Investing in Vacation Rentals – Quality Over Quantity for Bigger Profits

on May 15, 2024

When it comes to investing in vacation rentals, Ben Earley, Co-founder and CEO of the multi-national hospitality brand, Holt, applies the same principles he used when he built profitable portfolios for clients in his previous life as a hedge fund manager.

In this post, the seasoned investor who created a successful portfolio of upscale vacation properties across the US, Mexico, and Romania, shares some of his most valuable vacation rental investment advice. You will learn how to create or grow an upscale portfolio and why investing in fewer, higher-quality rentals is better than managing a larger number of average ones.

Ben previously worked for JP Morgan and also built an e-commerce brand, before starting in vacation rentals. At the time, he had no idea this hobby would lead to his future career.

VR investment lessons:

Set the right goals for your vacation rental investment strategy
Demand higher rates for higher-quality vacation rentals
Simplify operations when investing in vacation home rentals
Position yourself as a premium brand is the best vacation rental strategy
Approach vacation rental portfolio growth in a focused way
Use technology to manage your vacation rental portfolio
So, is a vacation rental a good investment?
Vacation Rentals Investment FAQs
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Set the right goals for your vacation rental investment strategy

Investing in upscale short-term rentals is a vacation rental strategy that not only attracts a high-end clientele but also ensures sustained revenue growth, says Ben. This focus on quality over quantity enables investors to command higher average daily rates and achieve better overall occupancy, especially in sought-after locations.

Demand higher rates for higher-quality vacation rentals

Investing in upscale vacation rentals involves assessing financial metrics that go beyond simple profitability. Ben points out the importance of targeting properties that can command a high nominal price.

He says: “It is much, much easier for someone else to pay you a very high nominal rate rather than hundreds of people to pay you a low nominal rate to create that business.” This approach significantly enhances the cash-on-cash returns, making it a compelling reason for investors to consider upscale properties.

Simplify operations when investing in vacation home rentals

Managing fewer properties but of higher quality also simplifies operations, from maintenance to guest management, and allows for a more focused approach to customer service and branding. “You have more flexibility in advertising spend, you have more flexibility in what you’re able to pay for to create that sale,” says Ben.

Such operational efficiencies can lead to stronger brand recognition and customer loyalty, which are crucial for sustained success in the vacation rental market.

Position yourself as a premium brand is the best vacation rental strategy

Investing in high-quality vacation rentals isn’t just about the immediate returns. It’s about setting up a business that thrives on exclusivity and premium offerings.

“I’ve always targeted upscale, and I’ve always targeted a high nominal price point. And that is, from previous experiences in e-comm and other businesses, watching friends with very successful businesses, but low price point products struggle to create traction.”

This strategic positioning helps in cultivating a brand that is synonymous with exclusivity, attracting guests who are willing to pay a premium for unparalleled experiences.

Approach vacation rental portfolio growth in a focused way

Investing in upscale vacation rentals not only focuses on the properties currently held but also strategically plans for future acquisitions. Ben’s approach emphasizes the importance of carefully selecting each addition to the portfolio, aiming to balance the operational demands with potential revenue.

“When assessing the suitability of a short-term rental deal, my first consideration is price per night. What am I going to make from this property? And because we already have an idea of fixed and variable expenses, it’s much easier to base those expenses on something that’ll create a higher nominal nightly rate than not. If you don’t, then you’re constantly having to push the envelope on occupancy. We judge each market looking at what occupancy we have to achieve versus price per night.”

What sets Holt apart from other vacation rentals, is that they develop the properties they manage. “We develop our properties. We renovate, we furnish, and prepare the properties ourselves for us to manage, which is rare in our space.”

Use technology to manage your vacation rental portfolio

Technology plays a crucial role in efficiently managing upscale vacation rentals. From automated booking systems to customer relationship management (CRM) tools, technology enhances guest experiences and streamlines operations. Ben’s integration of tech solutions helps maintain his properties’ high standards and operational efficiency, ensuring each guest’s experience aligns with the brand’s upscale reputation.

“Through our partnership with Superhog, we communicate to guests early on in the process that the rental is not a place to play around. Collecting IDs, taking selfies, the things involved in the Know Your Guest process for Superhog, along with strict communication about expectations are important to make guests understand the seriousness of the relationship. They are renting an incredibly expensive asset and should not expect a one-click transaction .”

So, is a vacation rental a good investment?

Investing in upscale vacation rentals offers a promising avenue for those looking to diversify their real estate portfolios with high-return properties. As Ben Early’s experience illustrates, focusing on quality over quantity not only enhances operational efficiency but also positions the brand in a niche market segment that appreciates luxury and exclusivity. For potential investors, the upscale vacation rental market demands attention to detail, commitment to quality, and strategic planning, but the rewards can be substantially higher compared to traditional rental investments.

By adopting a focused approach as demonstrated by short term rental industry experts like Ben, investors can achieve significant success and establish a strong presence in the competitive vacation rental market. The key takeaway is clear: upscale vacation rentals are not just a good investment; they are a strategic choice for long-term financial growth and brand development.

Ben’s strategies and insights provide a roadmap for anyone interested in investing in vacation rentals, particularly those aiming for the high-end market.

Vacation Rentals Investment FAQs

Are vacation rentals a good investment?

Yes, vacation rentals can be an excellent investment. They often provide higher rental yields compared to traditional long-term rentals, especially if located in popular travel destinations. Upscale vacation rentals, as highlighted by Ben Early in the article above, attract high-paying guests and offer the potential for significant returns due to their premium pricing and lower vacancy rates. The key is selecting the right location, understanding the market demand, and providing exceptional guest experiences.

How to scale a real estate investment business

Scaling a real estate investment business involves several key steps:
Streamline Operations: Utilise technology and systems to manage properties efficiently.
Secure Financing: Explore different funding options to fuel growth, such as mortgages, private lenders, or real estate investment groups.
Acquire Properties Strategically: Focus on acquiring properties that fit within your business model and market niche, considering factors like location, potential ROI, and alignment with your brand.
Reinvest Profits: Plough back profits into acquiring new properties to expand your portfolio.
Build a Team: As your portfolio grows, building a reliable team to handle operations, guest relations, and property maintenance becomes essential.

What does cash on cash return mean in real estate?

Cash on cash return is a rate of return metric in real estate that calculates the cash income earned on the cash invested in a property. It is determined by dividing the annual pre-tax cash flow by the total cash invested, providing investors with an analysis of the profitability and cash flow of an investment property. This metric is particularly important for vacation rental investors to assess the performance of their properties, as it reflects the actual cash return on their investment.

How much to invest in vacation rental property

The amount to invest in a vacation rental property can vary widely depending on several factors including location, property size, and the level of luxury. Typically, initial investments might include the purchase price, renovation costs, furnishing, and setup for rental operations. Conduct a thorough market analysis to determine the potential return on investment and to set a budget that aligns with your financial goals and investment strategy. As Ben Early mentioned, investing in higher-quality properties might require a higher initial outlay, but the returns can justify the investment due to higher rental rates and longer-term tenant relationships.