Looking to expand your portfolio by purchasing property in the short-term rental market? Here’s a beginner’s guide to investing in short-term rental properties.
What is a Short-Term Rental Property?
A short-term rental property typically has a lease term of 12 months or fewer. These properties can differ from multifamily homes, single-family homes, and vacation properties. Typically, these properties are popular in tourist destinations and with renters who need a place to stay temporarily. In the past few years, short-term rental properties have increased in popularity as the market has expanded.
Is a Short-Term Rental Property Profitable?
The cash flow you generate on your short-term rental property refers to the difference between your property’s expenses and the money you make through rent payments. To generate sufficient cash flow on your rental property, you should calculate your expenses and then charge an appropriate amount of rent to make profit.
Compared to other traditional investments, real estate generally appreciates over time regardless of what’s happening in the overall market. Your property gains value over time allowing you to generate profits when you choose to sell it.
Although there are landlord duties you will have to oversee at a short-term rental property, you can outsource managing the day-to-day operations to a property management company. If you chose to offset responsibilities to an outside company you’re able to generate passive income. Although, there will be a fee for hiring a property manager.
Your property’s depreciation, maintenance costs, and mortgage interest can all be deducted from your taxable income. The more tax deductions you take, the less you will owe for your taxes. As a property owner, there are many things you could choose to deduct from your taxes from repairs on your home to the tools you use to expand and grow your rental business.
How to Choose a Rental Property for Investment:
Check Local Demand
When looking for a short-term rental property to purchase, you should first check the demand for renting in the area you are scoping out. Geographically, some locations do better than others depending on the local attractions. A short-term rental property is bound to be more successful in areas that have high demand like popular vacation spots.
Trends in Current Rent Prices
As macro and micro economic influences change the market, you will see trends in rent prices change. It’s important to research the current and past rent prices in the area you plan to buy your short-term rental. As you choose the location of your rental property, look for trends in rent prices and if they stay competitive with the current market.
Occupancy and Vacancy Rates
Before purchasing your rental property, you should research the occupancy and vacancy rates of the chosen location you buy into. It’s important to study the occupancy and vacancy rates to get an idea if you short-term rental property is sustainable for creating cash flow. When choosing your rental property, it’s all about your location.
Determine Your Expenditures and Income
Looking at short-term rentals, highly desirable locations tend to charge more for rent versus locations that have low demand. To draw in new tenants, you must find a balance between charging enough to make profits and stay competitive within the short-term rental market. As you hunt down the perfect short-term rental, think about the costs you might incur and how you will offset it with the amount of income you generate on the property. Besides monthly maintenance costs there will also be expenses associated with operating a rental company. Be sure to consider all extra costs when determining your net income.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.