How to Make Money on a Vacation Rental Property

Everyone loves to vacation. When work weeks seem to routinely bleed into the weekends, and emails ping from morning until night, these rare instances of free time are moments to unwind, recharge and have fun.

But in the last several years, millions of people are increasingly embracing vacation time as a business opportunity.

As Airbnb has grown from a small San Francisco startup into a global hospitality brand and inspired other short-term rental companies to emerge, the chance for one group to take time off has become a way for another group to make money.

There are stories of rental owners making millions per year, and other instances of rural areas becoming travel destinations. Vacation homes that may have previously sat empty for months are now being seen as a way to increase retirement savings, pay off debt or save for college.

The average Airbnb host makes about $920 a month, according to one study by Earnest.

This shift in how we see vacation stems from the Great Recession and is enabled by new technology. According to a 2018 study by vacation rental site HomeAway and real estate firm Savills, it's also fueled by people prioritizing monetary returns on their investment properties.

So if you've been considering buying and operating your own vacation rental property, there are some important things to learn in order to be successful.

Kathy Haynes, the owner and manager of OC Vacation Properties, currently rents out vacation properties in Southern California.

"We began renting our short-term properties in 2015, and we're projected to be at a 90 to 95 percent occupancy for several years in a row. I like to believe we've created a good product, and we're doing something right," she said.

Read Haynes’ insights on what to look for in a property, how to design it and how to maximize profit.


Qualities of a Highly Profitable Vacation Rental

As with your primary residence, the classic real estate trope of "location, location, location" is mostly true about vacation rentals, too.


According to the HomeAway and Savills report, California and Florida dominate the vacation rental market due to attractions like beaches and theme parks. That's exactly what drew Haynes to the Southern California community of Anaheim: She wanted to appeal to Disneyland travelers.

"In my opinion, location is key," she said. "We wanted guests to be within walking distance to the parks and convention centers."

Choosing a property within a desirable city – which are the hubs of most vacation rentals – is easy enough to remember, but it's also important to pick one in a safe neighborhood.

Haynes noted that guests should feel comfortable wandering the area throughout the day.

Renovate – Don’t Build

If you're thinking about building a property to be a vacation rental, Haynes advised against it. Costly new building is more time-consuming than renovation and can delay profit.

Consider buying fixer-uppers on large lots.

"We added pools and spas to most of our homes," Haynes said. This addition not only increases your per-night rate but also puts your properties on par with hotel amenities.

Check City Regulations

When you think you've found a desirable location for your property, check the city's ordinances about vacation rentals – some prohibit short-term rentals, where others have a required minimum stay or additional taxes, so familiarize yourself with the logistics of owning a rental in that area before making a down payment.


Make the Property Marketable With Design

Once you've chosen a vacation rental property, you may need to do some renovations or simple design upgrades.

Research and Plan

Research and secure a trustworthy vendor to do the construction, and to work with the city to secure the necessary permits.

"The city of Anaheim gave us a maximum occupancy based on the number of bedrooms in the home," Haynes said.

Given that stipulation, Haynes focused on creating an open floor plan with large common spaces to accommodate groups.

Bring a Clear Vision

She also considered how loved ones would spend their time together indoors, imagining them eating, playing games and watching movies. That vision dictated her design.

Clean, modern aesthetics tend to be popular across renters. And photos will often be the determining factor in whether or not your rental gets booked.

"Find the positive attributes in the home and enhance those with a timeless, fun design," she said. "But also create a realistic budget and prioritize what needs to be done — make paint your friend."

Bring a clear vision to your vendor before construction begins. Be willing to roll with the punches, as designs and timelines often change.

"I encourage you to expect the unexpected and don't sweat the small stuff," Haynes said. “These are clichés, I know, but they're words to live by in this type of business."

Hire Professionals

If you've decided to run this vacation property yourself, consider hiring:

  • A professional to write your online ad
  • A photographer to shoot exterior and interior images


Finishing Touches for 5-star Reviews

Once your home is ready for guests, do one thing before putting it online: Be a guest yourself.

It's easy to forget the details when you're worried about the bigger picture – like a towel rack in the bathroom when you're focused on water pressure – but you'll likely spot these deficiencies if you treat yourself to an overnight stay.

"I put myself in the position of the guests," Haynes said. "I think about making the best first impression and always staying true to high standards."

Here are some tips to make your home comfortable:

  • Look out for missing locks or mysterious drafts
  • Check for windows that stick to the frame and missing lightbulbs
  • Stock kitchen cabinetry with clean cookware and easy-to-find utensils
  • Test for reliable Wi-Fi and high-definition entertainment options
  • Place an array of books and board games nearby
  • Pay attention to how comfortable the beds are

"A comfortable bed is one of the most important factors," Haynes said. "We also keep in mind that 'comfort' can mean something different to everyone, so we provide a variety of mattresses and pillows."

Consider creating a "welcome package" that shares important information guests should know about the home upon arrival to make them feel at ease.

And don't forget about some final important things:

  • Seek out a dependable cleaning service and maintenance crew
  • Secure a short-term rental insurance policy
  • Inquire about taxes you may need to collect


The Takeaway

vacation property makes you a business owner, so you'll have to play the part.

Being smart about even the small details will go a long way toward earning your vacation rental 5-star reviews, which helps you increase your occupancy and nightly rates.

Invest in your neighbors, the community, and the guests once your property is on the market – your life will be richer for it," Haynes advised.

This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented, taking into account your own particular circumstances.