6 Tips for Buying a Short-Term Rental

18

If you’re looking for houses or condos in resort locations, for example, you’re house searching in Daytona Beach, you might have a plan of making the property a short-term rental. 

A well-chosen, decorated, and maintained short-term rental in a desirable location can be a great investment. Overall short-term rentals can be significantly more lucrative than long-term rentals. 

With people now able to increasingly work from home, they’re using short-term rentals more than ever before because they’re living like digital nomads. 

Short-term rentals are usually rented out for a week up to a few weeks, they’re located in tourist areas, and the landlord keeps it clean and makes sure it meets the needs of guests. 

If you were to compare short-term rentals with long-term rentals that are similar and in the same neighborhood, you’re often going to see that short-term rental generates anywhere from two to three times the rental income of a traditional property. 

With a short-term rental, you have a lot of flexibility and control over your pricing and availability. You can charge more per night during peak seasons, for example, or on the other hand, you can give discounts to people who book longer stays. 

If you do ultimately plan to sell, your property’s value is likely to go up over time, but you’re making money in the meantime. 

While all this sounds great, it’s important to choose the right property for a short-term rental. 

Some of the things to consider include the following. 

1. Understand the Market

Perhaps more important than the property itself is the market you buy in. You want to choose a popular destination, but if you can find one that simultaneously has a fairly up-and-coming real estate market, even better. 

If you have some locations you’re thinking about, visit them. Get a feel for whether they feel thriving and vibrant or somewhat dead. 

From there, once you understand the market you want to pinpoint, look at the regulations for short-term rentals. Increasingly, municipalities are putting restrictions in place that could be problematic for your plans. 

Do your research on only local but also state landlord-tenant laws. 

You have to understand, with a short-term rental in particular, how the regulations at the local level affect the market. 

In some cities and towns, rentals may be limited only to weekdays, or they may require that rental agreements are no shorter than a month, for example. There are even places where buying a property just for the purpose of renting it out short-term is illegal. 

In big cities like Los Angeles and San Francisco, a property owner has to get a business license and also potentially register as a business entity if they want to rent on a short-term basis. 

As part of researching the market, you need to be aware of seasonal trends in the area and how this is going to affect you and your cash flow. For example, you may be thinking about buying somewhere with a summer high season, so your cash flow could be more limited during the winter months. 

2. Be Realistic with Your Expectations

Once you’ve covered the legalities of short-term rentals and you understand the market where you’re searching for a property, you want to think about your potential return on your investment. 

You have a lot of flexibility in your pricing, as mentioned, but you also want to be realistic with what your expenses are going to be. You need to factor in, as you’re choosing a property, not just your mortgage payment but also homeowners’ insurance, property taxes, maintenance, repair, and upkeep. It’s also going to be a time commitment. You’re managing marketing, checking in and out, guest satisfaction, accounting, and a lot more. 

You’ll need to either plan to be very hands-on or you’re going to have to pay someone to be. 

3. Make a Business Plan

A short-term rental is just that—a business. 

When you’re making a business plan, there are a lot of factors to look at which are going to impact your possible properties. These factors include location and amenities, and seasonality. Also relevant are supply and demand, average daily revenue, and occupancy rate. 

Your business plan will need to take into account your operating expenses, net operating income, and your cash-on-cash return. 

In some of the best markets, you may only need to have your house rented out for two weeks or less every month to cover your mortgage. The market is, again, what’s going to determine the success and profitability of your rental. 

4. Work with a Local Realtor

When you want to invest in a short-term rental, a local realtor can be one of your best assets. They’re going to know the ins and outs of the community, and they’re going to be well-suited to help you figure out the property that’s within your budget and is going to fit your business goals. 

If you’re from out of town, a local, exerpienced realtor is especially critical to have on your team. 

5. Think About Your Ideal Renter

In marketing, there’s often discussion about creating buyer personas. When you create a buyer persona, you’re crafting your ideal customer or set of customers. Do the same with your short-term rental. 

As you’re assessing properties, think about who you see your renters being and how the property will appeal to them and suit their unique needs.

The needs of families are going to be a lot different than couples or large groups. Take it all into consideration and visualize how you see your renters fitting into the spaces as you compare. 

6. Features to Look For

Finally, there are certain features that often appeal to short-term renters. A kitchen is a big one because that’s one of the primary reasons people opt for rentals instead of hotels. They want the convenience of a kitchen. It doesn’t have to be huge, but it should be fully equipped. 

Space for a washing machine and a dryer can be big, and a location that’s near the major landmarks of the location is ideal.

Comments

comments