How Economies of Scale Makes Investing in Real Estate Easier

How Economies of Scale Makes Investing in Real Estate EasierDid you know that investing in multiple vacation rentals can actually make things easier than owning just one? Even if it's not your immediate goal, consider how making more than one vacation rental your long term goal might actually make the process more efficient. 

Texas Hill Country is a great place to own vacation rentals because of the steady, year round demand for properties. One of the things holding potential investors back is the responsibilities of property management. Thanks to something called economies of scale, buying a few rentals in a similar area can actually be the lower maintenance option for you. 

Understanding Economies of Scale

At its core, economies of scale occur when increased production leads to lower costs per unit. In the context of vacation rentals, this can translate into lower operating costs and higher margins when you are managing several properties. These efficiencies arise from various sources:

  1. Bulk Purchasing: Buying supplies in bulk for multiple properties reduces the cost per unit.
  2. Centralized Management: Shared management and administrative tasks across properties lead to savings. You will usually find that if you hire a property management company, you'll pay less for two properties than doubling the rate you would pay for one. 
  3. Marketing Synergies: Unified marketing efforts can attract more guests at a lower cost per property. You'll already have your marketing strategy, branding, website, and other features taken care of with the first property, and can extend those to the next.
  4. Operational Efficiencies: Streamlined operations and maintenance processes cut down on redundancies.

Strategic Benefits

There are some distinct, strategic benefits for investors who own multiple vacation rentals in the Texas Hill Country area. By leveraging economies of scale, property owners can offer a higher quality guest experience. Investments in superior furnishings, enhanced amenities, and additional guest services become more feasible. This not only attracts more guests but also encourages repeat visits and positive reviews.

In other words, you can reinvest the savings from economies of scale to create a more desirable guests experience that commands a higher nightly rate.

Owners of multiple vacation rentals often have greater negotiating power with suppliers and service providers. This can lead to better rates for everything from cleaning services to insurance, further reducing your operational costs. The more properties you own, the more powerful you will be in negotiations. Many service providers will want to gain your business because it represents a significant amount of work. 

There is another, more subtle benefit of economies of scale. Owning multiple properties helps mitigate the risk associated with vacancies or market fluctuations. While one property might experience a temporary dip in bookings, others can compensate, which ultimately works to ensure a more stable overall income.

This is also a great long term plan. If you're ready to get into real estate investing for the long haul, multiple properties will be easier to own as you get your system set. Once a streamlined system is in place for managing multiple properties, scaling up becomes easier. Adding new properties to the portfolio incurs lower incremental costs, leading to greater profitability. The established brand and operational framework facilitate smoother expansion.

The First One is the Hardest

If you're not yet a real estate investor, but you're considering it, or you currently own just one vacation rental property and the thought of adding more to your plate is daunting, you might find this perspective helpful. 

Devin Stephens with Canmore Real Estate Group explained why buying another vacation rental is going to be far less work than it was the first time.

"Once you've established your first vacation rental, adding a second one nearby becomes significantly easier. You've already navigated the learning curve—understanding local regulations, finding reliable service providers, and setting up efficient operational processes. With your first rental as a foundation, you can leverage existing resources and knowledge, making the expansion much smoother and more cost-effective." 

Ready to learn more about investing in Texas Hill Country real estate? Contact us any time.

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