The height of the pandemic was a bad time to be a vacation rental property owner. Travel ground nearly to a halt, and many of these properties sat vacant for months. Fortunately, things are looking up, and vacation rental investors are poised to have a fantastic year. If you've been considering purchasing a vacation rental property, this could be a great time. Your biggest obstacle now is probably the current housing market, with low inventory and high prices.
So, to help you decide whether a potential vacation rental property you find might still be a good investment, let's give you an idea of how much passive income you can expect to make as an Airbnb host.
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Pay attention to the trends
While vacation properties across the board are doing quite well now, a few recent trends have emerged that could make your rental even more popular -- and, therefore, more profitable -- if you embrace them. More people are working remotely now, and many of them are taking advantage of the opportunity to work from desirable travel destinations. You can attract these travelers by having a dedicated workspace on your property.
Unique experiences are also highly desirable right now. Airbnb has even created an offbeat homes category to help guests find these types of properties more easily. You can make the most of this trend by considering a property with a special history or unusual or unique design features or even creating a theme of some sort for your property.
Get help
We're talking about passive income here, and there's definitely nothing passive about managing a vacation rental property yourself. From taking care of the cleaning and turnover to responding to guest issues in a timely manner and coordinating the maintenance and repairs, it can all be a lot of work.
That's why if it's passive income you're after, you'll need to hire a property manager. Property manager fees can vary widely, but 25% to 30% is about the average for a vacation rental. A good property manager will help keep everything running smoothly and can be well worth the expense, but you'll need to keep this cost in mind when determining how much you can make as a host.
So, just how much passive income could you make?
Now that you understand how hot vacation rentals are right now and a few of the trends you can take advantage of to make yours even hotter, let's jump into some actual dollar figures. According to short-term data analyzer AirDNA, short-term rentals hit their highest average annual revenue ever in 2021 at $56,000.
This figure is expected to drop about 5% this year, as supply increases and rates decline, but stabilize and increase yet again in 2023. Of course, your number will vary based on the desirability of your property, which will determine how much you can charge and how low you can keep your vacancy rate.
Since we're talking about passive income here, we'll need to subtract the property management fee. Going with the higher end of the range to get a more conservative revenue number, we find that at 30%, property management fees would take $16,800. This would leave you with an average annual revenue of $39,200 (using last year's revenue as a middle ground since the next two years will likely be a bit down and then up).
That's not bad at all for a passive investment. If you've been considering getting into the vacation rental property game, consider exploring this option further to see whether it might be the passive real estate investing opportunity you're looking for.
