Are Short-Term Rentals The Best Investment Strategy in 2023?
Across the world, major hotel chains are shaking in their boots as their bottom line slips away. They are utterly terrified of so-called short-term rental companies like Airbnb and VRBO. Though short on vowels, these companies are long on business strategy. In 2018, consumers spent more money on Airbnb locations than they did at any Hilton subsidiary. As of August 2019, Airbnb boasted 6.3 million listings in 191 countries and gross revenue of more than USD 4 billion.
Those are some jaw-dropping numbers that can make the short-term rental business seem like a slap shot for property managers. After all, regardless of the strength of the economy, there will always be a tourist industry. That means that a short-term rental property affords the possibility of a lifetime of income.
Before you dive in, however, if you would like to learn how to finance short-term rental investments click the link below for a free strategy call with our team at LendCity.
You can make a lot of money
The most attractive aspect of short-term rentals is the potential returns that investors could enjoy. Most property owners can charge more rent per month for short-term rentals when compared to monthly long-term fees. A busy short-term rental property can make up to four times the amount of monthly income of long-term rental.
The increased rate of return on short-term rentals can be a massive benefit to rookie investors hoping to raise capital and spread out quickly. As a result, short-term rental properties are much easier to scale, allowing you to increase your revenue.
Increased workload
As much money as a short-term rental may make for a savvy investor, it also involves a great deal more work.
You’ll have to correspond with potential customers, answering questions and providing instructions. Some visitors may assume that you should act as a kind of concierge while they’re in town. As a result, you might find yourself fielding lots of questions.
Airbnb and VRBO are such successful companies because vacationers can trust in a near-uniform standard. As a result, short-term rental companies have a strict set of rules for their hosts to follow. Providing pristine accommodations is just the tip of the iceberg.
Self-promotion is critical to ensure that your short-term rental is seen by potential customers. That means ensuring your place is well photographed and your page is updated regularly. Just as small businesses rely on SEO to boost their search rankings, you may also need to do some work on your listing to ensure your property rises to the top of search results.
These tasks are all in addition to ensuring the unit is properly cleaned and stocked between each guest’s stay. Check-in and check-out, cleaning and maintenance will all be part of your weekly duties.
Should you opt-out of managing these tasks, you’ll need to hire someone to act as your overall property manager. This will be much more convenient, but it will also increase your overhead and liability.
Research, research, research
Investing in short-term rental property requires incredible amounts of research and patience. You’ll have to find a home or apartment near tourist attractions, bars and restaurants. Investigating the most popular properties in a given market is also essential so that you can find a place that captures the local culture. You’ll also need to research the local and provincial laws and regulations in the area where you’ll be investing. Short-term rentals are still a relatively new phenomenon, so the rules surrounding them may be subject to change.
You may even benefit from branching out and participating in the tourist markets of other cities that get increased tourist attention. For example, f you live in the outskirts of Swalwell, you’d probably be best served hunting for rental properties in Calgary.
Your cash flow can waver
One potential drawback of basing your income on the ebb and flow of the tourist season is the potential for droughts in your cash flow at various points throughout the year. Mountain towns may find themselves booked solid during ski season and nearly vacant in the summer, for example. You’ll need to budget for these anticipated vacancies and explore how you can encourage guests by offering lower prices in the offseason.
Finding a short-term rental property that’s occupied 100 percent of the time is extremely rare. It’s important to have realistic expectations about your income potential.
Discover How To Analyze a Properties Cash Flow With This Step By Step Guide
Treat yourself
Consider this: you could purchase a short-term rental in another city and then use it at your leisure. One rental property in a foreign city can be a great jumping-off point for building a network of several rental properties. It’s like having a combination headquarters-vacation home that pays for itself and then some.
If you’re not the travelling type, you could purchase a place in your town and have a reliable place for friends or relatives to stay when they visit.
Don’t forget the monthly fees
Short-term rental properties may offer an opportunity for a substantial profit, but a significant portion of that income will go to maintain the quality of your rental abode. Even if you’re not hiring someone to help you out, you’ll need professionals to clean each one of your properties after each guest departs.
Add to that expense the cost of monthly utilities as well as must-have amenities like Wi-Fi. Provided you don’t own the property outright, you can also add a mortgage payment, as well.
Finally, short-term rental companies like Airbnb and VRBO take a cut of your income — as much as 30 percent — right off the top for the privilege of placing your home on their site.
Ease through diversity
In a long-term rental situation, property managers are always in search of the perfect tenant, someone who will pay on time, refrain from causing damage and keep the noise down for the neighbours. Unfortunately, those kinds of long-term tenants are few and far between.
What’s more, when a long-term tenant becomes a financial risk, it can put a property manager’s bottom line at risk. The rapid turnover rate of short-term rentals means that your income is rarely if ever, put in jeopardy.
Short-term rentals are a fantastic opportunity to earn even more income on your rental. If you’re willing to handle the additional management and marketing, you can have a successful career investing in vacation rentals.
So, if you are interested in learning what type of financing you need in order to incorporate short-term rental investing into your portfolio, click the link below for a free strategy call with our team at LendCity.