The Long and Short of Short-Term Rentals
Generate Income and Have a Place to Vacation
By Jennifer Stoops
Investing in real estate is becoming a very common strategy among those looking to build wealth and diversify their investment portfolio. Single family residential assets have long been the key target of real estate investing with multi-family assets coming in at a very close second.
In more recent years, a new player has joined the real estate investing strategy, the short-term rental. With travel demands being higher than ever and more flexibility to work from home, the short-term market is red hot. The rise in work from home over the last few years has increased the number of people who would like to relocate, but previously could not due to work. This is also adding to the increased demand for short-term rentals as people are looking for temporary housing while they search for their new home.
What is a Short-Term Rental?
What classifies as a short-term rental? These are dwellings that are furnished and rented for short periods of time and considered to be for “transient” use. Accommodations such as corporate housing and vacation rentals are examples of short-term rentals and are often an alternative to the traditional hotel.
The length of the rental agreements vary from an evening to days, weeks or multiple months, but are generally less than a six month (some consider less than twelve months short-term) period of time. Short-term rentals can be anything from single family homes, multi-family buildings, condos, townhomes, apartments, a cabin, a guest home, garage apartment or even a room or a portion of a dwelling.
Short-term rentals have quickly become one of the most lucrative real estate investments you can buy. However, when compared to the traditional and more familiar long-term rental, short-term rentals may seem intimidating. There is a long list of benefits to owning short-term rentals.
What are the Benefits of Short-Term Rentals?
Short-term rental investments create higher earnings than their long-term rental cousins. A well marketed short-term rental in a desirable area will consistently outperform long-term rental revenue. Another benefit to owning short-term rentals is better maintenance of your asset. With frequent short stays, you have a much greater ability to become aware of any maintenance issues much sooner providing the opportunity to catch issues that may otherwise go unnoticed or unreported.
Flexibility is another huge gain with this type of investment. You have complete control over the calendar of when you want to offer your rental and for how long. You also have the flexibility to adjust pricing of your rental as you see fit.
Not only do short-term rental investments create a profitable monthly cash flow, but the asset will also continue to appreciate year after year. Like many real estate investments, the longer you hold onto a rental property, the more it will increase in value over time and the more your investment will be worth when you decide to sell. While there is never a guarantee, real estate is usually a good investment and generally withstands difficult economic times.
Accessibility to building wealth much faster is another advantage to short-term rental investing. You can take out a loan to purchase a property and use borrowed money to generate more income. This strategy is immensely helpful for beginner investors. Learning how to leverage debt in a profitable way can prove very useful in building wealth at a much faster rate.
One additional benefit, but certainly not the end of the list of advantages to investing in short-term rentals, is tax benefits. Real estate investing has a significant number of tax advantages, which make them a very appealing opportunity for wealth building and portfolio diversification. Some tax advantages include deductions for maintenance, marketing, management and depreciation.
Factors to Consider
There are some critical factors to consider before jumping into this type of investment. Choosing the best location to purchase this type of investment plays a critical role in its profitability. Also, consider hiring a professional management company. Unless you plan to make owning short-term rentals your full-time career, hiring a management company can save you money and certainly time.
There is a significant amount of work involved in the management of short-term rentals such as maintaining the calendar, collecting deposits and fees, drawing up contracts, coordinating turns in between tenants (and doing so in a very quick period of time, often within hours of the previous tenant vacating) and maintaining working utilities. There is also maintenance coordination when things break, property preservation, being on call for emergencies or issues at the property, coordinating access to the property, potential evictions and so much more. Management companies also have relationships with local vendors, which will likely mean discounted rates for you.
In summary, short-term rental investing is another great wealth building opportunity under the real estate investing umbrella. There are some key factors that can make or break how well and how often your property rents. Once you’ve selected your property, don’t forget to pay attention to ways you can maximize your asset. Check out other rental listings in the area to see how yours “stacks” up against the competition.
Your rental listing is one of the most critical components to getting your property rented early and often and keeping the calendar full. Use professional photos, descriptive details about your property’s features, have modern and clean furnishings and keep the property clean and well-manicured on the outside (if you are responsible for landscaping and not provided by an HOA).
Having a well-stocked inventory of kitchen essentials, bathroom essentials and linens are very important to the experience your renters will have. The location of your rental will also dictate what other small details you should consider providing. For example, if your property is near the beach, supplying things like beach chairs, beach towels, beach toys and a cooler will enhance the tenant’s experience.
As an added bonus, owning a vacation rental gives you the ability to have a place on hand for your own vacation. An investment that provides you with a place to vacation and generates income, that is truly a winning strategy.
