Betting on the stock market for a strong investment portfolio isn’t for the faint of heart. Stocks are prone to volatility, whereas investing in the real estate market can effectively generate income without unpredictability. In fact, investing in short-term rentals can be just the diversification your portfolio needs.
Short-term rental prospects are good. It might continue to be a popular investment option. If current property owners can continue operations within the guidelines that many cities and states have, short-term rentals may be one of the best investment options available.
Some states have only recently allowed short-term rentals while others are in the process of passing legislation against them. In the state of Michigan, some cities and municipalities could prohibit the use of private residences for short-term rental use prior to a vote in October 2021. This change could be great for the state—not just the investors who own these homes. Michigan, along with many other states, is one of the best places to invest in vacation rentals.
It’s companies like Airbnb, VRBO, and Booking.com that have made short-term rentals a household term, which has made profiting from investing in vacation rental properties easier than ever. Instead of seeking out long-term renters and performing background checks, real estate owners can now capitalize on the demand for short-term housing and vacation rentals. Short-term rentals are typically rented for less than a month, so property owners can earn more in rent than if the home was rented on an annual basis.
But let’s get into the details of short-term rentals, investing in vacation rental properties, and their viability for investors.
What are short-term rental properties?
Short-term rental properties are rentals that have a lease of less than one year. These properties can be single-family homes, multi-family homes, condominiums, or townhouses. A person usually considers investing in vacation rental properties for short-term rental accommodations without the intent to live in the rental themselves.
Vacation homes make perfect short-term rentals, especially in the best places to invest in vacation rentals: destinations popular with the tourism sector. But people who are in-between homes, such as those who’ve recently sold a home and are waiting for their new home to close, can also use a short-term rental to avoid getting locked into a year-long lease. The short-term rental industry has boomed in recent years, especially for families that wanted to spend time together without having to share public space. Having the space for large groups, bountiful kitchen setups, and more provides a more authentic travel experience.
Short-term rentals are fantastic investment opportunities, but property management is a must, as is a good working knowledge of the local market.
Are short-term rentals profitable?
If managed properly, short-term rentals can be extremely profitable. But this isn’t the type of investment that generates income passively. Before you decide to invest in this type of property, there are a few things you need to consider:
- Is it a destination? Cities and states that see high numbers of annual tourists are perfect locations for short-term rentals because travelers enjoy the comforts of home without having to pay hotel prices.
- What are the local laws? City ordinances and state laws and regulations often set the stage for real estate. Some cities have strict regulations on the minimum length of stay, which could hinder your income generation. Familiarize yourself with these local restrictions even if you’re investing in short-term rentals in areas that favor these accommodations. Rental platforms like Airbnb also have rules your rental must follow, not the least of which are cleaning guidelines.
- Do you have a marketing plan? Because without one, it’s like setting up a website and giving no one the URL—this isn’t an “if you build it, they will come” scenario. A fabulous marketing strategy can make a small investment turn into a goldmine—if you don’t put much thought into it, you’ll hit rock bottom. And you might think, “This is tourist central!” and that you don’t need a marketing strategy—maybe so, but you still should have a plan about how you’ll market the property. Think high-resolution photos, Matterport videos, and a floor plan—show as much as you can of the property, inside and out. People love being able to imagine themselves at a rental, such as if the layout works for their needs. A detailed description of the property and all that’s included in the stay is also a must. Let your potential guests know all the amenities around the rental also, as this is sometimes the deciding factor for people looking for a place to rent short-term. List your property on third-party booking engines like Airbnb, VRBO, and Booking.com to gain maximum visibility. Finally, if you have social accounts, make sure you post links to your rental. Your friends and family and future guests will spread the word about your rental and that’s often the best publicity.
How to run short-term rentals
Like any other investment, investing in short-term rentals requires a strong strategy to make it work and see profits. Investing in short-term rentals—especially in the best places to invest in vacation rentals—may seem like a fast way to turn a profit. But especially if the home is in a tourist hotspot, the market might be saturated and overly competitive. Marketing your investment is paramount to ensuring your profits are steady. From maintaining proper accounting to maintaining the property itself, running short-term rentals takes a specific approach and experience. If you haven’t ever operated a rental, here are a few tips:
Keep accurate records
Start by incorporating your business. Property owners tend to get bogged down in the details—screening guests, property maintenance, running listings, staying on top of reviews—and it all adds up, especially if you’re a one-person show and your property is nearly always rented out. But regardless of how busy you get, it’s important to be organized, including staying on top of property taxes, insurance, maintenance schedules and billing, and any other expenses that fall under the property owner’s umbrella.
For some people, running a short-term rental on their own just isn’t feasible. If you find it tough to handle, professional property managers can help. If that’s just a bit out of your scope, consider at least finding a mentor or someone else you know who knows the ropes of the short-term rental investment landscape and can guide you through the process.
Screen potential guests
It’s not enough to have stellar images of your perfect property—now you have to be selective of the guests you allow to stay because, unfortunately, renting to the wrong individuals can leave you with a less than stellar property. This is why platforms like Airbnb allow you to rate your guests, and not just the other way around. If you use a platform to list your property, you can see what other property owners’ experiences have been with that guest, such as how they followed the rules in previous stays, if they damaged property, and so on.
Use dynamic pricing
You can often find some short-term rentals in places where the sun always shines and the temperature never dips below 75 degrees—short-term rentals in California always have takers! But not all destinations enjoy that luxury, so paying attention to the events in the area can help you market your rental to visitors from out of town. Using a dynamic pricing tool—or even manually adjusting prices to fluctuate in time with seasons or local events can help you maximize profits. You can even set your pricing in line with your competitors—it doesn’t hurt to check out the competition.
Keep the property maintained
Most people expect a certain level of maintenance in a short-term rental property. For instance, if your rental is in a colder climate, does the home have adequate heating? If it’s a cabin meant for summertime getaways without a heating system, renting it out in the winter might not be possible.
The overall cleanliness of a property is also a factor. Most people expect a rental to be spotless—there should be no signs that other people have stayed there. Keeping your property maintained well can lead to consistent reservations and stellar reviews from your guests. Prepare to set up a routine maintenance schedule and do a proper deep cleaning at the end of each stay. If you’re busy with other aspects of property management, consider hiring a maintenance team and cleaning service to handle these tasks.
Offer the best in customer service
No matter what service is provided, people expect great customer service. Rental properties are no different. You might have an easier time if you don’t have a lot of competing properties in your area, but if you have a lot of stiff competition, you need to go the extra mile. And if your short-term rental is just one of the thousands in your area, you’ve really got to bring that “wow” factor.
Consider offering additional information about your area, such as where to eat or shop. Answer any questions they might have and if they have any special requests, address their needs as fast as possible. If you have the budget, consider providing something special that the guests can take with them when they leave, such as a bathrobe. When guests can see that you honestly care about the quality of their stay, they’ll leave an excellent review which can result in additional reservations—not to mention; they’ll probably be back, too.
How to maximize short-term rentals
Making it or breaking it in real estate relies on a lot of factors—but they all come down to this: you get what you put in. This is a basic rule in business, and real estate isn’t any different. While location, local real estate market, and your overall business model come into play, it all boils down to you.
One of the greatest ways you can maximize your investment in short-term rentals is to make ongoing investments in the property. It really is the little things. The more “homey” you can make your property, the better. Plus, being able to tend to your guests during their stay can truly make them repeat guests, which is an advertisement in itself.
Where to look to invest in short-term rental properties
It all depends on a variety of factors. Location, location, location, right? Do you want the rental to be close to where you live so you can tend to guests personally? Or will you have a property management company handle properties?
You also need to look at state and local regulations for short-term rentals, because not all locations are as favorable to this type of property as others. Keeping your eye on trends in the real estate industry doesn’t hurt. As an investor, it’s already a part of your job description that you only take on investments that can generate steady income and a positive return should you decide to sell.
One of the best ways to achieve this is to look in areas that are popular with tourists but a little off the beaten path, so you don’t have quite as much competition. Every destination is different, but at the very least, opt for a location that sees a steady influx of tourists throughout the year.
Join Ark7 and earn passively
Investing in short-term rentals is an excellent way to earn an income. Though some consider this a passive income investment, it really takes a person with real estate savvy and the time and money to pull it off. Excellent communication doesn’t hurt, either.
When you invest in properties on Ark7, you can be totally hands-off and let your investment dollars work for you without ever having to set foot on a property or sign in a guest. To learn more, visit our site today.
