Vacation rental vs. flipping

In real estate, a long-time debate remains: What offers the best return on investment—flipping a house or renting? The short answer—it depends on your financial goals and your lifestyle. In this article, we’ll compare the pros and cons of house flipping (seen as a short-term investment) and vacation rentals (considered a long-term investment), to help you decide which real estate path is right for you.

Flipping a house

Flipping a house involves buying a property, renovating it, and trying to sell it for a profit.

Ideally, you purchase the property for less than market value. This can include buying a fixer-upper or a distressed property that is close to foreclosure. For the most experienced house flippers, the average time to flip a property is 6 months. For novices, the process could take a lot longer, perhaps more than a year.

Pros of house flipping

Quick profit potential
If you do your research and find the right property to flip, you could make a substantial profit in a short amount of time. As stated above, the more experienced you are, the faster the process. Once you sell, you could end up with capital to make that dream purchase or even to put towards your next investment.

No ongoing expenses

Unlike renting out a vacation rental, flipping a house does not come with ongoing long-term expenses like maintenance, repairs, or property management fees. After making an initial investment, you’ll sell and move on—hopefully with a lot more money in your account.

Control over the project

Flipping a house gives you complete control over the renovation process. You can choose the materials, design, and layout. Best of all, you can save where you want to save, and splurge where you want to splurge.

Less ongoing hassles

Since you don’t own the property long-term, you don’t have to worry about hassles that vacation homeowners could face. No locked out guests, leaking pipes, or having to fill your occupancy year round.

Cons of house flipping

High risk and unexpected costs
Flipping a house can be a high-risk investment. Sometimes the market takes a turn, contractors don’t deliver, a renovation takes longer than anticipated, or ends up costing more than you budgeted for. All which can eat into your profit margins or put you in the negative.

Requires significant capital upfront
Flipping means purchasing the property itself and covering the full cost of the renovations. You’ll also pay for all the housing costs while it’s under your name, such as property taxes, insurance, and utilities. Consider each of those expenses when deciding to flip or rent a home.

Higher taxes
Turning a property around quickly could mean paying more taxes. The capital gains tax on a short-term investment (like selling a property less than a year after you bought it) is typically higher than the capital gains tax on a long-term investment (such as a vacation rental property that you hold onto for more than a year).

Inconsistent income
When you flip a house, you don’t make money until you sell the property. It’s a one-time payout that is linked to how well the market is performing at the time. You’ll also lose out on an ongoing income stream that a vacation rental could provide.

Lots of energy and time required

Flipping houses can be all-consuming, a process that many liken to a full-time job. You’ll need to dedicate time to searching the right property, renovating, working with contractors, and overseeing all the project timelines and hundreds of details.

Renting out a Vacation Rental

Renting out a vacation home involves buying a property and renting it out to travelers for short-term stays. There’s a lot you can do to make your vacation rental successful, including:

• Buy in the right destination
• Decorate like an interior designer
• Optimize your vacation rental listing
• List your vacation home in all the right places
• Price according to demand
• And more

Pros of vacation rentals

Ongoing income

The discussion of flipping vs. renting a home is easier for those looking for a new revenue source. Vacation rentals can deliver a consistent income stream, especially if you market it well and keep it booked. Full-service vacation rental management companies like Vacasa market your vacation rental on several channels to help boost bookings all year round.

Tax benefits

You can potentially write off several vacation rental expenses to reduce your taxes. These can include:

• HOA fees
• Vacation rental management fees
• Repairs
• Utilities
• Furniture
• Appliances
• Supplies
• Cleaning
• Accounting

If—or, when—you decide to sell your vacation home, your long-term capital gains tax rate may be lower than if you flipped the property instead.

Property appreciation

The longer you hold onto your property, the more equity you can build, and the more your property can appreciate—all which can lead to increasing your wealth. Your rental income and cash flow could increase along with market changes, as well. When you decide to sell, you could land a hefty sum (especially if you buy and sell at the right times).

A personal vacation spot

Guests aren’t the only ones who can enjoy your property—you can too. Invite the family for a long weekend. Host the next ski trip. Escape for a romantic getaway. With Vacasa, you can block off your calendar as much or as little as you’d like. In other words—stay when you want, rent when you don’t.

Cons of vacation rentals

Ongoing expenses

When you own a vacation rental, be sure to factor in ongoing costs such as maintenance, repairs, housekeeping, property management fees, and marketing costs. A good way to maximize this spend is to work with a vacation rental manager with an all-inclusive fee, like Vacasa. Our management fee includes marketing, local support and homecare, 24/7 guest service, channel management, demand-driven rates, and more.

Seasonal demand
The demand for your vacation rental can depend on the season, weather, events, and other factors. You’ll have to continue paying expenses and mortgage whatever the case. However, there are several ways to get more bookings in low season, such as:

• Target business travelers
• Offer amenities guests look for during the slow season
• Market to past guests
• Update your vacation rental listing to reflect the seasons
• Price your vacation rental to match demand (at Vacasa, we do this for you with our dynamic pricing tool—included in your management fee)

More ongoing responsibilities

If you don’t work with a vacation rental manager like Vacasa, you’ll be tasked with a long (and seemingly endless) list of responsibilities, including:

• Marketing your home to get exposure
• Managing multiple booking calendars
• Screening guests
• Setting prices according to demand
• Taking care of guests during their stay
• Stocking essential guest amenities
• Thoroughly cleaning after every stay
• Conducting regular maintenance
  

Ultimately, the decision to rent out your property as a vacation rental or flipping it for a faster profit depends entirely on your financial goals and long-term investment strategy. If you’re looking to take on some risk and months of renovations, flipping a house may be the best choice. If you prefer an on-going income stream and the potential for an appreciating asset, a vacation rental could be the way to go.

Whichever you choose, do your research (we have tons of vacation homeowner guides to help you be successful), and work with the right experts to meet your investment goals.