What’s the Return on Investment of a Swimming Pool in a Vacation Rental?

In an earlier post, we discussed that it cost us $72,000 to build a plunge pool in our vacation rental in Kauai, Hawaii. And that hefty price tag was for about as small a pool as you can build!

Sure pools are awesome and fun to have, but what’s the financial upside of having a pool? Obviously, your mileage will vary. Some locations pools are very uncommon or can only be used during a short season. In other places (like a city), adding a pool would be impractical.

In our case, we think adding a pool was a wise investment for our vacation rental. Let me walk you through the numbers.

Prior to installing the pool, we charged $189 / night and had approximately 90% occupancy. That means the revenue per month is approximately $5,100 and the revenue per year is approximately $61,200.

After the pool installation, we were able to immediately raise the rates to $249 / night and still maintain 90% occupancy.  That’s $6,700 a month in revenue now and approximately $80,400 in annual revenue. Our annual revenue jumped $19,200.

Having a pool added $200 a month in pool maintenance cost and only about $30 more to our electric bill (despite electricity being expensive in Hawaii, it’s a small pool and very efficient brand new equipment). So our monthly cost went up $230 a month and our annual cost went up $2,800.

So our revenue went up $19,200 and our costs went up $2,800, netting us a profit of $16,400.

A $16,400 annual profit on an investment of $72,000 is an annual return on investment of 22.8%, by all accounts a very excellent return.

But wait, there is more. My suspicion is that over time as we get more reviews and rank better on the listing sites, we can actually charge $299 a night as opposed to $249 like we do today. In that scenario our annual revenue would be $96,900 and our new profit from the pool would be $32,900 (assuming same added expenses).

A $32,900 profit on an investment of $72,000 is a 45.7% annual return on investment. To be clear, we’re not there yet, but I think we can get there.

So, when people say that building a pool is waste of money and you’ll never recoup your investment, that isn’t necessarily the case with vacation rentals.  Not only do you improve the value of your home some amount (increasing your equity value), but you also get an annual cash return if you’re in a similar market to us. It all comes down to answering this simple question -- how much more could you charge if your vacation rental had a pool?