A short-term rental is an apartment or rental property whose lease is less than the traditional 12-month lease, usually six months or below. Short-term properties have gained popularity in the past few years, especially among vacationers seeking temporary accommodation.
The flexibility offered by this type of rental often comes with higher fees and unique lease terms. They typically come as single or multi family homes, condos, or townhouses.
The success of Airbnb, Vrbo, and similar hosting platforms also show the potential of owning a short-term rental investment. It offers investors a fantastic opportunity to break into the real estate sector or diversify their existing portfolios.
A short-term rental investment is potentially more lucrative than traditional long-term investments. Tools like The Short Term Shop’s rental cash flow calculator allow you to determine the potential of a short-term rental property. You can get it via https://theshorttermshop.com/.
Why Invest in Short-Term Rentals?
If you want to venture into real estate investing, here are some reasons you may want to opt for it:
Growing Market
The global short-term rental market is on the up, and there’s no better time than the present to get in on the action. More people are opening up to the idea of staying in someone’s home instead of a hotel on their travels.
Vacation rentals offer guests unique perspectives that a hotel stay may not capture. The vacation rental market is projected to be worth around $194 billion at the end of 2021, an annual rise of seven percent in the previous four years.
Available for a Wide Budget Range
You don’t have to spend a fortune to invest in a short-term rental. Vacation rentals come in all sizes and price points from condos, chalets, studio apartments, and tiny properties. You can even add a building to your current residence if you live in a prime location and have space to spare.
Short-Term Rentals Are Lucrative
You can demand more in rental fees for short-term rentals than you’d for long-term rentals in many cases. (See how much you can charge on your property using a short-term rental calculator). You can also earn recurring income from impressed guests who’ll be returning to your city in the future.
You Can Find Renters on Several Marketplaces
You can find guests for your property by using popular platforms like Airbnb and Vrbo. Airbnb is the world’s largest vacation rental platform and has over four million listed properties worldwide.
It’s easy for guests to find your property when you list it on a vacation rental platform. (Compute the potential returns on your investment using this Airbnb investment calculator).
Tax Incentives
Federal law offers rental property owners tax breaks on a mortgage and other rental-related expenses. Owners who run their rental as a business may be eligible for a tax break of up to 20 percent of their net rental income.
You Get to Own a Second Home
Your short-term rental property can also double as a second home. You can use it as a personal getaway spot when it’s unoccupied, saving you vacation accommodation costs.
You can also host private events like birthdays or family reunions. Short-term rentals also offer investors the option of flipping the property for cash if they want to get out of the business.
Downsides of Short-Term Rentals
Real estate investments have potential pitfalls investors should be aware of, and short-term rentals are no different. Here are some reasons to think twice before buying a short-term rental property:
Time-Intensive
A short-term rental investment requires hands-on management. You’ll have to clean and restock the property between check-ins. Owners have to respond to booking inquiries and questions, which can be tedious, especially if they manage multiple properties. Hiring a property management company or using scheduling software can help take some of the load off.
Higher Vacancy Rates
You may not always be able to find guests for your property. Customers are primarily tourists who stay for a few days or weeks, leaving the property empty till you find another guest. You may also have to deal with last-minute cancellations, so higher rates are often the only way to cover your expenses.
Using a Short-Term Rental Calculator
A short-term rental calculator is a tool that offers investors an idea of the potential of any property as a short-term investment. If you want to add a property to your portfolio, you need to understand how it’d perform in the rental market, and just knowing the asking price of a property may not be enough. According to Marina Vaamonde, a seasoned real estate investor at HouseCashin, if you want to add a property to your portfolio, you need to understand how it’d perform in the rental market, and just knowing the asking price of a property may not be enough.
A vacation rental income calculator employs parameters covering your investment (purchase price, down payment, closing costs, etcetera), outgoing set (property taxes, insurance, utilities, maintenance, levies, etcetera), outgoing management (rental commission, property management fees), and income figures (nightly rates, weeks rented).
The short-term rental calculator is pretty easy to use. Fill in the blank spaces with the data that pertains to your property, and the tool will produce a result that provides an idea of your property’s potential. Note that the results from these tools are estimates, and you may need to speak with an accountant to obtain more specific results.
Tips for Investing in Short-Term Rentals
Before investing in a short-term rental, you may want to follow these tips to help you maximize your investment.
Choose the Right Location
Finding the right location is crucial to the success of any real estate investment. Localities that attract tourists are the most suited to short-term rentals. You also have to be sure that regulations in your location permit short-term rentals.
Find the Right Property
Whether you want to get a condo, multifamily home, or townhouse, you must understand the type of guest each property attracts to see whether it fits your investment goals.
Sort Out the Finances
You must figure out how much you’ll pay in taxes, insurance, utilities, and other costs associated with your property. To have a positive cash flow, you also have to determine how much you’ll need to charge as rental fees. A short-term rental calculator comes in handy at this stage.
List Your Property
The final step is to put your property on the market. Airbnb and other hosting platforms provide an easy way of getting to potential customers. Your listing should contain clear photos of the property and amenities to make it stand out from the competition.
Final Thoughts
Short-term rentals are potentially lucrative investments when done with the right mix of diligence and skill. Highly touristic markets offer the most profit potential, and a short-term rental calculator provides valuable insight into the profitability of any investment.
