated with the property and be comfortable enough with the total amount that you could pay on these bills even if the vacation home did not bring in any money.

Just in a few recent years, we have had a terrorist attack on American soil and the second worst financial disaster in the history of our country. These two events had a major impact on people traveling and the amount of disposable income they have to spend on vacations.

The second thing you must research before you buy a vacation home is to figure out the average nightly rate guests are willing to pay for a similar property and how many nights a year the property should be occupied. Once you have these two figures, you can easily find out how much income the property will bring in on an annual basis. When you compare the income to the monthly expenses, you should have a positive cash flow. If not, I would think twice about purchasing the property.

Related: 5 Expert Tips for Managing Your Own Vacation Home Rental

You can find most of the information you are looking for by asking your realtor, property managers who manage properties in the area, and by calling homeowners who list their properties on VRBO.com.

You May Not Be Able to Visit as Often as You’d Like

Life has a funny way of jumping in and keeping us from doing things we really want to do. I can’t count on my hand how many times homeowners have told me that before they purchased a property in Orlando, they visited 3 or 4 times a year. Then after they purchased their vacation home, they never seem to be able to break away and visit. You oftentimes find this as kids get older and get into sports or other activities that seem to eat up your weekends.

Repairs Can Come Up

You will need to put money back into your property every year to keep it up and maintained. The National Realtors Association estimates that you should budget for 1.5% of the cost of your home to be spent on repairs and general upkeep every year.

So if you purchase a $200,000 vacation home, you should budget to put $3,000 back into the property every year. Now, if you are renting your vacation home out to short term renters, you might need to budget a little more. Guests may not treat a vacation home as nicely as they would their own house.

HOA Dues Always Go Up

If you purchase a vacation home in a community that has an HOA ,the dues will always go up. In all the years that I have been managing vacation homes, I have never seen an HOA reduce their monthly or quarterly dues.

Related: 8 Clever Ways to Save BIG on the Monthly Bills for Your Vacation Rental

Vacation Homes Do Not Always Increase in Value

Just as we talked about before, when we have a huge natural, manmade, or financial disaster, investors get scared and sell their investments. This is what happened in 2008 and 2009. Too many vacation homes flooded the market, and the price on the houses plummeted. Many people were not able to sell their vacation home for anywhere near the price that they purchased it, and this caused many houses to go into foreclosure and some houses to be sold as short sales. The longer you hold onto a vacation home, the better chance you have of making money on the property, but buying a vacation home is not a surefire money maker.

Owning a vacation home is a good investment if you do your homework and research. Many people rush to buy a vacation home for the simple pleasure of just saying they own one. Take your time; buying any good investment is a marathon, not a sprint. Don’t be afraid to walk away from the property if you are not totally comfortable.

If you own a vacation home, what have you learned over the years? What are some things that have gone wrong that you wish you’d been warned about?

Don’t forget to leave a comment below!

About Author

Trey Duling

Trey Duling has been managing and marketing vacation homes in the Orlando and Disney World area since 2001. His passion is helping investors make their vacation homes more profitable. Please visit his website at http://www.orlandovacation.com/home-rentals/.

26 Comments

  1. Craig Pfeffer

    Enjoyed your article. The biggest mistake I learned was not understanding real estate cycles. I bought a vacation condo on the beach in Destin, FL a few years before the market crash in 2008. Real estate values were near their highest when I purchased the condo. I didn’t understand at the time that the bubble could burst and values plummet. Where I live, values don’t change much even with a market crash. Therefore, my investment lost 2/3’s of its value at the time of the crash. It has come back some, but still is currently only worth 1/2 of what I paid for it. Costly lesson, but we all learn from our mistakes. As Donald Trump states, “You learn more from your failures than you do from your successes”.

  2. Karen Margrave

    Perfect timing! We live in Orange County, CA, and are building homes and condos in the coastal areas. My thinking is that they would make great upscale vacation rentals, and if by chance there were a down market, they could rent to cover the mortgages. In addition, the appreciation coastal properties gain is an added bonus too.

    I have looked around trying to figure out what the income could be, vacancy rates, etc., but cannot find any definitive information. I have looked online at various VR sites, and also look at what hotel rooms in the area go for per night. Do you have any sites you know of where the information is available to come up with numbers?

    • I bought a vacation home in Warm Springs, GA 7 months ago. I did research for two years and took advantage of a depressed real estate market and low interest rates. I made sure that there was a draw to the area, but that there wasn’t too much competition. My husband and I did a lot of the work on the house. It is a cute historic cottage that sleeps eight. We kept our goals realistic and we have had a good Winter season. It is important to know your market and to be able to cover expenses if it doesn’t rent.

    • Hi, Karen –

      We do a lot of analysis before putting properties up for rent to make sure rates are competitive, and frankly you’re already doing everything we’d advise an amateur to do. If you want even more precise results, you’d generally need to hire an expert who has larger data banks to pull from and has observed the industry over time.

      That said – if you’ve investigated similar properties on listing sites and hotel rates in the area, you’ve probably got a fairly good idea of the price an average nightly rental can command. It’ll vary depending on the quality of the property and any amenities that are very popular – for example, a 3-bedroom house with a pool can command a higher rate than a similar 3-bedroom without one. It sounds like you’re still considering what type of home you’d like to buy, so it may be worth putting in some time to check out homes with and without various amenities so you can see where you can get the greatest return for the smallest up-front investment.

      Hope that helps!

  3. This is very informative content . i would like to read this content to remove common error which are raise at hire vacation home rent services. so thanks for sharing this excellent tips as guide line of vacation error.

  4. Wi focus only on what can go wrong. We have design and completed on a Turnkey numerous personalized vacation homes which our clients love and keep for many years, we have a 20 year one and a 15 too. I guess for very wealthy people, it works.

  5. It\’s good to know the inside details about owning a vacation home, especially about the part that you need to maintain even when not using. Vacation home get away\’s are so common these days for people to get away and relax. I guess that\’s why renting them out is so much better, so you don\’t have to deal with the maintenance. My wife and I were looking into going half and half on a vacation home. Thanks for posting this article because now I think I\’m better off just renting it.

    • Astrid Lindstrom

      Well, there are pros and cons either way!

      A short-term vacation rental requires more regular maintenance, because you have to clean the property in between guests. But they do command a much higher nightly rate, so usually anything over a 50% occupancy rate will be more profitable than renting long-term and full-time. Your cleaning fees are usually added on in addition to your nightly rate, as well, so you’re not paying out-of-pocket for that maintenance.

      As for maintenance such as repairs to the property – well, you’re on the hook for that whether you rent short- or long-term. That’s the owner’s obligation regardless.

      The advantage of long-term renting is that you don’t need to worry about keeping your calendar booked or arranging for housecleaning services – it’s lower effort, overall. But considering the vastly higher profit and the fact that you can get services to take care of the booking/management on your behalf for a low fee – it can still be worth it.

      Hope that information’s helpful!

  6. dawn Young

    Our homes are in an area with some tourism, but not a lot. There are a few vacation rentals around here, and they get bookings, but only the holidays are booked in adance, and wine season, which is only a couple of months. Is it even possible to make an income on a vacation rental in an area like this? with a year round rental we’d net around 4800 after all expenses, but there’s always the risk of someone totaling the place, and making $0. I “think”, from my research, we could get 200/night, at least on the weekends as a vacation rental, but I have no idea what to expect as far as consistancy of bookings. We’d like to sell this house, and while waiting for it to sell, stage it and rent it as a vacation house. (showing it when its not booked). I live right next door, so cleaning/managing would be us. We are not ok with just clearing expenses, this is a business, and we need to turn a profit.

    • Astrid Lindstrom

      Hi, Dawn –

      Hope it’s not too forward to suggest, but analyzing what homes can and can’t be successful as vacation rentals is what my company does. If you’re interested in a consultation (free, natch), I’d be happy to hook you up with one of our people directly and they’ll help you figure out if your goals can be met in your area.

      I’ll be honest with you – not everyone can be profitable as a short-term vacation owner. It is, as you seem to be aware already, dependent on your area and how many travelers are looking, as well as the type of home you own. At the very least, though, you’d probably walk away from the consult with much better numbers on your possibilities in short-term vs. long-term.

      Just drop me a reply if you’d like that phone number. Would love to help if I can.

  7. Vacation home is a wonderful business. I have a friend who also had the same business but what he did was clever enough to expand his resort. he’s a bank manager and also running a vacation house at the same time. He’s slowly expanding and adding his vacation house from the rental money. The resort was also located at the beach front which is a great advantage for him.

  8. This is an excellent post – I like how you don’t just talk about the negatives of owning a vacation home, you also offer tips on how to make sure it is a good investment. It’s really important for anyone buying a second home, whether that’s in the USA or abroad, to think carefully about whether they can afford it, but as you say, vacation homes are a good investment as long as you are sensible and do your research. Of course, there are plenty of positives to owning a vacation home, but potential buyers need to be aware of the negatives too.

  9. natalie williams on

    Hii, I really enjoyed your article. a lot of useful information is given here. We have a property like this in which everything is provided. For our guests comforts, we provide everything from basic level to advanced. it has three spacious bedrooms, kitchen with all branded utensils, updated bathroom and two large balconies. I have listed this property on vacation home rent property. You can easily book from here at discount rates.

  10. Wendi Bullard

    I currently own a well appointed 3 bedroom cabin/log home in the Blue Ridge, Georgia mountains just 2 hours North of Atlanta. The home was purchased as a vacation home and our family has enjoyed our many vacations over the years. As my kids head off to college one by one and spend more time in organized sports, we get up there less each year. I’m at a crossroads in whether to sell the home (it is paid for) or to turn it into a vacation rental. Any guidance would be greatly appreciated.

  11. These are all things I wish someone had told me before I bought my beach home. It wouldn’t have changed my mind but I would have had a smoother transition had I been aware of what to expect. The repairs that go along with a house I hardly ever used were a bit overwhelming at first.

  12. We are hoping to get a vacation home on the beach. It\’s just four hours from my home, so I don\’t worry about not being able to visit. However, I will end up renting it out to people. You\’re right, damage can occur and they will need to be repaired. I just hope to find a place that\’s stable and will be able to take a hit if there happens to be a hurricane.

  13. I was just planning on using the vacation house myself. So, thanks to your advice, I will now be considering renting it out to visitors to turn this investment in entertainment into an investment into my wallet. Thanks for your tips on calculating nightly rate and nights a year to rent it. I would imagine that location of the home would effect these factors so I will be sure to pick a good spot.

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