4 Things You Need to Know Before Buying a Short-term Rental

If you are green behind the ears and planning a short-term rental for your first investment, here are four things you must consider before you make a purchase.

What are Short-Term Rentals?

A short-term rental is a rental property available to rent for a month or less at a time instead of a yearly basis. They are typically vacation homes or vacation rentals, more like resorts that are occupied during particular vacation seasons, like ski resorts in winter.

Short-term rentals in the real estate market are considered quite lucrative. However, it's not the kind of investment fit for everyone, so here are four things you'd want to consider before acquiring one.

Research the Local Regulations

Before investing in a short-term rental, get to know the state/city/town. Not every location is keen on short-term rentals. They may be a lucrative business in one part of the town and a dead investment in another; you'll need to do your homework regarding the local regulations. For example, Santa Monica and California don't allow short-term rentals or guests to stay under 30 days without the property owner.

However, rules change, so do your due diligence regarding the proposed legislation and local authorities' general attitude towards short-term rentals.

Also, have a plan B to convert your short-term rental into a long-term one when the need arises. Make sure you have done enough research about that, to prevent you from being stuck paying a mortgage without having any extra income.

Assessing Potential Income

Short-term rentals are poles apart from long-term rentals. A long-term rental is where you get a fixed income and a predictable amount every month. Short-term rentals, on the other hand, will fetch you nothing for one season, and when it's time, you will be rolling in money.

The potential income on a short-term rental depends on how many bookings you secure, the rate you charge, and how attractive your rental is for vacationers.

Spend time researching the other short-term rentals in the area, learning about their going rate and occupancy rate. For example, in a town where tourism is seasonal, the rent and occupancy rates may vary throughout the year.

Increased Cash Flow = More Work

Short-term rentals fetch more than long-term rentals, but they also need more work. In order to charge higher, you will need to furnish your short-term rental appropriately. Vacationers pay more for a luxurious short-term rental than a run-down one. However, if you are in a popular tourist spot, your below-average rental will also get you a decent number of bookings if there are fewer properties to rent in the area.

To get the best rates, consider hiring a designer, add amenities, and maintain the place's upkeep after every renter leaves. Make sure your unit is clean, fresh, and smelling nice before every booking.

Added expenses for short-term rentals include.

  • Furnishings
  • Higher property management fees
  • Cleaning service
  • Cost of utilities
  • Basic supplies (toilet paper, towels, water bottles, utensils)

Keep it Flexible

Your short-term rental doesn't necessarily have to stay a short-term rental; you can find a middle ground and advertise it as a medium-term rental. How does that go? Well, it's not only the vacationers who look for short-term rentals; professionals who relocate to new towns also look for short-term rentals till they find their dream house. For example, nomadic remote workers, contract construction employees, and travel nurses all come under the umbrella of people looking for short-term rentals for a couple of months.

Such units may need a different set of amenities like parking, being closer to public transport, WIFI, and such. You will also need to market your unit on corporate rental marketplace websites as well as on tourism sites. Medium-term rentals are also highly sought-after by big companies for their employees and as contract workers.

If you know what you’re doing and have done enough research, short-term rentals can be a great way to find success in the real estate market.

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