The idea of owning a vacation home can make anyone excited, especially when there’s the possibility that the mortgage could be paid by renting it out to guests during peak times. However, you may be surprised to know this isn’t possible for many vacation home owners.
Gaining ownership of your potential vacation home is just the first step. Turning it into a business can be very expensive in operating costs alone. According to Zillow, it can account for 60% to 75% of your total revenue. This means that if you charge $150 per night and manage to keep it booked for 30 days out of the year, you may only see $1,800 to $1,125 of revenue each month after expenses.
You may wonder why a rental property is so expensive in operating costs. Unless you have assistance, you’ll need to take care of answering calls, advertisement, furnishing, replacing items that are stolen or destroyed, processing payments, paying bills, and so much more. Most rental properties also require you to purchase insurance and make repairs immediately. This means that every lock, appliance, and item must work in optimum condition for you to rent out the accommodation.
While the amount may vary quite a bit, Zillow suggests that after paying for all of these operating expenses, you’ll see a negative return on investment of around 10%. The information is based on a San Diego vacation rental at Mission Beach, so another location could very well see profits.
In optimum conditions, you’ll have your vacation rental filled at all times that it’s available. Unfortunately, that isn’t always the case. It isn’t rare for guests to back out and cancel their accommodations because they can’t make it or have changed their minds about the vacation. Whatever the reason, that leaves you without someone to fill the room and keeps you from receiving profit for the night.
Even though you didn’t manage to book any guests, you’ll still have to pay for some of the operating expenses, such as HOA fees, property taxes, insurance, and other monthly expenses homeowners must pay.
Overall, it’s impossible to answer whether your property can make enough profit to pay the mortgage if rented out as a vacation house. Every location and property is different and has its own potential. For every story of someone not being able to pay for their mortgage through a vacation rental, there’s another with someone saying they managed to do so and make a profit. Either way, it’s risky to pay for a vacation home because it’s impossible to determine whether guests will flock to your house.
Most people who have attempted and managed to pay their mortgage using the return on investment from their vacation rental state that it was tough and required lots of work toward maintenance, advertising, and checking guests in and out.