Calculating the profitability of a vacation rental is key to making a decision about the acquisition of a property as a long-term investment
Vacation properties are a great attraction for investors and are usually much more suitable than many other investment options on the market, especially for those looking to grow their wealth and keep their finances much healthier and more stable, they can definitely opt for investment in vacation properties as your best option even in times of recession.
And although it is the best option to invest your money, it is necessary to carry out a precise calculation of the yields of vacation properties, this is because not all properties are equally profitable, because in addition to the location, facilities and size of the property, It is important to analyze the economic aspect of the investment.
The profitability of a vacation property will depend to a greater extent on its location, having a higher rate of return in tourist areas. You should also keep in mind that this type of investment is highly seasonal compared to other long-term rentals.
Click here to learn everything about the holiday seasons before investing in tourist properties
Acquiring real estate and then renting it out is one of the most successful ways to invest in real estate, since you get extra income on a fixed and constant basis. The profitability of a vacation property has an average of 15% net per year, below we explain the main aspects that you should consider to determine the rental price and that influence when calculating the profitability of your vacation property:
Aspects to take into account in a vacation property as an investment
Cover your fixed expenses
You must take into account the minimum price you need to cover the fixed property costs. It is important that you know them so that you can successfully establish the vacation rental price and this estimate will help you to define the price you need to generate a real income from your property.
Make a forecast of the stay
The stay of each guest can be longer or shorter and this will depend on the holiday season. It would be advisable that you have a forecast of the days that you will have rented the property per month,
Increase load factor
Generally, tourist properties become much more profitable than a conventional property from an occupancy rate of 60%, so everything above that figure will translate into higher profits. To increase the occupancy factor, you must accept cheaper stays, which is better than having the property empty and still generating maintenance costs.
Check out the competition
An excellent tactic is to find out about the average price of other properties around, check very well what type of accommodation they offer and their general characteristics.
Offers added value
Offering added value to your vacation property will make the difference between the rest of the vacation rentals, look for what the rest of the properties lack to take advantage of it to your advantage and thus obtain an advantage. From a personalized welcome detail, to special attention or allowing pets.
Formula to calculate the profitability of your vacation rental
Now that you know the basic and most important aspects that you must take into account to establish the rental price, we will tell you how you can start calculating its profitability. It may look a bit complicated, but the reality is that it is easier than you imagine.
From the monthly income you must subtract the expenses generated by the property and for which the tenant is not responsible. For example:
Monthly income: $720 USD
– Monthly expenses: $108 USD
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Cost effectiveness: $612 USD
And how many nights would you have to occupy a vacation rental to equal the monthly income in the example above?
The answer is obtained by dividing those $720 USD by the price per night that you choose. For example, assuming you charge $41 USD per night:
$720 USD / $41 USD = 17.5 nights
After 18 nights with occupancy, the profitability would be higher as a vacation rental. If you charged $62 USD, we would need 12 nights.
$720 USD / $62 USD = 11.7 nights
If you manage to occupy this property for 25 nights, at $62 USD per night:
Monthly income: 25 nights x $62 USD = $1,550 USD
– Monthly expenses: $108 USD
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Cost effectiveness:$1,442 USD
Analyzing the profitability of a vacation home will help you better visualize your investment process, so it will become a key point for a secure future.
We invite you to visit the official ANCANA website to see all the properties available to purchase a vacation property as an investment.
Owning a vacation home has never been this easy.
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