The short-term rental market is growing stronger and stronger as time goes on. Short-term rental properties have gained significant popularity among renters and landlords, as they’re more convenient for travelers and profitable for investors. However, does that make it a sound investment strategy for you? Well, it depends on several different factors. In the following video, we’ll go over how to analyze the short-term rental market and the pros and cons of this investment type.
Contents of This Article:
- What Is a Short-Term Rental Property?
- Should You Invest in Short-Term Rental Properties?
- How to Analyze Short-Term Rental Markets
- Pros and Cons of Short-Term Rentals
- Maximize Your Short-Term Rental Income
What Is a Short-Term Rental Property?
Essentially, a short-term rental property is just what it sounds like–a property that you can rent out for short periods of time.
Typically, they’re vacation rentals that you can rent out for a daily or weekly rate. Short-term rentals have more space, privacy, and other desirable amenities compared to traditional hotel rooms.
If you’re an investor looking to buy short-term rental properties, there are several factors to consider. For instance, most people who look for housing during a vacation look for properties near cities, main attractions, or seasonal activities.
Should You Invest in Short-Term Rental Properties?
If you’re considering purchasing a short-term rental property, you’ll want to ask yourself a few questions first. It’s essential to consider the amount of time, money, and patience that goes into any real estate investment, whether it’s vacation rental or long-term rental property. That said, here are a few points to consider before investing in a short-term rental.
- Where’s the Property Located?- Short-term rentals do best in desirable tourist locations, allowing for higher nightly rates and fewer vacancies.
- Does the Property Need Work?- Consider whether the property needs renovations or extensive maintenance before you can rent it out. It’s important to ensure it’s clean and ready to rent before putting it on the market.
- Can You Afford to Cover Vacancy Costs?- If nobody rents the property, you’ll have to cover operating expenses yourself. That said, short-term rentals experience ups and downs when it comes to demand, so it’s important to plan for each season.
- How Far Do You Live From the Property?- If you don’t live near your short-term rental property, you may need to hire local Philadelphia property managers to help keep up with cleaning and regular maintenance.
- Do You Have the Time to Manage It?- Short-term rentals require a lot of work, including marketing the property, verifying guests, regular maintenance, and cleaning between each guest. If you don’t have the time to do these tasks, you’ll want to plan for property management costs.
How to Analyze Short-Term Rental Markets
Before purchasing any property, investors must know how to analyze the short-term rental market in any given area. That said, some of the considerations for short-term rentals may differ from those of long-term rental properties. As such, here are some of the main factors to consider when performing a short-term rental market analysis.
- Choose a Location
- Determine the Demand
- Consider Seasonal Activities
- Look at the Property Type
- Calculate Occupancy Rates
- Estimate Your Income
- Factor in Expenses
Choose a Location
Location is one of the most important aspects of any rental property–especially short-term rentals. After all, most short-term rental tenants use these properties when they’re traveling, whether for business or leisure.
According to AirDNA, some of the hottest cities for short-term rentals in 2023 include:
- Phoenix, Arizona
- Dallas, Texas
- Houston, Texas
- St. Louis, Missouri
- San Antonio, Texas
Determine the Demand
Along with the location of your short-term rental, the demand is another crucial aspect to consider. After all, if there’s no demand for vacation rentals in a certain area, you may want to hold off on investing there. You may want to look at areas with tourist attractions, local businesses, and shopping centers in desirable cities.
Consider Seasonal Activities
Seasons are another important part of determining a successful short-term rental. After all, most people plan their vacations according to seasons or seasonal activities. For instance, you may see more demand for a beachfront rental property during the summer months. On the other hand, a vacation rental near a ski resort may be more prevalent during winter months.
Look at the Property Type
The type of short-term rental property you choose can also impact demand and profitability. Most people look for vacation rentals instead of staying in small hotel rooms, so they expect the area to be large enough for each guest to have privacy.
Additionally, it’s important to provide a unique experience through the aesthetics and functionality of the property. After all, your guests are choosing your Airbnb over a hotel for a reason. So, you’ll want to provide better amenities than a hotel to make your property stand out.
Calculate Occupancy Rates
Short-term rentals and long-term rentals are different in terms of occupancy rates. For instance, in long-term rentals, you’re guaranteed rental income throughout an entire lease term unless there are unforeseen circumstances.
However, in a short-term rental, 100% occupancy is not guaranteed.
To calculate the occupancy rate of a short-term rental, divide the number of nights the property is rented by the number of nights available. So, if there are 30 days in the month and your rental is only booked for 16 days, the occupancy rate is 53% for that month. While that doesn’t seem high, you may be able to set rates that will still cover the mortgage and operating expenses.
Estimate Your Income
If you’re investing in any rental property, your goal is to make a profit. That said, you’ll want to factor in several aspects that may determine your income for a short-term rental property. For instance, how well are you marketing the rental? Without proper marketing, you might not gain as much traffic as other available properties.
Additional factors to consider when it comes to generating maximum income include:
- Ease of booking–Can you book online?
- Good or bad guest reviews
- What amenities do you provide?
- What’s the occupancy limit?
Factor in Expenses
While you may be able to set higher rates and potentially earn more revenue with a short-term rental, that doesn’t mean your expenses will be less. In fact, short-term rentals may require extra expenses compared to long-term rentals, along with typical costs like property management, property taxes, and insurance.
Some extra expenses to consider for your short-term property may include the following.
- Utilities like water, electricity, internet, cable, etc.
- Booking fees on platforms like Vrbo or Airbnb
- Bathroom and kitchen supplies and utensils
- Living room, bedroom, and common area furnishings and decor
- Cleaning costs between each guest
Pros and Cons of Short-Term Rentals
When you know how to analyze the short-term rental market, you may come across some of the pros and cons. After all, there are several differences between short-term rentals and long-term rentals, some good and some bad. Here are some of the main benefits and disadvantages to consider before investing in a short-term rental property.
Benefits of Short-Term Rentals
- Higher Rental Rates- Landlords can typically set higher rates for short-term vacation rentals than long-term rental properties.
- Unfixed Rental Rates- Long-term rentals typically have fixed rates that remain the same throughout a lease term. However, landlords can charge higher rates based on demand, seasons, or weekends for short-term rentals.
- More Tax Benefits- Short-term rental properties may offer more tax benefits, like cleaning and maintenance write-offs.
Disadvantages of Short-Term Rentals
- Inconsistent Income- You can expect consistent monthly income when you own long-term rentals. However, in a short-term rental that may not be occupied all year round, your income could vary drastically from one month to another.
- More Restrictions- Short-term rental owners must stay current with all local ordinances and regulations to avoid legal issues.
- Limited Tenant Verification- If you’re using platforms like Airbnb or Vrbo, it can be difficult to verify and screen each renter before they stay at your property. As such, you might encounter some bad short-term tenants.
Maximize Your Short-Term Rental Income
If you’re looking into the short-term rental market, doing the right research before investing is important. After all, you’ll want to determine how successful your rental can be and fully understand the risks and benefits of short-term rental investments. Additionally, determine what you need to do to prepare for your investment, whether you want to manage it yourself or hire a property management team to help.
That said, if you’re looking for someone to help manage your investment properties, look no further than Bay Property Management Group. Our team of qualified professionals can help your short-term rental succeed, whether you live near or far. So, if you need help with the day-to-day tasks of owning a short-term rental property, contact BMG today. We offer comprehensive rental management services throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC.