Lake Tahoe is one of the most visited places in the USA, attracting around 15 Million people each year. As tourism peaks, the demand for vacation rentals skyrockets, playing a crucial role in accommodating the influx of tourists. The vacation rental market in Lake Tahoe is thriving, and with the rise of platforms like Airbnb, homeowners now have the potential to break even on vacation rentals in Lake Tahoe if they can keep their properties booked consistently throughout the month.

Before moving towards the realistic approach to if you can break even on your investments, you need to understand the Lake Tahoe rental market: 

Understanding the Lake Tahoe Rental Market

The Lake Tahoe vacation rental market is expanding steadily, with approximately 15 million visitors to the region each year. This influx of tourists drives up the Revenue Per Available Rental Night, enabling homeowners to earn substantial income. However, visitor numbers fluctuate throughout the year. The two peak seasons—winter and summer—attract the highest volume of tourists, ensuring that vacation rentals are consistently booked during these periods.

Average rental rates, occupancy rates, and seasonal demand:

Based on data from our vacation rental company, the average rental cost in Lake Tahoe during peak seasons is around $400 per night, while in low seasons, it drops to approximately $300 per night.

Due to Lake Tahoe’s year-round appeal, the occupancy rate remains high, averaging 60% during peak seasons and around 40% in the off-season.

Seasonal demand significantly impacts both rental rates and occupancy. During high-demand periods like winter and summer, raising nightly rates can maximize revenue. Conversely, in the low season, lowering rates is a strategic way to attract more bookings.

If you’re considering buying a home and starting a vacation rental business, we strongly recommend choosing North Lake Tahoe. Due to Measure T, vacation rentals are banned in South Lake Tahoe. For more information, you can read our detailed blog on which side of Lake Tahoe is best for investment by clicking here.

Popular areas for investing in vacation rentals in North Lake Tahoe include Incline Village, Kings Beach, Carnelian Bay, Dollar Point, Tahoe City, and Homewood. These locations are highly sought after due to their proximity to ski resorts and other amenities, making them ideal for vacationers.

The Best Counties for Vacation Rentals in Lake Tahoe:

Yes, vacation rentals in Lake Tahoe are regulated by counties, each with its own set of rules. The Lake Tahoe region is divided into five counties: Washoe County, Placer County, El Dorado County, Douglas County, and Truckee. Each county has different regulations governing vacation rentals.

Currently, Washoe County and Placer County are the most favorable for vacation rental businesses due to their relatively fewer restrictions compared to the others.

For more information about STR permit regulations and county-specific restrictions, check out our detailed blog on our vacation rental company’s website.

How location impacts rental income:

The location of your vacation rental significantly impacts your rental income. Visitors come to Lake Tahoe to relax and enjoy, typically staying for 2 to 3 days. During their stay, they prefer to have amenities and attractions nearby, allowing them to make the most of their time without unnecessary travel.

If your property is close to popular spots like beaches, offers lake views, or is near a ski resort, it is more likely to attract bookings and command a higher nightly rate compared to properties in more remote areas.

For example, based on data from our company, MG Vacation Rentals, properties located near key attractions, such as beaches or ski resorts, receive 30% more bookings and achieve higher nightly rates than those in less accessible locations.

Can You Break Even on Cash Flow with a Vacation Rental in Lake Tahoe?

The short answer is yes you can break even on cash flow with vacation rentals in Lake Tahoe but based on your planning, the location of your vacation rental house and the amenities it has. Just to make you understand if you can break even on cash flow with a vacation rental in lake tahoe or not, we are going to discuss different points in following with original data from our vacation rental company.

Breaking down the costs:

  1. Purchase Price: The cost of a home in Lake Tahoe varies depending on its condition and location. A well-maintained 4-bedroom, 2-bathroom home with lake views, is listed for around $1M on Redfin.
  2. Mortgage, Property Taxes, and Insurance: For a property in this price range, the mortgage payment would be approximately $4,300 per month. Property taxes are estimated at around $500 per month, while insurance would add another $135.
  3. Property Management Fees: Property management fees vary depending on the company. At MG Vacation Rentals, we charge a 25% property management fee for full-service management.
  4. Utilities and Operating Expenses: Utilities and other operating expenses, such as snow removal and cleaning, typically amount to around $100 per month. At MG Vacation Rentals, we offer comprehensive solutions for these services, as we own both a cleaning and snow removal company.

In total, the estimated monthly cost of owning a home like this in Lake Tahoe can be approximately $5,000. And with short term rental you can cover 70% to 80% of your mortgage.

Revenue potential:

Vacation rentals in Lake Tahoe have strong revenue potential. Based on data from our vacation rental company, a 5-bedroom, 4-bathroom house with a hot tub can generate over $60,000 per year in revenue.

  • Seasonal Fluctuations in Rental Income

Lake Tahoe experiences two peak seasons—summer and winter—when visitor numbers significantly increase. During these peak periods, rental income can rise by up to 30% compared to off-peak seasons.

  • Average Nightly Rates

According to our data, the average nightly rate during peak seasons is around $400 per night, while in the low season, it averages around $300 per night.

  • Understanding occupancy rates and rental yield.

When investing in rental properties, particularly in vacation hotspots like Lake Tahoe, two key factors can significantly impact your return on investment (ROI): occupancy rates and rental yield. Both play a crucial role in determining how profitable your property will be over time.

What is Occupancy Rate?

Occupancy rate refers to the percentage of time your property is rented out over a specific period, typically a year. High occupancy rates indicate that the property is in demand and consistently rented, which translates into steady income. This is especially important in vacation rental markets, where demand can fluctuate seasonally.

In Lake Tahoe, for example, peak seasons like summer and winter can lead to higher occupancy due to the influx of tourists for outdoor activities like skiing and hiking. However, the shoulder seasons might see a decline in bookings, affecting your overall occupancy rate.

To calculate occupancy rate, use the following formula:

Occupancy Rate (%) = (Total number of booked nights / Total number of available nights) × 100

What is Rental Yield?

Rental yield measures the income you generate from your property as a percentage of the property’s value. It’s a crucial metric for understanding how much return you can expect from your investment. There are two types of rental yield: gross and net.

  • Gross Rental Yield: This is the simplest calculation and doesn’t take into account expenses like property management, maintenance, or taxes.
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    Gross Rental Yield (%) = (Annual rental income / Property value) × 100
  • Net Rental Yield: A more accurate reflection of profitability, this yield accounts for ongoing costs related to the property, offering a clearer picture of how much you’re truly earning.
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    Net Rental Yield (%) = [(Annual rental income – Annual expenses) / Property value] × 100

Both occupancy rates and rental yield are critical for assessing the performance of your investment property. A high occupancy rate typically indicates steady income, while a strong rental yield ensures that the property is generating enough profit compared to its value. Ideally, you want a property with both high occupancy and a good rental yield to maximize your ROI.

Cash Flow Considerations:

  • How often the property needs to be rented to cover expenses.

When determining how often your property needs to be rented to cover expenses, it’s essential to factor in both peak and shoulder seasons. During peak times, your best properties can be rented for over 20 nights a month at an average nightly rate of $400, generating approximately $8,000 in monthly revenue. 

This high occupancy can cover a significant portion of your annual expenses. However, during shoulder seasons, when the average nightly rate drops to $300 and bookings range between 12 to 15 nights per month, monthly revenue falls to between $3,600 and $4,500. 

  • Realistic scenarios where owners can break even or profit.

According to the data from our vacation rental company for a 5 Bedroom, 2 Bathroom property with hot tub and lake views in Lake Tahoe, realistic opportunities to break even or profit depend on a well-managed balance between peak and shoulder seasons. During peak months like June and July 2024, this type of property generated over $16,000 in June and $8,000 in July. This high revenue during the busiest times can cover a large portion of annual expenses and provide a financial cushion.

In shoulder seasons, like May 2024, this type of property generated $4,000. While this is lower, consistent revenue during these slower months contributes to ongoing operational costs and helps keep the property profitable year-round. 

Partnering with a vacation rental company like MG Vacation Rentals provides homeowners with strategic advantages that help maximize revenue year-round. MG Vacation Rentals employs dynamic pricing strategies tailored to market demand, ensuring that properties are priced competitively during both peak and shoulder seasons. This approach allows owners to capture higher rates during busy times and optimize bookings during slower months. 

So with this example real life example homeowners can break even and make profits through vacation rentals in Lake Tahoe. 

Final Thoughts

Due to the growing number of visitors in Lake Tahoe, breaking even on cash flow is increasingly achievable for homeowners, and many can even generate profits. However, reaching this point requires a strategic approach and a deep understanding of the market.

If you’re considering starting a vacation rental in Lake Tahoe or are looking to purchase a property for future investment and cash flow, feel free to contact us anytime. We specialize in helping clients buy and sell properties, and with our experience in the market, we guide you through important decisions.

In addition to real estate services, we own MG Vacation Rentals, a leading vacation rental company, allowing us to leverage real data to develop effective strategies for your property. We also operate a cleaning company and snow plowing service, providing full-service support to help you break even and maximize profits efficiently.