Over the past few years, investors have increasingly looked to purchase a property specifically to use as a holiday home rental with the intent to drive a profit. But, is becoming a vacation rental investor all that it’s cracked up to be? For cities like Dubai, the answer is a resounding YES!
Nested, a London-based estate agency, recently published a report looking at the average time to recover property investment through traditional rent versus short term rentals* and the results position short term rentals as a very good investment opportunity in certain cities including Dubai.
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Nested analysed property sales across 75 worldwide cities for the past six months and calculated how long it would take to recoup the property value of an average 3-bedroom apartment based on traditional versus short term rents.
Dubai came in 9th place globally, with a 3-bedroom taking 187 months to recoup the purchase value via traditional rent and only 46 months to recoup the purchase price based on short-term rental rates. It is worth mentioning that the report assumes the ability to consistently keep you short-term holiday home rental booked, and we know that can prove challenging during Dubai’s summer months (although it’s not impossible).
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While investing in a holiday home rental sounds great on paper, there are pros and cons that are worth reviewing and we list a few below.
Pros:
- A good vacation rental property can cover the mortgage and generate additional revenue
- A vacation rental can help offset the costs of your future retirement home
- You can raise your prices due to high seasons and certain events
- Vacation rentals are growing more popular and are legal in Dubai
- Expo 2020 offers a wonderful opportunity for vacation home owners
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Cons:
- Holiday home rentals can be costly to manage and seasonal upkeep must be factored in
- Vacation rentals are affected by economic downturns and can leave you financially stranded if you are reliant on booking revenue
- Rules and regulations can change
- There is a fair amount of competition in the market with an estimated 1,600 vacation rentals in the market
- It is not always easy to vet prospective tenants and there have been instances of less than stellar guests
Not everyone is cut out of for a vacation rental and the most lucrative rentals are self-managed (hiring a property manager can cost you 25% of the rental rate). However, for those who find this type of investment appealing, the returns can be very rewarding especially in Dubai.