Are condos a good investment for a vacation rental property?

Profitable vacation rentals come in many forms—from mountain cabins, to beach cottages, to even treehouses. However, there’s one property type that’s popular in mostly all top destinations, whether in the city or along the ocean shore—condos. Purchasing a condo as a vacation rental has plenty of perks, plus downsides to weigh in on. Let’s examine both sides here.

Pros of investing in a vacation rental condo

1. Rental income

The biggest advantage of investing in a vacation rental condo? The extra income. Vacation rental websites such as Airbnb, Vrbo, and Booking.com attract legions of travelers looking for local accommodations. The right property can turn a healthy profit, especially if the condo is located in one of the top areas for vacation rentals and offers income-boosting amenities (think hot tubs, pools, fireplaces, special interior design choices, etc.).

We suggest working with a real estate agent who’s an expert in both vacation rentals and the local market to help you find a vacation rental condo that can produce a great cap rate.

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2. Affordability

Not sure if you can afford a vacation rental? The good news: condos generally come with a lower price tag than single-family vacation homes. Even better, condo insurance is often cheaper than homeowners’ insurance as the policy only needs to cover the inside of the home.

Homeowner tip:
When you rent out your home as a vacation rental, consider also purchasing liability insurance that covers your home specifically as a short-term rental.

3. Security

Condos may offer another layer of safety for your guests, with features like a doorman, night security, or a call box.

4. Desirable locations

Most guests tend to choose location over square footage (except if it’s a large group that demands space). Condos are often located in popular, high-demand areas with prime walkability to restaurants, shops, and other attractions. This convenience tends to draw more travelers to condos rather than vacation homes located in remote or suburban areas.

Even better—condo owners have historically seen values (and their equity) in top vacation destinations increase over time. Work with a real estate agent well-versed in vacation rentals and ask these questions:

• What are some past and current trends in the destination?
• What’s happening to home values in the area?
• What about home values in nearby and comparative areas?
• What are the high and low seasons?

5. Less maintenance

When things start to fall apart, do you prefer to roll up your sleeves and grab your toolkit? Or, call for help, then sit back and let someone else handle the work? As a condo owner, you’ll often have to handle little to no exterior and common area maintenance because your homeowner’s association will take care of that for you. In fact, that’s what a large portion of your association and condo fees go towards. Goodbye snow plowing, painting, landscaping, cleaning gutters, and more.

6. Amenities

Pools and hot tubs are some of the top most desired amenities at vacation rentals. Don’t want to excavate your backyard and build that pool from scratch? You don’t have to. Many condos already offer several shared amenities that help you command a higher rate. No extra investment or renovation needed. Some common shared condo amenities include:

• Pools
• Tennis courts
• Hot tubs
• Fitness centers
• Theater rooms
• Pet parks
• Rooftop areas
• Picnic and barbecue areas
• Game rooms

Cons of investing in a vacation rental condo

As with any real estate investment, vacation rental condos also have their downsides.

1. Homeowner association fees

It costs money to maintain the condo building, its amenities, and landscaping. As a condo owner, you’ll be on the hook for paying additional monthly fees to the condo association or homeowner association (HOA) that will go towards the upkeep and repair for the common areas. On top of that, HOA fees tend to increase over time. Plus, you may have to pay even more for major property upgrades, repairs, and renovations. Don’t forget to account for these extra costs in your budget.

2. Less control, more rules

In addition to monthly HOA fees, homeowner associations also limit what you can and can’t do on property. There are likely several rules and rental policies that you’ll have to abide by. Most importantly, some condos may even have bylaws against renting out your condo as a vacation rental, while others allow it. So, it’s important to understand any rules and regulations that would impact your ability to earn rental income from your property.

3. Minimal parking

Most often, condos come with limited (if any) parking spaces. Some condos only allow one parking space, which can be an issue for your guests.