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Beginner’s Guide to Investing in Short-Term Rental Properties

What’s a short-term rental property? It’s a property that has a lease term of less than 12 months. It could be a single or a multiple-family home. It can also be a condominium or a townhome. Usually, a person purchases this type of property with the intention of leasing it and not actually living in it.

Short-term rentals are popular in tourist destinations for vacation homes and Airbnbs. These rentals also work for renters who need a place to stay for less than 12 months. The period is considered a traditional lease time.

This industry recently transformed from a side-gig for homeowners looking to make an extra income to a booming industry in many markets. Though considered a great investment, short-term rentals require proper management and a good knowledge of rental property investment. 

How to Properly Invest in Short-Term Rental Properties?

Rental property investment begins with an understanding of the basic rules of real estate. The rules are captured in the familiar phrase, “location, location, location.”

Beginners should talk to experienced real estate agents who know the short-term rental market very well. The agent will provide insights into the overall “temperature” of the market. They will tell you how to invest in apartments and how to make money on rental properties. This information is crucial and will be useful in deciding where and how to find investment properties. 

Source: Pexels

  1. Find the Right Investment Property

Getting the right vacation rental property is a challenging step in short-term rental investing.

Certain factors will influence whether your rental property investment strategy will be profitable or not. Such factors include the location, the type of property, Airbnb regulations, and the local real estate market analysis.

A lot of guests who book for a short-term stay are in most cases visiting as tourists. Some could be visiting for business-related purposes. The best short-term rental property investments enjoy a booming tourism industry. That’s why it’s important that you choose a neighborhood that’s close to tourist attractions.

You can also buy a rental property that’s close to business hubs where visitors often go. The other rental properties investment strategy is that you must consider the amenities and the features offered in the area. That includes public transport, safety, walkability, and its proximity to grocery stores or markets.

When it comes to the type of property, you can rent an entire home, multiple or a single room, even a condominium as vacation rentals. Determine your type of market before choosing the kind of property for your short-term rental. If, for instance, you intend to rent your home to individual travelers or couples, a condo unit will be ideal.

But if you are renting to families, consider buying an entire home as a vacation rental. If you’d like to stay in the house and rent the spare rooms, buy a property with several rooms.

Before buying rental properties, you must check the local real estate market data. That’s because the information will help you in determining whether the property is worth investing in. Consider details like the cap rate, cash on cash return, and the occupancy rate.

Note that finding an accurate real estate analysis and data can be challenging and time-consuming. That’s especially if you’re a beginner in rental property investment. To avoid the hassle, utilize the help of a real estate data analytics company. 

  1. Register Your Short-Term Rental Property

After buying your short-term rental property, ensure that it’s physically ready to receive guests. After the renovations and furnishings, the next step is to register your business. You’ll then get your short-term rental license if need be.

Remember that different states and cities have varying Airbnb rules and regulations. Thus, you must adhere to the rules because violating them can result in unnecessary fines. You must also ensure that the property complies with the local zoning ordinances and tax laws.

Apart from different Airbnb rules based on the state or city, you must also abide by other contracts and the laws that bind you. If you, for instance, intend to do an Airbnb arbitrage, ensure that you follow your lease contract. The other rules that may apply to your property are the risks established by tenant organizations, condo board, or co-op rules.

  1. Set a Price and List Your Property

Source: Pexels

After registering your property and securing approvals, prepare your short-term rental for listing. There are various short-term rental sites and platforms on which you can list your property. This is important because the more exposure your property gets, the more chances there are for it to get booked.

Ensure that you understand the fees associated with listing your property on such platforms. That will help you in pricing your rentals strategically.

When pricing, you must ensure that the rental rate brings in a good rental income and a positive cash flow. That’s not to say that you price the property too high because that will drive away prospective renters. You shouldn’t set the prices too low either because that will not generate a good return on investment.

Consulting real estate data analytics companies will help you to get comparable properties. That way, you’ll set a competitive rental rate for your short-term rentals. This will also give you insights on analyzing the market’s short-term investment performance based on comparable. 

  1. Keep Your Records Straight

It’s easy for a property owner to get bogged down by things like guest screening, maintenance, listing, and reviews. That’s especially if you have people staying at your property every week.

But no matter how busy your schedule gets, you must ensure you stay organized. That’s including keeping tabs on your property’s taxes and maintenance bills. You mustn’t forget about the insurance, permits, and other expenses that fall under your property management.

You can also enlist a professional property management company, if you feel like the volume of work is more than you can handle. The company must be specialized in helping investors in short-term rentals. You can also find yourself a mentor to guide you along the way. It will be good to receive help as you learn the ropes in rental property investment. 

  1. Provide Good Customer Service

Good customer service is the foundation of any successful business. You may have it easier if your property is in an area with fewer listings. You must, however, provide superior customer service if your rental property is located in a city that’s saturated by short-term rentals.

If you’re in such a city and are competing with thousands of rental properties, you have no choice but to go above and beyond to please your guests. You can do this by giving them extra information about the area and answering their questions. You can also please them by addressing their needs in a timely fashion.

If the guests notice that you’re trying your best, chances are that they’ll leave you a great review. This will certainly lead to more reservations. 

Conclusion

There are a lot of things a beginner must consider when thinking about short-term rental investments. These considerations will help you in diversifying your portfolio. They can also be a solid hedge against inflation. Also, short-term rentals provide a good passive income from property rental.

When considering investing in rental properties as a beginner, think of the return on investment. This should be based on the type of property you’d like to own. You should also think of the monthly operating expenses and the rental income you’ll generate. Last but not least, keep in mind the three Ls, which are location, location, location!

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