As travel trends have evolved, many people prefer vacation rentals over hotel rooms. Comfort, convenience, cost-effectiveness, and privacy make these stays sought after. Not surprisingly, the vacation rental market in the US is thriving. According to Grand View Research, it was worth $17.47 billion in 2023 and is projected to grow at an annual rate of 2.9% from 2024 to 2030.
For real estate investors, a vacation rental can be a strong income generator. However, this is possible if the numbers actually work once demand, occupancy, and expenses are factored in. To avoid overestimating returns, you need to analyze the market and make some strategic calculations. This will help you invest in properties that deliver value over the years.
In this article, we will share a few tips to assess the income potential of a vacation rental property.
Analyze Market Demand and Location
Location is the single biggest driver of vacation rental income. It determines both the nightly rate and how many weeks per year you can realistically book. High‑demand destinations with strong year‑round tourism or extended seasons usually offer more stable revenue than purely seasonal markets. For example, Villas Del Mar rentals offer a glamorous setting for an unforgettable Cabo escape.
Del Mar Los Cabos notes that the Villas Del Mar community is known for resort home designs. With its timeless architecture and master craftsmanship, the area becomes a tourism hub. Investing in a vacation rental at this location is a wise move for investors looking for consistent income and long-term growth.
When analyzing a location, check tourism trends, such as visitor numbers, peak seasons, and major events that attract guests. Next, consider proximity to beaches, mountains, city centers, airports, restaurants, and attractions, as they directly influence nightly rates. Some cities restrict short‑term rentals, require permits, or limit the number of nights per year, which can cap income.
Consider Competitors
When assessing the income potential of a vacation home, you must look closely at competing listings. A “good deal” only matters relative to what guests can book nearby. Strong competitors can justify higher rates if you can match or beat them on quality. Conversely, weak competitors mean you might stand out quickly with the right upgrades.
Expect high competition if you invest in a rental in one of the most popular cities for seasonal homes. Statista data shows that Florida is a summer hotspot when it comes to Airbnb listings, with Kissimmee in the Orlando metro at the top. Davenport, Miami, and Panama City Beach are also popular for rentals.
A crowded venue like this ensures high demand, but the competition will also be stiff. When assessing competition, compare similar listings by size, location, and amenities. Review nightly pricing, cleaning fees, and minimum stay rules. Also, note how often their calendars are blocked or booked. Reading reviews will help you see what guests love and what they complain about. Your goal is to position your property with a clear advantage.
Evaluate Occupancy Rate
A Yahoo! Finance article cautions about the oversaturation of the short-term rental market. Thousands of new investors have entered the market in the post-pandemic rebound, which translates into many new options. Occupancy rate becomes a crucial factor in these circumstances.
You can expect your vacation rental to bring income only if it stays occupied for more nights in a year. To evaluate occupancy potential, you can check historical booking patterns and occupancy for similar properties using data platforms. Note seasonality, as ski towns, beach areas, and festival cities may have very high peak months and very slow off‑seasons.
Model different scenarios, such as conservative, expected, and optimistic, when considering occupancy, rather than basing your purchase on the most optimistic case. Remember that high occupancy is not always better if you have to heavily discount to fill the calendar. This can erode profits and increase wear and tear.
Calculate Expenses
Gross income is only half the story when it comes to determining the income potential of a vacation rental. Bankrate notes that understanding the true cost of a vacation home is essential for investors. Without planning for them beforehand, you may not make enough money through rent to offset your expenses.
You need to list all recurring and variable expenses. Underestimating costs is one of the most common mistakes new hosts make. Fixed costs include mortgage or financing, property taxes, insurance, HOA fees, licenses, and permits. Utilities, cleaning, lawn or pool care, pest control, and routine maintenance are parts of operating costs.
Platform and management fees add up if you outsource hosting. Turnover costs include linens, supplies, restocking basics, and more frequent repairs due to high guest usage. Be conservative and assume higher maintenance, cleaning, and replacement costs than a long‑term rental because of frequent guest turnover.
FAQs
How to promote your vacation rental property?
Marketing significantly influences occupancy and rate for vacation rentals, even for well‑located properties. Strong promotion helps you stand out in crowded platforms and build a base of repeat guests. Set competitive pricing, provide excellent guest experiences, and leverage positive reviews, as they can be subtle ways to promote your rental.
Where do vacation rentals make the most money?
The most profitable locations for vacation rentals are usually those that combine strong tourism demand, attractive ADRs (Average Daily Rates), and supportive regulations. Additionally, markets with consistent year‑round or long seasonal demand often outperform purely weekend‑driven areas.
How to determine if an Airbnb will be successful?
A successful Airbnb usually meets three conditions: strong underlying demand, a property that fits what guests want in that area, and solid operational execution. To evaluate a specific property, study location data, competitor statistics, and historical patterns. If the numbers remain attractive under conservative assumptions, an Airbnb rental has a chance of long‑term success.
Vacation rentals make an ideal investment option for new real estate investors and seasoned ones looking for diversification. However, to make the most out of rentals, you must assess their rental potential in the first place. After all, that is how you can generate revenue from the property to cover operational costs and make profits. Following these steps can help you get a fair idea and proceed wisely.
