Short term rentals are a great strategy for real estate investors but simply buying a property and renting it on short-term rental websites does not guarantee success. Here are five steps you should consider when looking for the best short term rental investment.
Choose the right location
Location is one of the most important things to consider in any real estate investment. It influences your occupancy rate, as well as the maximum daily rate. Ideally, you should always choose a location where your short-term rental can stay booked for most days of the year.
When it comes to selecting the best location you need to choose a city that is growing and has high traffic of travelers or business professionals. High demand for short-term rentals will allow you to charge a high nightly rate.
So how do you know whether a market has a high demand for vacation rentals? Look at the short-term rental occupancy rate data. This will help you understand whether your investment will have high rental demand. You should look at the statistics for the city and neighborhoods to assure you get the best ROI.
Understand Short-Term Rental Laws and Regulations
The exponential growth the short-term rental market has experienced in the past few years has led to some strict regulations. In certain markets, local authorities have even gone as far as banning short-term rentals outright. The last thing you want is to invest your hard earned money only to get into trouble with the local authorities.
Once you’ve selected a few potential locations, you need to research the areas short-term rental
bylaws. You can check out the chamber of commerce website, local websites and other online platforms. You can also consult with a local real estate attorney for more information.
Your main goal is to understand what licenses you need to obtain, what taxes and fees you will need to pay, and under what conditions you should operate your short-term rental property.
Choose a property type
The best thing about short-term rental properties is that you can invest in any property type depending on location and the type of guests you want to host. For example, if you want to host travelers or young couples, you can invest in a one-bedroom or studio apartment. If you want to host large gatherings, then it makes more sense to buy a larger property with some amenities.
Finalize your investment budget
While short-term investment properties have high income potential, this is not guaranteed. If you fail to work on your budget, you might end up running at a loss which is not good. You want to pay your expenses comfortably while making a decent profit.
Budgeting carefully means considering all income and expense, as well as one-time property expenses. Here’s a list of some expenses to guide you:
Property Price
Closing costs
Legal
Property administration fee
House keeping
Remodeling
Property taxes
Utilities
Internet/TV
Insurance
Furnishing
Ongoing maintenance and repairs
Set the maximum price you’re willing to pay for a property. Stick to it and don’t get tempted to go over it. Remember if the ROI isn’t’ there go on to the next property. Do not get emotionally attached.
Scour the Market for Properties
Now it’s time start the actual search for profitable short-term investment properties. Ensure you’ve checked all possible listing platforms. Pound the pavement, ask your friends, family, and any networks in the real estate industry. These can offer a high return on your time investment when searching for a property.
Bottom Line
Short-Term investment properties have become a lucrative investment option for investors who want to make money both in the short term and the long term. They have become popular since they offer a higher return on investment potential compared to monthly rental properties.
However, just buying a short-term rental property isn’t an assurance that you’ll generate great returns. You need to follow the five steps above to ensure you buy the right property.