Is vacation rental investment for you?
Firstly, is this the right choice for you? Whether you’ve got the funds or need to acquire them, you’ll need to make an informed decision and calculate your ROI (return on your vacation rental investment). In theory, revenue from a short-term rental property is higher than the long-term alternative, but let running costs show you that. Can the estimated income return a profit or pay off a bank loan? Explore insights on managing a vacation rental franchise programme to make an informed decision.
Key factors to consider before investing
When calculating your ROI (return on investment), make sure you account for:
- Potential revenue – nightly rates, occupancy rates, and seasonal demand.
- Expenses – maintenance, insurance, utilities, and cleaning fees.
- Taxes – income tax, property tax, and second-home tax regulations.
- Property management costs – most rental management companies charge 20–30% commissions, which can impact profitability.
- Local legislation – short-term rental laws vary widely by city and country.
Pro Tip: Use vacation rental data intelligence tools like Rental United’s Analytics platform to assess local demand and projected earnings, and build informed and sustainable revenue strategies.
Top 10 funding options for vacation rental investment
1. Traditional mortgages
Mortgages remain the most popular funding option. When seeking financing, look for banks or lenders who specialize in short-term rental mortgages. Compare interest rates and terms to maximize long-term profitability.
2. Private lenders
Private lenders are individuals or companies that provide capital outside of traditional banks. They often process applications faster and may be more flexible for second-home buyers.
3. Real estate crowdfunding
Otherwise known as raising money from the “crowd” online, crowdfunding is a fairly new practice for raising small amounts of capital from a large number of individuals. Popular real estate crowdfunding sites include Fundrise, Crowdstreet and Realtymogul. Many successful vacation rental tech companies have run successful campaigns already. Consider Crowdfunding Campaigns. Check this example of a property manager in Barcelona currently raising on Crowdcube.
4. Seller financing
With seller financing, the property seller acts as the lender, allowing you to pay them directly over time. This option is helpful if you have a low credit score but requires professional contracts to protect both parties.
5. Credit Unions
Credit unions are “financial cooperatives” that provide traditional banking services, such as loans and mortgages, often with more competitive rates. A credit union uses the funds provided by its members and can range from a small community undertaking to a large organization. They typically offer competitive rates compared to large banks. Membership-based, they may provide favorable terms for real estate loans.
6. Angel investor
Angel investors (often wealthy individuals or even family members) can provide capital in exchange for equity or repayment terms. This option is popular for those expanding a vacation rental management business.
7. Venture capital firms
Venture capital is suitable for property management startups rather than individual property buyers. If you’re scaling a rental business, VC funding could accelerate growth in exchange for equity.
8. Real estate investment trusts (REITs)
REITs allow you to invest in real estate portfolios or secure financing for your property through institutional lenders. They’re a popular way to diversify income streams while leveraging real estate markets.
9. Franchising opportunities
Joining a vacation rental franchise, such as Casago in the U.S., provides access to branding, training, and operational support. While there’s an upfront fee, it can fast-track growth in competitive markets.
10. Government Incentives
Last but not least, you should check if you qualify for any governmental incentive program. In the U.S. there are agencies, such as the Federal Housing Administration (FHA), that sponsor loan programs. In the E.U, you can find programs designed to help entrepreneurs get their business off the ground. Check EBAN, the European Trade Association for Business Angels.
How much do rental management companies cost?
One of the biggest considerations in your financial planning is the cost of rental management companies for investment vacation rentals.
Most companies charge between 20% and 30% commission on bookings, covering guest communication, cleaning, and maintenance. While this reduces your workload, it also directly affects your bottom line, so give some consideration to what is most important for your business.
If you’re investing in multiple properties, weigh the cost of management companies against building your own in-house operations, and decide which direction you want to prioritize.
Fortunately, in 2025 there are a range of tools available to make property management more efficient. Channel managers, for instance, allow you to oversee listings across multiple OTAs from a single platform. With features such as data analytics, automation, and a unified inbox, solutions like Rentals United’s channel manager provide you with the toolkit to stay organized and maintain full control of your operations.
Are vacation rentals a good investment in 2025?
Short-term rentals remain a profitable investment in many markets, but success depends on:
- Location demand – Popular tourist cities and vacation hotspots yield higher returns.
- Regulation compliance – Cities like New York and Barcelona have strict rental laws.
- Seasonality – Properties in beach towns or ski resorts may have fluctuating income.
In 2025, with travel demand rebounding, vacation rental investment continues to be a lucrative opportunity, especially if you secure favorable funding, ensure financial compliance and manage expenses wisely.
FAQs about vacation rental investment
- Are vacation rentals a good investment for beginners?
Yes, but it’s crucial to research your market, estimate expenses, and calculate ROI before investing. - What is the average cost of rental management companies for vacation rentals?
Most charge 20–30% commission per booking, but rates vary based on services. - Do banks offer mortgages for short-term rentals?
Some banks do, but many restrict financing to primary residences or long-term rentals. Always check with lenders that specialize in vacation rental properties. - Is crowdfunding a safe way to fund vacation rental investments?
Yes, if you use established platforms, however, it comes with risks. Make sure to review terms and investor protections. - How do taxes affect vacation rental investment?
You’ll likely pay property tax, income tax, and possibly second-home taxes. Consult a local tax advisor to maximize deductions. - What’s the best location for a vacation rental investment?
Markets with strong tourism, limited hotel supply, and favorable regulations, like Florida, Portugal, and Mexico, often deliver the best returns.
Conclusion
If you’re looking for a high-potential real estate opportunity, a vacation rental investment can deliver strong returns, especially when backed by the right funding strategy. By weighing financing options, understanding management costs, and researching demand, you can build a profitable rental portfolio in 2025 and beyond.