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Side Income Stream Idea: Vacation Rental Property

2013 May 20

aaron_image1Charlie and I are big proponents of passive income or side income streams. In other words – creating alternative revenue sources to your current full-time gig. Over the coming months – we hope to provide you with some more side income ideas that you can chew on or possibly implement into your financial picture should they match your goals or passions.

One such idea that I would love to put into action someday is vacation rental property. I’ve talked before about our owning a rental property (and the joys and pitfalls of being a landlord) – but I think there is a whole ‘nother untapped market that is growing in popularity with vacation rentals. 



According to HomeAway - which is a big online connector of vacation rental property owners and vacationers – there are  6.1+ million vacation homes available to rent in the US and Europe, generating $85+ billion in annual rental revenue. Other interesting facts they cite include:

  • Traveler demand for and awareness of vacation rentals listed on HomeAway’s sites have continually increased. In 2012 HomeAway websites attracted approximately 600 million website visits, according to internal metrics (an estimated increase of 22.1% year-over-year).
  • According to a recent HomeAway survey, 73% of multigenerational travelers say they prefer the space of a vacation rental.
  • In terms of personal preference, the same survey found that 80% of travelers agreed that staying in a vacation rental has helped reduce their stress on vacation.

Added to that – in some markets – traveler demand (property inquiries) outpaces inventory (vacation rentals) growth. Some of those properties (where demand outpaces supply) are:

  • Honolulu – 258% inquiry growth versus 140% property growth  (This is probably no surprise)
  • Nashville – 80% inquiry growth, 15% property growth
  • Newport Beach & Balboa Island area, California – 72% inquiry growth, 36% property growth
  • Anaheim – 70% inquiry growth, 39% property growth
  • Sanibel Island, Florida – 133% inquiry growth, 90% property growth

My experience with vacation rentals

Last year, my immediate family used VRBO (a popular HomeAway website) to find a vacation rental property we could use for a week. We were able to contact the owner of the property, view pictures of the rental and reserve it through the website. It was all very easy to use and the property turned out to be even better than we had envisioned it would be.

rent a vacation propertyTwo beautiful things about rental properties (from a vacationer’s point of view) is that you have all the amenities available to you at your disposal and you can reserve a property that fits your budget and vacation wants.

I would take a vacation rental over a hotel or motel stay any day – and they are often very comparable in price.

Pros and cons to owning vacation rental property

Obviously – you don’t want to go this route if you are still heavily in debt and living paycheck to paycheck. But, there can be some real advantages to owning vacation property. Among them:

  • If you own in a high-demand area, you can often get top dollar for the rental
  • Renters will help pay your mortgage (if you don’t own out-right)
  • You can use the property for your own vacations
  • If you live farther away from the property, you can hire trusted locals or a management company to care for the rental
  • All of the booking and scheduling for the rental can be handled by websites like HomeAway.com and VRBO.com

With the pros – there are also some cons that you’ll want to be aware of:

  • Unexpected fixes and repairs do happen with any property – you’ll want to be sure you have some savings that can cover these
  • You will be taxed on the income you receive from renting
  • Income can be unpredictable (especially during “off-peak” times)
  • May require more time and attention than other side income streams

All in all – I think owning and operating a vacation rental property would be a fun side gig if you had the time and resources. I’m curious about your experience with vacation rentals – and if you own a property yourself? Any insight you can offer others who might like to own someday?

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Aaron

Helped start Three Thrifty Guys with his friends Charlie and Mark after being inspired by how they lived their lives “on the thrift”. A designer by day, Aaron was once $40k in debt. After 5 years – he dug himself out and lives to tell about it. Aaron also blogs at the StarTribune

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8 Responses
  1. Eric permalink
    May 20, 2013

    I bought a condo in 2011, and am now looking to sell it due to maintenance issues and being sick of the other owners in the building.

    Before you buy, ask if there are any large maintenance expenditures coming up with the building that could drastically increase HOA fees in the immediate future, like new roofs or any structural work the building might need. Ask the owner when the annual homeowners meeting is, and see if you can attend it as a guest before you make an offer. You want to know if the board has a good relationship with each other, and if there are any issues that they don’t agree on. The last thing you want when you lay out a significant sum of money for a property is a dysfunctional board.

    • Aaron permalink*
      May 20, 2013

      @Eric – Great insights – thx!
      @Michelle – Really? I would think anything in Hawaii would be pretty pricey
      @Alan – Yeah – the issue with the vacation rentals is just what you say – they may be only to make money during peak season
      @Grayson – I think a management co. is a good way to go – esp if it isn’t close by

  2. May 20, 2013

    This is something that we have been thinking about A LOT lately. We looked into buying a vacation condo in Kauai and the prices were not that bad.

  3. May 20, 2013

    My parents own a vacation rental property at a beach near us. At some point I would love to do this as well. I would however prefer to get a regular rental property as it will provide side income throughout the year and not just summer months. I guess if you have a home in a warm climate area that isn’t a real concern.

  4. May 20, 2013

    While I have been in quite a few vacation rentals, I don’t know if I would want to own one. I might be tempted to purchase one, but then have a management company run it. It would depend on the returns that I could see and where it was located, of course.

  5. May 21, 2013

    We often think about using our current home as a vrbo home someday. You could make SO much more money than if you just rented it out the regular way.

  6. May 29, 2013

    Late last year we decided to purchase several home in the Las Vegas market for the purpose of short term vacation rentals. The timing was great as the prices were reduced drastically, interest rates were low and our cash sitting at the bank was making very little interest. Definitely good idea to research HOA regulations prior to purchasing. We are long distance owners however this hasn’t been a problem because of the ease of booking online through VRBO. We have a local cleaning and maintenance crew. So far we are managing the properties ourselves and it appears to be a great investment.

  7. June 5, 2013

    I live in the Austin area where Homeaway is located and there are many properties in the area that are rentals for short periods of time. The are some major events where people can get thousands of dollars for just a few days rental. If you are a good property owner and attentive to your clients needs, you will get some good feedback on and will never have to worry about finding renters.

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