There are many ways to earn a good return on income in the real estate industry. Some use house hacking, wherein the owners live on the same property while renting out two to four of the units to tenants. Another popular real estate investment is “fix-and-flip“. With this approach, an investor buys a home, applies necessary repairs, and then sells it for a profit. Others simply invest in real estate investment trusts (REIT) or real estate stock to let their money grow.But one of the most popular real estate investments is short term rentals. This is where an owner decides to convert his or her property for lease for a short period of time. The average short-term bookings usually take a couple of days or even just one night. Read on to learn more about this business and the best way to find short term rentals.
Why Are Short Term Property Rentals a Sound Investment?
The Market Is Constantly Growing
The industry is very lucrative and has been growing rapidly in the last few years. As per the data collated by iProperty Management, the vacation rental revenue for the year 2019 was at $87.09 billion. The growth rate of the market is at 6.9%. In total, there were 448.7 billion rental users all over the globe in the past year.In March 2020, short term rental bookings dropped to about 700,000, which is considered a massive decline according to a report by S&P Global Market Intelligence. However, as per PRNewswire’s latest report, short term rental bookings are now recovering. Companies, such as Airbnb and Vrbo, report that their bookings are now at least 81% of their 2019 levels. Short term rental market trends like applying enhanced cleaning and sanitation standards, as well as reducing vacancy rates, are applied to keep the business running despite the adverse impact of the pandemic.
High Rental Income
Converting your property into a short term rental can be a great side hustle for you. If you take care of your property and the way you treat your guests, you can attract a steady stream of tenants. This can give you a higher return on your investment. Airbnb hosts, for instance, make an average of $924 per month. Depending on your property’s location, you have the potential to earn even more.
As an owner, you’ll be the one to decide how much your short term lease rate will be. You can adjust them as you see fit. Plus, you can raise the rates if you see that the inventory is filling up quickly in order to maximize your profit.
Helps Diversify Your Investments
Short-term rental properties have a completely different market compared to other types of real estate properties. Asset diversification helps protect your investment portfolio from market volatility. Short term rental revenues can also cover the mortgage of the property. This gives first-time investors a high chance of getting into the market.
Suits Any of Your Preference
There are a lot of properties to consider when it comes to the short term rental business. From studio apartments or condominiums to mountain chalets or tree houses, you can invest in any of these dwellings and rent them out to guests. Choose the one that suits your taste and budget.
Easy to Find Renters
You don’t need to worry about finding renters to book your place. With or without a pandemic, people will always be on move or go on a vacation. Marketplaces have also made things easier for renters to find short term rental properties.
For Personal Use
One of the best reasons to have a short term rental property is that you’ll also have the place to yourself whenever it’s not occupied. Whether you want some alone time or need a place to set up a gathering, you don’t need to waste your time looking for a place, because you already have one.
Steps to Finding the Best Short Term Rentals
Ready to invest? The best way to find short term rentals is through these steps:
Do Your Homework
When looking for short term property rentals, the location should be at the top of your criteria. In addition, you must also consider factors like demand, weather, market conditions, and the proximity of the location to amenities. Of course, you should have the right amount of money to invest. In fact, know how much you will need before committing. You can either pay via cash/debit or finance the property through a loan.
In-Depth Market Analysis
Check out other vacation trends in that area you’re exploring. Are there nearby attractions or events that will attract potential clients? Will there be enough demand for vacationers that will make your investment sustainable? You may also want to consider what type of property to invest in and do market comparisons. There are free listing sites online, like Avery Carl’s website, wherein you can find market data for comparison. This data can also give you an idea about how much you can charge per booking and the approximation of your average monthly income.
Familiarize Yourself with How Short Term Rentals Work
The income generated from short term rentals varies per season. Properties near the beach or those that have swimming pools attract more guests during the summer. Meanwhile, properties near ski resorts are the more popular choice during winter time. Ideally, know what to expect during peak and off-seasons. Don’t forget that you will also need to clean the property after every booking, so you’ll need to set an overall monthly expense sheet to account for any extra fees.
Do a Calculation of Your Expected Income and Expenses
Yes, short term rental income varies depending on your chosen location. However, you may want to set your weekly rental rate as 10-20% higher than your expected monthly mortgage payments. You can even set a higher rate if your property is set in a high-demand area. But you should still meet the budget needs of those looking to rent in the area—meaning you don’t want to charge too high so that your prospects look to other options.
Qualities of a Good Short Term Rental Property to Invest In
Investing in short term home rentals isn’t something you should rush. After all, you’re investing a large sum of money, and you want it to be worthwhile. To make sure you get a good return on your investment, consider these qualities when looking for a property:
As mentioned earlier, location plays a vital role in the success of your short term rental business. Vacationers often look for a place to stay that is near the attractions they want to visit. You need to carefully determine the location of your future short term rental property, as this will determine your occupancy rate, rental income, and profitability. Aside from proximity to attractions, the property should also be near amenities, transportation, public infrastructure, and shopping opportunities.
More often than not, investors sabotage themselves when it comes to the condition of the property. While properties that have beautiful interiors or exteriors indeed appeal to investors, shabby homes can also be a good option. These properties will just need some remodeling but can provide you with a high revenue in the long-run. But still, you need to consider property maintenance and costs. Know the age, quality of the building, and other factors and conduct a general comparison among all the properties you’re considering before investing.
Positive Cash Flow
The best income-producing investments are those that generate a positive cash flow. In the real estate industry, these are properties that have lower rental expenses yet earn a higher rental income. Before buying a property, perform an investment property analysis to determine whether it’s generating a positive cash flow.
Another major factor to consider when investing in short term rentals is the price. Go for a short term rental property that is modestly priced. These properties can generate plenty of savings and what’s more, they are easier to finance. If you are a first-time investor, you are more likely to get the funding you will need from lenders if you choose cheaper properties.
It’s better to opt for a simple property. More travelers will choose a simple property over a luxurious one, because it feels more homey or it gives them a notion that it’s more suitable for their budget. Also, those high-end real estate properties are a limited niche that only attract a few renters. Moreover, a simple property is easier to manage and maintain compared to the more extravagant properties. And once you decide to sell your simpler property in the future, it won’t be a challenge to find the right buyer.
If you’re looking for a sustainable business, you’ll never go wrong with short term rentals. But you shouldn’t settle for just any property. The best way to find short term rentals is to conduct an extensive study, from doing due diligence on your chosen location to calculating your expected revenue. Most importantly, take a considerable amount of time to make sure you’re investing your money wisely.Whether you’re just starting to set up your own business or have been an entrepreneur for quite some time, you can find the right guidance from The Startup Magazine. Visit our website today to get all the insights you’re looking for about property investment!