Short-term rental (STR) spaces like those you find on Airbnb are in high demand. However, investing in short-term rental property can be intimidating. It’s not as simple as renting out one of your homes. You must consider the diverse markets and their respective regulations and then decide on which property to buy and where. Even so, hosts can find a significant return on investment for their properties.
Assess the Pros and Cons
If you’re deciding whether to become a rental property owner or choosing between renting out your space long-term or short-term, there are many factors to consider.
Pros of Investing in Short-Term Rental Property
- Passive Income: Short-term vacation rentals are becoming increasingly popular, creating more opportunities for property owners to generate passive income. Since you can charge per night instead of per month like in a traditional long-term rental agreement, you are able to generate more profit.
- A Vacation Home: While you should want to rent out your property as frequently as possible, you can also use it for your own vacations. The ability to use your property as a second home is an exciting perk!
- Freedom of Choice: The stability of having a monthly renter is great, but relying on a single source of income can be risky if there are complications with the tenant. As you’re welcoming guests more often, you can also manage the maintenance of the property frequently and fluctuate pricing.
Cons of Investing in Short-Term Rental Property
- Higher Expenses: As a vacation rental owner, you’ll need to invest more money into providing a positive experience to your guests. Start-up costs can quickly add up! Regular expenses include cleaning fees, utilities, decor, furniture, Wi-Fi, linens, snacks, and more.
- Laws and Regulations: Some local governments have started introducing laws and regulations to limit short-term rentals. This means investors need to complete thorough market research to ensure they are following the rules in their area. Kissimmee, Tampa, Cape Canaveral, and Fort Lauderdale are a few nearby cities with few STR regulations.
- Inconsistent Revenue: Because you’ll be renting your property for very short periods of time, your cash flow will likely be very irregular. Seasonality and reviews will play a huge role in your success.
There are a number of financing options for investors interested in purchasing properties for short-term rentals. HBI’s mortgage financing experts are here to listen and guide you in the right direction. We help you prepare your application and counsel you on all aspects of the process.
Select a Location
The return on your investment property is highly dependent on the location and type of property you select. So, when selecting an area, consider the occupancy rate and the average daily rate in the neighborhood. Is the region affected by seasonality or is it a travel destination year-round? Is the property within walking distance of attractions and activities? Consider taking a look at vacation rental listings to see what areas are saturated or what properties are fully-booked.
Set Yourself Up for Success
Now that you have your property, we have a few tips for increasing your profits.
- Adjust Pricing: Don’t be afraid to change your rates. Raise the price when there is a lot of demand and lower it when you aren’t getting many bites. Do your research to ensure your price is fair and competitive.
- Charge Extra: When providing extra amenities, it’s okay to charge for it! If you’re including an extra bed, allowing pets, or offering late check-out, the guest should cover those costs.
- Provide a Special Touch: What will set your property apart from the hotels and other vacation homes in the area? Consider including unique experiences and decor or a few extra special touches like water bottles in the fridge to show your guests you care.