What is a Short-Term Rental and why should you invest in them?
It’s no secret that the short-term rental business is red hot right now. Travel demand is higher than ever, yet a lot of people are looking for different experiences than we were a few short years ago.
With more flexibility to work from home, guests can stay a little longer and explore a bit more. Today’s travelers are excited about private getaways in less populated areas that have a home-away-from-home feeling.
Thanks to popular travel sites like Airbnb and VRBO, the travel industry has seen a slight shift. The big corporations and fancy resorts are no longer the biggest players in town.
What is a Short-Term Rental?
A short-term rental refers to leasing property or temporary housing for 12 months or less. Most short-term housing is rented weekly or monthly, but they do offer nightly rentals as well. They’re an alternative to a hotel and sometimes referred to as vacation rentals.
Short-term rentals are completely different from a resort as the property could be anything from a multi-family home, condo, apartment, townhome, or cabin. They’re completely furnished and geared towards providing the same comforts to renters as staying with a friend or family member.
Many people who own a second home or a vacation property can create additional income by renting it out when they’re not using it. It started out as a side gig for a lot of landlords, but as it gained in popularity, many investors have found the money-making intriguing.
Are Short-Term Rentals profitable?
The short answer is, yes — vacation rentals are very profitable. Of course, there are a lot of variables such as location, property maintenance, and upfront costs, but short-term leases provide a better return than a long-term lease.
When comparing two similar properties in the same location, a short-term rental will typically produce two to three times more rental income than a traditional yearly rental. In addition, vacation rentals offer more opportunities to update the rental price, so they’re a great hedge against inflation.
Is a Short-Term Rental Property a good investment?
Investing in real estate has proven to be one of the most lucrative investments you can buy. Real estate, in general, is popular among investors because of the many tax benefits and the ability to provide steady cash flow.
Short-term rentals are a great investment because of their long list of benefits. Here are just a few of them:
- Higher Earnings: A well-marketed short-term rental in a desirable area will always outperform a long-term rental in earnings. It’s important to do your due diligence on rental demand in the area, but there is no doubt that vacation rentals bring in more income than your typical yearly leases.
- Better Maintenance: Short-term rentals allow you to take better care of your investment. With more short stays, you can get in there and have the property cleaned more often and catch any maintenance issues before they go too long. Most vacation rentals charge a cleaning fee, so you don’t even have to pay for some of the upkeep yourself.
- Flexibility: You have complete control over the calendar and when you want to offer your rental. If you decide to do kitchen renovations, you can block off the calendar for a month and finish the project when it’s convenient for you.You also have the freedom to adjust the prices as you see fit. After your kitchen renovation is complete, you can charge more per night if you want. If potential guests are looking for a full month’s stay, you can adjust your pricing so it’s more competitive. Most people enjoy the flexibility of dealing with a homeowner versus a hotel manager.
- Appreciation: Beyond the monthly cash flow, your property will be appreciating in value year after year. The longer you hold on to your rental property, the more it will be worth when you decide to sell. The rate is never guaranteed, but real estate does not go down in value.
- Accessibility: Unlike other investments, you can take out a loan to purchase the property, and use borrowed money to bring in more income. This is especially helpful for beginning investors that don’t have access to a lot of cash. You can build wealth much faster when you know how to leverage debt in a profitable way.
- Tax Benefits: Short-term rentals have a whole slew of tax advantages that make them very appealing. For one, the interest paid on the loan we just discussed is a tax write-off, not to mention all the other deductions for maintenance, management, marketing, insurance, and so on. You can also take a deduction for depreciation on the property.
We offer Short-Term Rental financing at 80% LTV. This is a DSCR Program. Please visit our DSCR page for more information.
