It is a booming business right now. There are hundreds of thousands of new holiday home hosts, and property values are booming because of it. Vacation rentals are serious business today with huge profits being recorded by individual property owners and property management businesses. This is due to the latest trend within the tourism accommodation sector, which has shifted from hotel bookings to making holiday reservations to stay in a private holiday home or apartment.
As a result of the booming vacation rental market, banks and financing firms are more than willing to lend capital to vacation rental businesses because they are seen as a low-risk finance deal.
Some Rental Properties Are Being Financed With No Money Down
According to a blog by the reputable Spark Rental, it is possible to finance a first-time rental property with no money down. The blog does not necessarily apply to vacation rentals, but when banks consider financing for vacation rental homes in a popular tourist destination, the fact that the daily rental rates for tourists can be up to five times higher than a regular year-long lease contract, the risk of financing this kind of project of considered very low.
Why Is Financing Vacation Rentals Considered Low-Risk?
The holiday home rental market currently has no monopoly or one company that dominates the industry. At the moment, anyone with a good business mind can get into this expanding market.
With very few barriers to entry, the vacation rental industry has created a new breed of entrepreneurs with many now looking to expand their business by purchasing additional properties. Financing companies have taken note of the rising number of property owners from within this business sector coming forward requesting finance packages to support their expansion plans.
Many of these business plans show every chance of success. Furthermore, those business plans show proof of concept. Many of the people looking to expand their property portfolio are already running one, two, or multiple vacation rental properties. They have experience of the business and are able to show a positive income from their current business operations.
Many of these companies already have their own privately branded websites that boast private booking directly with the business thanks to word of mouth, very good marketing, and solid brand reputation building. A large number of these companies use Lodgify vacation home rental websites in order to build a successful vacation rental business that can be presented as part of their financial plans presented to the banks.
Lodgify has been so successful that the company gained millions in investment from financial firms and is yet another example of another successful business that has focused its software/tech solutions specifically on the vacation rental industry.
How Did The Vacation Rental Market Become So Popular?
Vacation rental businesses became popular because of the influx of holiday home rental websites. The most visited vacation rental website at the moment is Airbnb. However, there are over 20 such websites online today, and all of them are making huge profits via online bookings that were once dominated by the likes of booking.com and Agoda.
Airbnb and other similar websites originally gained massive financing from major bluechip financial institutions. Their business plan was simple – to market a holiday booking website that advertises private holiday homes and apartments for short term vacation rental leases. The idea was to allow anyone that owns a property to list it on the website for free. Then when someone visits the website and books that property, the owner gets 80% of the booking fee.
Armed with multi-million dollar financing the likes of Airbnb went to work. A brilliant article on Growth Hackers Airbnb marketing success blog shows just how an unknown company gained financing and devised a marketing plan that brought a website name that was unheard of to what is now in the top 250 most visited websites online today.
Financial Firms Have A Safe Bet
When financial firms are weighing up the success rate of vacation rental companies be it an entrepreneur acting alone, a small business, or a property management business, financing such projects have several characteristics that lower the risks.
- The chances of success are very high in this industry
- The properties financed have good collateral value
As long as a business plan consists of a property in a popular tourist destination, knowledge of the market, and proof of concept using existing or other people’s vacation rentals as an example, the banks are going to make their money back and so if you are looking for a project and need financing, then consider the vacation rental market.
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