Many people believe you need to be a multi-millionaire before you can invest in real estate. And that idea is a general misconception that needs to be corrected. There are several ways you can invest in real estate. And not all require you to have a massive sum of money.
One of the best ways to enter the real estate investment world is investing in short-term rental properties. Short-term rentals are underused but highly profitable real estate investing options.
Is Owning a Short-Term Rental Property a Wise Investment?
With clear plans of action and a defined business model, you’ll be surprised at how lucrative the short-term rental property investment can be. Unlike conventional real estate investments, short-term rental investment offers higher profit margins and opportunities for growth.
In October 2020, Airbnb hosts around the world raked in over $110 billion in rents. I bet that information has excited your interest in buying a vacation home for sale. Thus, it’s clear that investing in a short-term rental property can be rewarding with the right combination of factors.
If you’ve been looking to invest in real estate and also have a nice place to relax at your leisure, consider buying a short-term rental property. Here’s a well-thought guide on how to go about it:
Understand Short Term Rental Properties
Short-term rental properties don’t necessarily have to be mountain cabins or vacation homes in remote areas. You can decide to get a one-bedroom or two-bedroom apartment in a nice place in the city.
You’d be surprised at how much you can earn from renting a home to a visitor for a short period. You can provide accommodation services to people who want a staycation or need a place to stay due to personal reasons.
Choose Your Location Wisely
The property’s location is one of the characteristics that’ll determine the profitability of your rental business. You can renovate or give your property a facelift, but you can’t change its location. So, when you’re looking at potential short-term rental properties, the property’s location should be a primary factor to gauge your purchase. Whether you’re getting a property in a town, city, or country, keep in mind to get one in a safe and attractive area.
Finding the right property in a desirable location can be challenging. It’s advisable to consider hiring a real estate expert like Avery Carl. Her team of experts specializes in helping investors locate and acquire lucrative short-term rental properties.
Understand Vacation Rental Demand
After identifying potential short-term rental properties, you’d want to find out if they’re in great locations. Thus, you’ll need to consider the flow of traffic at the potential site of your choice.
Is the location of your short-term rental a popular site? Does it get busy throughout the year? Or at certain seasons of the year? The answers to those questions will help you figure out the rental demand in such a location.
Know Your Tax Implications
Buying Short-term rental property qualifies you for some significant tax advantages. For long-term rentals, you can earn the professional realtor title if you work at the real estate more than 51 percent of your time for a minimum of 750 hours per year. However, short-term rentals allow you to deduct all your expenses, thereby lowering your tax liability. It’s advisable to consult a tax professional to make sure you’re within the legal standards.
Understand That the Rental Property Income Isn’t Passive
Investing in short-term rental property can only be a passive investment after doing a bit of work on the property. Ideally, short-term rental property is more of an active investment. Once you’ve purchased the property, upgraded it, and started getting tenants, you can then refer to your investment as a passive income plan.
Choose Your Market Carefully
Before you begin searching for vacation rental properties for sale, you should understand the home market and the areas that attract more traffic. Imagine getting a property in a location that barely gets visitors. You might find it hard to make some reasonable profit off that investment.
The result of your research will determine whether you’ll purchase your short-term property in your local market or a more distant location. You can assess the local, city, and country regulations with tools like AirDNA to make sure you’re investing in a viable asset.
You’ll also want to ensure that the property you get has features that support short-term rentals.
Create a Marketing Strategy
Your short-term rental business needs exposure. And if you’re to advertise your property in the online marketplace, it’d be best if you started with Airbnb and VRBO. You can also create a website for your business. That way, you could take direct bookings by working with event planners or hospitals.
More importantly, direct bookings will allow you to keep 100 percent of your income instead of paying a percentage to third-party websites.
Pros and Cons of Investing in a Short-Term Rental Property
Buying Short-term rental property has its benefits and drawbacks, as with any investment. So, before diving into this line of investment, you’d want to be aware of the pros and cons before proceeding.
Source of Income
The most significant advantage of owning a short-term rental is the ability to earn some extra cash off it. The amount you make on your rental property depends on factors like the location, target audience, and amenities of the property.
You have a Vacation Spot for You and Your Family
Consider your investment in the short-term rental property as a way to save on future vacations. For instance, you can use the property for special occasions like annual holidays, personal getaways, or birthdays. The ownership of the property will save you the cash you’d have spent on hotel room bookings.
If you can successfully rent out your property for at least two weeks in a year, the state considers it a business. And that means you can write off any expenses related to the short-term rental property.
Renting out a short-term property requires more management compared to conventional renting. You could employ someone to handle the cleaning and oversee the upkeep of your property. However, you’d want to handle this aspect yourself to minimize cost and maximize profit.
You won’t earn the same amount on your short-term rental property all year. Rental properties usually generate inconsistent income due to the high and low seasons. It’s advisable to be aware of your property’s seasonality so you can maximize your returns in the high season.
Investing in a short-term rental property offers you an incredible opportunity to create a new source of income and be more financially secure. And remember, the best way to get significant returns on this type of investment is to choose your location and property wisely. Adopt healthy marketing habits as well and watch your rental business grow.