A Beginners Guide to Investing in Short Term Rental Properties

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One interesting fact about real estate investment is its versatility. For an investor, this is exciting news. Whether you're looking to invest for the short-term or to take the long path, it's up to you to decide.

In this article, we'll focus on short-term properties. Investing in short term rental properties most times can be a daunting task. We'll discuss short-term rental properties, strategies needed to invest, and the best rental markets to find these assets.

Short Term Rental Property: An Overview

Any property that has a lease of 12 months or fewer is considered a short-term property. These properties can include; a townhome, a condominium, or a single/multi-family home.

Buyers(owners) of this property type typically buy to lease and do not live in it.

Short-term rentals are well-known as vacation homes and top tourist destinations. They can also serve as a home for renters who need a place to live for 12 months or fewer, which is the average lease time.

In the last few years, the industry has become a hotspot looking to make passive income.

Even though rentals are considered a great investment option, you'll need to possess a good knowledge of the real estate market and manage a property properly.

Are Short Term Rental Properties Profitable?

The goal of every investment is to make a positive cash flow. Under the right management, short-term properties can be profitable. But without effort, you'll find it hard to generate passive income.

Now, before you make that investment decision, here are some components that determine if your property will make a profit or loss.

They include:

Purpose of Property

With short-term properties, using them as a vacation spot is considered the best option. Why? Tourists prefer to use this because they are a much cheaper alternative to expensive hotels and resorts.

Laws and Regulations

Laws and regulations are an integral part of the real estate market. For instance, some cities, like New York, have strict rules concerning how long your property can be occupiable by a tenant. With these kinds of restrictions in place, making steady income is limited.

Therefore, before making that short-term property purchase, make sure you familiarize yourself with the rules and regulations peculiar to that real estate market.

Marketing

While a good marketing strategy like this can turn your investment into a hotspot, a poor one can sink it to the ground. Marketing is one critical aspect of ensuring that your property yields profit.

Creating jingles, videos, and giving an accurate description of your property is sure to make guests have a second look.

Use social media to get to your advantage by hiring the services of influencers to spread the word. These influencers are instrumental in making your property gain wide recognition, which translates into leasing rentals that ultimately yield rental income.

Also, tell family and friends about your property. Doing this creates another form of advertisement entirely, which is via word-of-mouth.

The Short Term Rental Cash Flow Calculator

Now that you've established the components of a short-term rental property, it's pertinent to note that analysis plays a significant role. How do you analyze? The short-term rental investment cash-flow calculator does the trick, and it's a must-have for every investor.

An investor can use many metrics to analyze if a particular property will yield profits when converted to short-term rental investment.

The three significant evaluation metrics are; cap rate, cash on cash returns, and net annual cash flow.

Most times, sellers don't give information on the above metrics. Sellers only give out information bordering on utility costs and rental income annually.

Consequently, investors are left guessing potential expenses and occupancy rates. What if the property has never been used? What if it's not performing optimally under the current management?

The short-term rental cash flow calculator gives answers to all these nagging questions. How? By connecting the dots between the three key evaluation metrics.

Armed with this tool, you can now calculate the capex amount, occupancy rate, and maintenance fees for varying market conditions. Evaluating all these metrics enables an investor to analyze aggressively or conservatively as desired.

How do you use this calculator? It's pretty much straightforward. Here, all you need do is enter data that concerns your deal into the blank spaces to calculate the cap rate, cash-flow, and annual returns of your short-term property.

Running A Short Term Rental Efficiently

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Most people see short-term rentals as a quick way to make money. But to maintain positive cash flow, you'll have to make use of specific strategies.

Here are some short-term rental strategies to help you run your short-term rental efficiently:

Keep Your Records Straight

As a property owner, you continuously have to shoulder many things, including; guest screening, maintenance, reviews, and listings.

It would be best if you stay organized, no matter how busy you get. Pay attention to property taxes, utility bills, and other expenses that are under your management.

Alternatively, hire the services of a professional property management company to take care of all your management needs.

Screen Tenants

Before renting out spaces, check reviews of tenants online from their previous landlords. Doing this goes a long way in establishing a beneficial relationship.

Now, make them acclimatized with the rules and regulations of the property.

Pay Attention to Local Events

Short-term rentals typically face inevitable highs and lows.

For example, during summer, short-term property owners enjoy the high flow of tourists from all over the world, which translates to more rental income.

However, short-term rental owners must get familiarized with local events to keep their property booming during lows. You must also look at the price list of your competition so that you set prices that aren't too high or low.

Keep Maintenance Up-to-date

“A stitch in time saves nine.” Anytime a maintenance issue crops up, you'll want to make sure you fix it pronto.

Not doing this can result in damages that are sometimes beyond repair.

Provide Good Customer Service

The foundation of any business is the presence of good customer service.

Providing top-notch customer services for your guests is sure to give you good reviews, which translates into more reservations.

Markets to Buy Short Term Rentals

No two short-term properties are the same. While some certain cities give a greater return on investment, others don't.

Best markets are determined by; rental demand, revenue growth, and investability. With all these metrics evaluated, you can now pick a real estate market to make profitable investments.

Here are the ten best short-term rental markets in 2021, according to AirDna:

  • Castroville, California
  • Slade, Kentucky
  • Cherry Log, Georgia
  • Shenandoah, Virginia
  • Athens, New York
  • Apollo Beach, Florida
  • Stanton, Kentucky
  • Kerhonkson, New York
  • Two Harbors, Minnesota
  • Gerton, North California

With the above list, you can now invest in short-term rental properties in real estate markets that stand out from the competition.

Major Takeaway

Short-term rental properties are a great investment option. But for it to yield positive cash flow and act as a passive income stream, investors have to be armed with specific strategies essential to make it run smoothly whilst standing the test of time.

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