Should You Invest In A Short-Term Rental Property?

If you’ve taken a vacation in the last five years, you’ve likely considered, if not actually tried, a short-term vacation property through one of the popular companies like Airbnb or VRBO. Often, a great experience piques the renter’s interest and prompts the question, “Is this an investment option that would be right for me?”

A Growing Market

A short-term rental is when you rent out a residential property, a room in your home, or ADU tiny home for 28 or fewer days. In recent years, short term rentals have transformed from a low-key side income to a lucrative industry across many markets. Some homeowners find that their properties can generate more income than a traditional lease, but short-term rentals come with their own unique set of challenges.

Advantages

The advantages to a short-term rental can be very tempting for someone looking for extra income:

• No long-term tenants.
• Mostly direct cash transactions vs. lease agreements.
• Money upfront at the time of reservation.
• Potentially high monthly income. 
• Relatively low hassle, especially with a team in place.
• Built in platforms for reaching your target audience thanks to companies like Airbnb and VRBO.

Disadvantages

There are some disadvantages to be aware of as you consider jumping into the short-term rental business.

• Not passive income. Success in the short-term rental market takes a lot of upfront work before you’re well enough established that you can loosen the reins a bit. You’ll need to consider the time and effort required for the upfront work of marketing to get bookings (with possibly a lower rate than nearby competitors to begin with). You’ll also need to responding to inquiries right away (15 minutes is recommended), encourage guests to leave positive reviews, and develop marketing strategies especially in the off-season.
• Seasonal income. Depending on where you live, the seasonal aspect of travel may directly impact your ability to rent out your property. Factoring in fluctuating income is important in choosing this type of property rental.
• Extra effort and upfront maintenance. Short-term rental customers expect properties to be clean and in perfect working order. Taking the time to perfect your property may cost extra time and money upfront before you can successfully rent it out.
• Maintaining a unique feel to your property. While cleanliness and stocking all of the basics are important, many vacationers make their final rental decision based on the uniqueness of the actual property. Whether it’s a fun decorating scheme based on the location or an authentic 1960’s art deco feel, your investment in the look and “feel” of the property may give you the final advantage when the renter has to make a decision. 

Think About the Marketing

There are many factors to consider when evaluating a property for its short-term rental potential. Take the time to think through these categories to create the best opportunity for success in the short-term rental market.

Location

You may live in an area primed for short-term rentals, or you may need to look a little further out to take advantage of the location factor. This heat map can help you determine what the best locations are. Understanding your property location will help you make decisions about everything else. 

• Hometown Pride. Think local for your first short-term rental property. This allows you to learn the ropes while keeping an eye out on the property. And, when marketing your property you’ll have the advantage of knowing exactly what the best offerings are in your own hometown or city!
• Highlight the Uniqueness. Are you close to the airport? Do you have a local sports team? Is your view eclectic, unusual, or jaw-dropping? Unique characteristics are selling points for you and may also allow you to charge a premium price on your property.
• Invest in high-quality photographs. Let your property shine! Short-term rental clients make decisions based on the pictures they compare online. Views from their room or house, bedroom quality, en-suite bathrooms, and cleanliness are some of the top reasons why renters choose a property. 

Clients

Once you’ve determined what your location offers and figured out how to highlight your property, take some time to consider the potential clients who may find your property appealing. A short-term rental doesn’t have to be a “vacation rental,” so don’t overlook these potential clients in your marketing plan:

• Vacationers. 
• Business travelers.
• Medical travelers.
• People in-between homes because of renovations or the gap between closing on a new property and taking possession of it.

Quality counts when it comes to tenants and especially the short-term rental tenant. Consider the high-quality tenant and how to screen for them.

• Set a minimum age limit (28-30). 
• Consider a three-night stay minimum. This can be especially helpful during the busy season to maintain quality tenants and reduce maintenance and turnaround work between guests.
• Charge additional fees for cleaning or excessive guests. 
• Install outside cameras to monitor how many guests are coming and going. 
• Check your guests’ review page to see how they’ve treated other short-term properties.

Finances and Regulations

It’s one thing to know your marketing plan, but even the best marketing is useless if you don’t understand your local regulatory requirements or the bank shoots down your loan request. With a little upfront work, you can stay on the right financial track and be able to check all of the regulatory boxes.

• Know your local regulations. Short-term and long-term rentals have different requirements. If a tenant stays for over 28 days, they could acquire long-term rental rights.
• Know your community rules. Are you in an HOA? Double check your neighborhood rules to ensure you’re not violating residency rules that could cost you. 
• Know your numbers. If you need to take out a mortgage for your rental property you’ll typically need a 20-25% down payment. Second property mortgages can also have different requirements depending on the state and the bank. 
• Know your tax implications. For short-term rentals, you can deduct all of your expenses which can help lower your tax liability. Check with your tax professional to be sure you’re staying within the legal standards.
• Make a budget. How many nights do you need the property occupied to break even each month? Make sure your calculations include these typical expenses:
  • Short-term rental insurance.
  • Principal/interest on the mortgage.
  • Taxes.
  • Cleaning service.
  • Utilities.
  • Entertainment package for TV and/or internet service.
  • Furnishing the property up front.
  • Consumables like toilet paper and toiletries. 

Partner With the Experts

A short-term rental can be a unique way to capitalize on your property and its location. Talking with an expert as you weigh your options can give you the confidence to step into this new way of approaching property ownership. Call or text Darla Andrew today at 503.515.3170 to learn more about how we provide the support you need to confidently enjoy the rental process.