Since platforms like Airbnb emerged, short-term rental properties have witnessed an increase in investors, surpassing long-term rentals in popularity.
But, are they a good investment? Suppose you wish to enter the short-term rental market in 2022 and wonder if it’s the right investment option for you. The truth is that short-term rental investment comes with its pros and cons.
However, you can get more pros than cons depending on your situation. Short-term rentals allow travelers to stay in places that aren’t conventional resorts or hotels. Suppose you’ve been asking questions like “are short-term rentals a good investment?” You’ll find all the answers you need when you read to the end.
Are Airbnb Good Investments?
With the increasing popularity of short-term rentals, most savvy investors have diverted to Airbnb investing. This investment option entails buying a property and listing the rooms on Airbnb rather than staying in it as a primary residence. However, the million-dollar question is, “do you make more money renting your Airbnb?”
Airbnb investors can enjoy a passive income stream depending on how they manage the property. Although it involves continuous hard work, Airbnb investing is a viable investment strategy that enables its investors to build a fortune.
However, the secret of dealing with multiple responsibilities lies in using the right software solutions and tools that help automate most of your daily tasks.
Hopefully, we’ve been able to answer your question, “are Airbnb good investments”?
What Are Short-term Rentals?
Short-term rentals are a rental of any accessory building or home unit for a short period. While the maximum length varies depending on the jurisdiction and state of the rental property, short-term rentals typically involve a 30days stay or less.
These types of rentals also go by the name resort dwelling units, short-term vacation rentals, transient rentals, or vacation rentals. Suppose you’re interested in starting a short-term rental investment; consider checking out the available short-term rental for sale at STS for what suits your preference and budget.
Why Invest in Vacation Rental Properties?
Purchasing a vacation rental is inarguably the best option for a new real estate property investor. With its growing popularity, many savvy investors are venturing into it and renting it out when they aren’t using it for vacations.
This dual-purpose function is one of the reasons most investors prefer short-term rental investing. The primary advantage is enjoying a steady income without buying an ” investment” property.
Benefits of Short-term Rental Investments
Buying a short-term rental property comes with lots of benefits. However, the most significant ones include:
Buying a second property offers some tax advantages, such as additional mortgage deductions. While your rental income is taxable, other expenses are seen as deductions. However, the tax implications of having a rental property can get complicated, so you might want to consult your attorney or accountant before proceeding.
A short-term rental property serves double duty. Besides using it as a vacation home whenever you’re on holiday, you can rent it out to generate income. Don’t forget that climate and location will determine if your investment will be successful.
You don’t need to wait till you’re about to retire before buying a vacation home. As a young professional, your vacation rental property can also serve as your retirement home and source of steady income.
Short-term rentals allow you to earn rents, sometimes more than other investment properties. Due to their amenities and desirable locations, their rates are often on the high side.
Suppose your vacation rental fails to attract the type of customers you want, you can always turn it into a long-term lease.
What Is a Good ROI on Vacation Rental Properties?
A vacation rental is a great way to build long-term wealth due to the regular income it generates. Interestingly, each rental has a different return on investment (ROI).
As an investor, you must know that factors like property location, operating expenses, occupancy levels, rental income, mortgage rates, and property taxes significantly impact a rental property’s ROI.
Typically, a ten to 20 percent ROI on a short-term rental is great. That way, you can build your wealth and retire early. Suppose you’ve been asking, “are short-term rentals a good investment”? Calculating the ROI might give you some insight.
How Can I Measure Return on Investment?
The return on investment is calculated by removing the initial investment value from the final property value, and you’ll get the net return. Then divide the net return by the investment cost and multiple by 100.
While there are various variations of the ROI measurement formula, the two popular calculations are:
ROI = Investment Gain / Investment Base
ROI = Net Income / Investment Cost
How Can I Maximize My Vacation Rental Income?
Use Photography That Sells
Presently, people tend to use the Internet for many purposes, including finding a vacation home, and quality photos will leave a good first impression on your prospects. Prospective customers won’t consider your vacation home unless they’re impressed with what they see.
Simply put, great quality photos will significantly increase the bookings your rental will receive.
Create an Appealing and Accurate Description
When creating a listing description, don’t simply write facts about your location and property size. Make your descriptions colorful and emphasize what makes your home special. Is it close to restaurants, a large complex with kids programs and other eye-catchy amenities, or a small building offering solitude on a beach?
Get More Reviews on Airbnb and VRBO
It’s not enough to depend only on your property management company (if you hired one). Consider promoting your rental on popular sites like Airbnb, VRBO.com, FlipKey.com, and HomeAway.com to allow people to see your rental property in and outside the country.
You can also create your own website and share your property on social media to attract prospects. Don’t forget to also engage in word-of-mouth marketing and tell your friends and neighbors to spread the word.
Know How to Market Your Property During the Off-season
Depending on your property location, the in-season could be winter or summer. Desirable rentals are often fully booked during in-season periods, and their rates are higher. However, don’t forget the importance of getting off-season rentals. That way, you’re sure your property is generating enough income.
Automate Your Rental Tasks
You might want to automate vital processes such as keyless-entry systems, check-in process, online booking process, maintenance, housekeeping communication, guest reviews, occupancy tax remittance, contracts, payment processing, and temperature controls.
Consider creating automated messages that go out 48 hours before guest arrival with information like using confusing appliances, navigating the property, and WiFi details.
Price Your Listing Right
It’d be best to check out what similar vacation rentals and hotels charge in your neighborhood. Then aim for a 20 percent reduction per night than nearby hotels.
Don’t forget to increase your price as your guest list increases. When pricing, remember to add your pet fees, additional guest fees, cleaning fees, and any extra fee you charge.
Be Your Own Property Manager
Before you buy a short-term rental property, you might want to decide whether to hire a property management company or manage the property yourself.
Managing the company yourself will help you avoid paying management fees, oversee the process, provide a personal touch to it, reduce rates and influence how booked the rental will be all year.
On the other hand, as your own property manager, you’ll be responsible for booking guests, collecting money, creating an online listing, checking guests in, scheduling maintenance and cleaning, dealing with guest issues, and managing occupancy taxes.
You can learn about managing vacation properties by watching this YouTube video from Avery Carl, the author of one of the best books on Airbnb investing, “Short-Term Rental, Long-Term Wealth: Your Guide to Analyzing, Buying, and Managing Vacation Properties.”
Update Your Listings Regularly
It’s not enough to simply list your property; you need to regularly update your listing with new features in your description, reviews, and recent photos.
Regularly updating your listings ensures your rental has new features to offer throughout the seasons and attracts numerous guests. Don’t forget to update your website and social media accounts too.
Leverage Key Tax Deductions
One significant benefit of investing in short-term rentals is that rental owners can enjoy small business tax breaks and investment property tax breaks.
For instance, you could deduct charitable donations, home office, and travel from your business while still enjoying the standard deduction. However, ensure you don’t remove too much and trigger an audit from the IRS.
Encourage Long-term Stays
While we don’t recommend rejecting guests, short bookings can cost you longer and more lucrative bookings. For instance, if a guest rents your property for a night, it might prevent a potential two-week guest from booking your rental.
Consider charging accordingly. For example, guests staying a few days will pay a higher nightly rate. On the other hand, offer discounts for renters who stay for a week or more. The more they stay, the more discounts you give them.
How Proptech Improves Short-term Rental Investments?
Property technology or Proptech are technological solutions that help ease the burden of running a real estate business. Presently, this solution has helped short-term rental owners convert their properties to choice lodging for guests.
Undeniably, guests want rental convenience, privacy, and ample space. However, they also prefer the brand experience, consistent standard, and seamless check-ins a hotel offers. Thus, Proptech offers the opportunity for short-term rentals to automate their rental tasks and offer ‘hotel-like’ standards.
Start Your Investment Property Search!
Hopefully, by now, you’ve got the answer to your question, “are short-term rentals a good investment?”. Vacation properties are a great way to earn passive income if you do your due diligence and invest in a good location.
Suppose you’re ready to begin your short-term rental investment; consider starting your search by checking out listed rental properties on the Short Term Shop website. There are properties for every budget, and you’ll undoubtedly find one that matches your preference.