Thinking of investing in a vacation home? This type of real estate can be a source of extra income, a long-term asset, and a private escape rolled into one.
But vacation rental ownership isn’t for everyone. While it’s a lucrative investment for some and an exciting business opportunity for others, many aren’t suited for the fast pace and unpredictability.
How are you supposed to know whether vacation rentals are for you? Our guide explores the main pros and cons of ownership to give you a better sense of what the experience is like.
We also asked four vacation rental operators — Andrea Clarkson, Andrew Llewellyn, Sebastiaan Post, and Julie Upton — to give their take. As they all come from different business backgrounds, they offer a broader sense of all the possibilities.
What does vacation rental ownership entail?
Vacation rental ownership encompasses a wide range of scenarios. While this isn’t an exhaustive list, it covers the main types of setup:
- Renting out your primary residence when you’re away
- Sharing a portion of your property with guests
- Listing your vacation home while you’re not staying there
- Managing a second and maybe third property
- Outsourcing management of secondary residences to a company
- Launching your own short-term rental business
Your level of involvement is also up to you. Some owners like to be familiar with every business process and personally vet any guests living in their house. Others are content with receiving frequent updates from their short-term rental company.
Often, this decision comes down to what type of vacation rental management suits you. Owner of Ostbacher Stern, Sebastiaan Post, says he regularly stays in his own apartments. “By rotating our stays, we experience each unit as guests do, allowing us to spot issues or improvements that wouldn’t be visible from a distance. We plan these stays during off-peak times, so it doesn’t interfere with bookings or income.”
Whereas Airbnb Superhost, Julie Upton, says seasonality prevents her from using her property much. “It’s booked solid from May through October. I try to go at the beginning of the season to get it set up, then again in November to close it up for the winter. It’s only a seasonal rental as it is not winterized to go through December to March in Michigan.”
The pros of owning a vacation rental property
Owning a vacation home brings many advantages that go beyond monetary reward. Let’s look at both the financial, practical, and personal incentives of opting for short-term rentals over other types of property ownership.
Potential for high rental income
AirDNA data reveals that short-term rentals have a higher ROI than traditional rentals. This is largely due to their higher nightly earning potential and more manageable operating costs.
Additionally, vacation rentals have more flexibility as you’re not locked into one rate for the year. You can start low and gradually raise the amount as you get started. As demand changes, you can continue to adapt your pricing and keep it consistent across listings with a channel manager like Hostfully.
But beware that earning potential varies drastically across locations. All four owners we talked to already knew both their area and property type had high demand before they invested.
For instance, Post says, “We saw strong potential because of the location: Leutasch, a quiet valley in Tirol, Austria, known for its scenic hiking routes, cross-country skiing, and nature-focused tourism. The region has year-round appeal, and the peaceful setting, combined with wellness facilities like a sauna and infrared cabin, makes it attractive for both summer and winter guests.”
Property appreciation and long-term value
Vacation rentals can increase in value over time, especially in popular residential and tourist destinations. This makes them a strong, long-term investment.
Some may be impatient to reap the financial benefits. If you don’t mind the risk, properties in tourist areas undergoing development or revitalization can offer stronger returns. You may find you’re able to sell off the property sooner for a sizable sum.
Tax deductions and incentives
In some cases, vacation rental owners can deduct many vacation rental expenses from their taxable income. This often includes:
- Property taxes
- Utilities
- Repairs and maintenance
- Insurance premiums
- Cleaning and management fees
- Depreciation of the property and furnishings
But you must ensure you qualify and meet local tax requirements. A professional accountant may be an added cost, but they can help you navigate the rules and potentially save you more over time.
Check out our article on the short-term rental tax loophole for deeper insights into possible savings.
More control than long-term renting
Long-term rentals require long-term commitments. Once you’ve signed an agreement, you can’t change the price or make alterations to the property without your tenant’s consent.
That’s why Andrew Llewellyn opted to convert his property into holiday homes when launching Super Stays. “Short-term rental gives us far more flexibility. We can adjust pricing, improve the units as needed, and adapt to seasonal trends. Long-term tenants would limit our use of the building and reduce profitability.”
But it’s not all about financial strategy. Airbnb interior designer at MammaMode, Andrea Clarkson, says she chose short-term renting because she wanted more creative freedom. “With a long-term tenant, you lose that connection with the space. With short-term rentals, I can regularly update the design, provide curated experiences for guests, and have the freedom to use the property myself when I need to.”
Personal use and lifestyle perks
Vacation rentals give you on-demand access to a personal getaway. You can list your properties on sites like Airbnb, Vrbo, and Booking.com while reserving weeks for your own use.
A channel manager like Hostfully also comes in handy here. Our software lets you block off time on your calendar and reflect this across every platform. This eliminates the risk of you accidentally booking guests on your own time and missing out on a vacation.
Even if you don’t currently use your vacation rental, you might have long-term plans like Upton. She says, “I’m focused more right now on profitability as I plan on remodeling the home and using it for a retirement vacation home in a few years. Until I remodel it, I’m renting it as much as possible.”
The cons of owning a vacation rental property
While a vacation rental can be a great investment, ownership comes with downsides. Some of these are simply part of the deal, and others can be minimized with the right tools and resources. Here’s what you need to prepare for if you decide to go ahead:
High upfront and ongoing costs
Purchasing a vacation rental is just the beginning. Unlike long-term rentals, you must furnish and equip properties to meet a high standard. You can go for a minimal approach to lower costs, but this significantly limits how much you can charge per night.
Upton says that the ongoing costs also took her by surprise. “There were a lot of little things that I didn’t budget for, such as new furniture every few years. People are hard on furniture. I am constantly purchasing new bedding, including blankets, duvet covers, sheets, pillows, and towels.”
These costs rise exponentially with the number of your bookings. Because the more guests you accept, the more wear and tear will happen to your properties.
Pro-tip: Property management software (PMS) like Hostfully makes maintaining a vacation rental simpler. Our task management feature lets you schedule regular checks. Your cleaning crew can report any issues, so you have a chance to arrange fixes and repairs before the situation gets worse — sparing yourself a lot of expenses!
Short-term rental regulations and zoning laws
Many regions have introduced rules for short-term rentals to address housing issues, antisocial behavior, and safety standards. Regulations vary widely; for example, they’re very strict in popular tourist destinations like Hawaii and more relaxed in quieter locations like Tenessee and New Mexico. But no matter the location, regulations usually limit what you can do with your property.
In many places, the following activities may be restricted:
- Running a hospitality business in a residential zone
- Renting out a secondary property short-term
- Hosting guests when you’re off-site
- Outsourcing to property management companies
- Using a secondary dwelling unit like a tiny house or camper van
- Installing outdoor amenities like pools and hot tubs
As Llewellyn notes, regulations also introduce extra costs. He says, “The cost of permitting and construction delays in our city, which has a lot of red tape for even minor renovations or use changes.”
Researching local laws should be your number one priority before entering the market. You can understand which types of vacation rentals are permitted in your area and whether these suit your needs and preferences.
Time-intensive management
Contrary to what some say, a vacation rental doesn’t generate passive income. Property owners must handle tasks like messaging guests, coordinating check-ins, and scheduling cleans.
One solution is to hire a short-term rental management company. While you reduce your ROI, you don’t have to spend as much time on these tasks. Plus, the company can bring their expertise to running the business and potentially bring you higher returns.
Another solution is to use a PMS like Hostfully to automate as many operations as possible. Our software enables you to streamline:
- Guest communication
- Check-in and check out
- Channel and listing management
- Cleaning and maintenance
- Background checks
Even if you automate operations, expect to spend a few hours a week on operations. For instance, Llewellyn says, “Personally, I spend about 5 hours a week managing the business at a strategic level. We’ve built systems to reduce friction, but STR still requires real oversight to maintain a high-quality experience.”
Challenging guests
Most guests are respectful, but even one bad experience can create issues. Noise complaints, unauthorized parties, and littering can lead to tension with your neighbours. Repeat problems could land you with a fine.
Compare with long-term tenants. You can vet them thoroughly and ensure they’re trustworthy before you sign the agreement.
Insurance and guest screening tools can take care of this problem. They automatically conduct a thorough background check on visitors and flag signs that guests are likely to break the rules. For example, many tools will alert you if a large group books for one night on a major holiday, as they could be planning to throw a party.
Seasonality and market fluctuations
The hospitality industry is unpredictable. Bookings fluctuate with the seasons and local events, making it hard to budget finances. For example, an unnaturally cold summer at your oceanfront town could lead many guests to cancel their reservations.
Dynamic pricing tools can shield you from some unpredictability. They use market data to find the most optimal rate for your properties in real-time to attract guests without dropping your prices too low. Leading solutions integrate with PMS like Hostfully so you can apply the rates to all your listings and channels.
Should you invest in a vacation rental in 2025?
Now you’ve read the main pros and cons, you may be wondering which ones have the most weight in your circumstances. Here are the factors to consider:
- Consistent demand: Your location should have a steady flow of tourists during specific months or all year round; otherwise, you’ll struggle to see any returns.
- Regulations: Strict rules can make it impossible to run the type of business you want in certain locations. However, you can always explore nearby alternatives.
- Community fit: The local community plays an important role in the success of your business. If they push back against vacation rentals, they may be more likely to oppose your license or complain to the council.
- Cost and time commitment: Ideally, your business should fit into your existing schedule and budget to be sustainable long-term.
- Long-term goals: Are you looking for hands-on involvement in a business over a long period? Or are you hoping to step back? Making sure you’re comfortable with the commitment involved means you’re more likely to be satisfied with the outcome.
Ready to take the next move? Read our guide to vacation rental investment ideas to find our roadmap to ownership.
Hostfully helps you maximize the upsides of vacation rental ownership
Managing a vacation rental takes planning, preparation, and plenty of hard work. But once you’ve set up, many of the processes can be automated.
That’s where Hostfully PMS comes in. Our platform streamlines key operations like guest communications, check-in, and team scheduling to let you take a more hands-off approach. We also integrate with turnover, dynamic pricing, and guest screening solutions so you can easily add more time-saving tools to your stack.
Whether you’re self-managing or outsourcing, Hostfully PMS ensures your vacation rental stays organized, profitable, and even fun.
FAQs about vacation rental pros and cons
How much can you make from a vacation rental?
The amount you can make from a vacation rental depends on factors like the property type and location. However, Airbnb data shows that hosts make an average of $14,000 in supplementary income.
Is owning a vacation rental passive income?
No, owning a vacation rental requires ongoing effort to manage bookings, guest communication, and maintenance. You can minimize this by outsourcing to a company or automating processes through a PMS like Hostfully.
What are the biggest risks of vacation rental ownership?
The biggest risks of vacation rental ownership include changing regulations, fluctuating demand, and unexpected maintenance issues. All three can suddenly make your business setup untenable.
Can you manage a vacation rental remotely?
Yes, you can manage a vacation rental remotely through a PMS like Hostfully. It enables you to automate processes like check-in and manage cleaning crews from afar.
