Is it a good idea to invest in a short-term rental? Most people believe it is. Why? Because short-term rentals have proven to be more lucrative than long-term rentals. In some situations, they may even be superior.
Table of Contents
- What Are Short-Term Rentals?
- Are Short-Term Rentals a Good Investment?
- How to Get Around Short-Term Rental Restrictions
- How to Select an Area for Your Short-Term Home
- Top 5 Best Short-Term Rental Markets
With pandemic restrictions decreasing around the world, travel demand is increasing. Moreover, visitors can stay a little longer and discover a little more now that they are given the option to work from home. Private resorts in less crowded places with a home-away-from-home atmosphere appeal to today’s tourists.
The travel business is undergoing a significant shift due to popular travel websites such as Airbnb. The large corporations and luxurious resorts are no longer the industry leaders. Property owners and landlords are now seeing an increasing share of the market in terms of hosting guests and travelers.
In this article, we will cover everything there is about Airbnb short-term rental—from the definition, pros and cons, why investors should opt for it, and more.
What Are Short-Term Rentals?
Short-term rentals are property rentals that are leased out for a defined time, usually two to four weeks. The property is typically in a busy tourist area, and the landlord is responsible for keeping it clean and ensuring that all needs are satisfied.
When renting out your house for a short period, there are a few things to keep in mind.
First of all, do your investigation before opting for a short-term rental. Look at the reviews, compare pricing, and learn about the median rent in each area. Also, before reserving, make sure to examine the property thoroughly. It will assist you in understanding any potential issues that may develop during your rental agreement.
Short-Term Rental vs Long-Term Rental
The most typical approach to investing in real estate is purchasing and operating a rental property, such as single-family homes or multifamily complexes. Rental property in residential real estate is frequently categorized as either short-term or long-term.
They are usually rented on a daily, weekly, or monthly basis. Vacation rental houses, a home hacker who leases out an extra room, and a single-family rental property with a monthly lease are all examples of short-term rentals.
Related: Real Estate Investment Strategies: Short-Term Rentals
Typically, a one-year lease term with a preset annual rent is rented to a tenant. Most residential contracts are for 12 months, while some local landlord-tenant rules may enable more than a year’s lease.
Although long-term rentals provide more dependable rental income and are easier to handle, there are specific reasons why an investor would want to consider offering a short-term rental.
Are Short-Term Rentals a Good Investment?
The short answer is that vacation rentals are pretty profitable. There are many variables to consider, such as neighborhood, maintenance services, and upfront fees, but short-term rentals generally yield a better return than long-term rentals.
When you compare two similar properties in the same neighborhood, a short-term rental will typically generate at least two to three times the rental income of a traditional annual rental. Furthermore, holiday rentals provide more possibilities to update the rental cost, making them an ideal inflation shield.
There are other advantages to renting for a short time. They can, for example, assist you in saving money on your housing bills. Short-term rentals might be an excellent alternative if you live in a city and need to seek inexpensive housing.
Furthermore, short-term rentals might offer a break from the norm. They can be a good option if you live in a city and don’t have the time or money to purchase a home.
Because of the numerous advantages, a short-term rental is an excellent investment. Here are a few reasons why:
1. Higher Income
A well-marketed short-term property in a desirable location will always beat a long-term rental in terms of profitability. It’s crucial to perform your research on rental demand in the neighborhood, but there’s no denying that vacation rentals generate more cash than standard yearly leases.
2. Easier Maintenance
Regarding short-term rental property management, short-term rentals enable you to manage your investment better. With shorter stays, you can get in and get the house cleaned more frequently, detecting any maintenance problems before they become too serious. Many vacation rentals charge a cleaning fee, so you won’t need to pay for any maintenance yourself.
3. Control and Flexibility
You have total control over the calendar and when your short-term rental is available. If you decide to undergo kitchen repairs, you can cut off a month on your schedule and complete the project when it is suitable for you.
You are also allowed to change the pricing as you see appropriate. If you wish to charge more per night after your kitchen makeover is finished, you can do so. If potential visitors want to stay for a month, you can alter your rental rate to be more competitive. Most individuals prefer working with a homeowner over a hotel manager because it gives them more freedom.
4. Value Appreciation
Aside from the monthly income flow, your property’s value will increase year after year. The longer you keep your rental property, the more valuable it will be when you choose to sell. Interest rates can go either up or down, but real estate does not lose value.
5. Ease of Access
Unlike some other investments, you can apply for a loan to buy the property and use the borrowed funds to generate additional income. It’s especially beneficial for first-time investors who don’t have a lot of cash. You can generate wealth much quicker when you understand how to use debt efficiently and manage a short-term rental agreement.
6. Tax Advantages
Short-term rentals offer a variety of tax benefits that make them quite tempting. For starters, the interest paid on the loan we just mentioned is tax-deductible, not to forget all of the additional deductions for upkeep, management, advertising, insurance, and more. You can also deduct the cost of the property’s depreciation.
Related: Tax Season 2022: Guide for Real Estate Investors
7. Cultural Interactions
A short-term rental home allows you to meet people from diverse cultural backgrounds worldwide. It can be appealing if you enjoy meeting new people and learning new stuff.
How to Get Around Short-Term Rental Restrictions
If you’ve wondered how to get around the law and restrictions, it is always advisable to follow the rules. However, it varies depending on what the HOA or CCRs state. You can rent it long-term to an entity, allowing members of the entity to reside there. Theoretically, you have a long-term lease and are not renting a room.
Nevertheless, you should examine the local laws and regulations regarding short-term rentals in a particular city and county. Some cities will charge additional taxes to discourage vacation rentals, while others may openly prohibit them.
Sometimes, investing in a house just five minutes away might significantly impact your result. Additional costs are more common in high-traffic locations, but you should always confirm before committing to a property with each jurisdiction.
How to Select a Location for Your Short-Term Home
It is vital to select the best location for your Airbnb business. The same criteria you would employ for a long-term rental do not always apply when looking to buy a home. Locations outside of major cities are getting increasingly attractive. Furthermore, residences near outdoor activities, such as mountains, beaches, and national parks, perform exceptionally well.
The following factors are essential for selecting a lucrative investment:
- Attractions in the surrounding
- Access to major roads and airports
- Vacation rental interest
- The local economy
Let’s see how Mashvisor can help in this situation.
Mashvisor as a Smart Solution
Short-term rentals allow you to lease the property as soon as it becomes available, allowing you to optimize your revenues. Furthermore, using short-term rental sites such as Mashvisor can ensure that your unit is always accessible, increasing your chances of receiving a booking.
Mashvisor is an online real estate platform that provides investors of all types with a one-stop destination for services. The website can assist investors in searching for the ideal investment property based on their preferred location, budget, and property type.
Out tool’s database includes thousands of listings from various sources. It employs revolutionary AI-powered investment analytics for both traditional and Airbnb analysis, making it simple for you to find the ideal investment property.
Related: What Makes Mashvisor the Best Real Estate Investing App of 2022?
Real Estate Heatmap
Mashvisor’s Real Estate Heatmap tool displays data on specific locations or neighborhoods. It also provides an overview of the rental market research in a particular location, making it simple to determine the ideal place to acquire a rental property.
Investors can use the Real Estate Heatmap to just look at the color-coded map to see the houses for sale in the best areas. While it is not the only thing that will contribute to the success of a vacation rental, purchasing property in a desirable location is the first step.
Mashvisor can provide you with a summary of the property’s anticipated market performance after finding a location and suitable property. It will display Airbnb data, such as median listing prices, occupancy rates, daily Airbnb rates, monthly Airbnb rental income, etc.
The occupancy rate is important when evaluating real estate comps for a short-term rental. Although a high daily rate and monthly income are important, the occupancy rate determines the rental’s profitability.
Rental Property Calculator
The Airbnb calculator assists investors in determining whether a property will be a worthwhile investment. You are free to insert your own estimates for financing and estimated expenses. You’ll see a summary of the critical metrics, such as cap rate and cash on cash return. It can assist you in making an informed investment decision.
It will ensure that your house is constantly perceived as a good value for guests to book while also making investing in short-term property rentals a profitable investment.
Real Estate Comps
To verify that you’re charging your short-term rental correctly, you should look into Airbnb comps. Mashvisor can assist you in locating comparable homes to establish a competitive rent price for your rental home. It also provides valuable insights for analyzing the market’s short-term investment results based on similar properties.
Mashvisor offers its users a downloadable Excel file that includes all necessary data to help the selection to make things easier.
Top 5 Best Short-Term Rental Markets
The cities in this segment are moderate tourist attractions ideal for first-time investors who do not have a great deal of cash. Investing in these best short-term rental markets will yield a cash on cash return of at least 8%, allowing you to diversify your portfolio further.
All of the data is provided by Mashvisor for April 2022.
1. Monroeville, PA
- Monthly Airbnb Rental Income: $1,719
- Airbnb Daily Rate: $174
- Airbnb Occupancy Rate: 63%
- Airbnb Cash on Cash Return: 9.97%
- Median Property Price: $99,563
- Average Property Price per Square Foot: —
- Days on Market: 22
- Walk Score: 20
2. Corydon, IN
- Monthly Airbnb Rental Income: $1,795
- Airbnb Daily Rate: $100
- Airbnb Occupancy Rate: 60%
- Airbnb Cash on Cash Return: 9.28%
- Median Property Price: $281,860
- Average Property Price per Square Foot: $176
- Days on Market: 59
- Walk Score: 60
3. New Castle, PA
- Monthly Airbnb Rental Income: $4,586
- Airbnb Daily Rate: $164
- Airbnb Occupancy Rate: 41%
- Airbnb Cash on Cash Return: 8.99%
- Median Property Price: $262,850
- Average Property Price per Square Foot: $175
- Days on Market: 43
- Walk Score: 41
4. Inkster, MI
- Monthly Airbnb Rental Income: $1,939
- Airbnb Daily Rate: $146
- Airbnb Occupancy Rate: 58%
- Airbnb Cash on Cash Return: 8.96%
- Median Property Price: $113,267
- Average Property Price per Square Foot: $110
- Days on Market: 39
- Walk Score: 42
5. Norwalk, OH
- Monthly Airbnb Rental Income: $2,594
- Airbnb Daily Rate: $189
- Airbnb Occupancy Rate: 57%
- Airbnb Cash on Cash Return: 8.68%
- Median Property Price: $177,100
- Average Property Price per Square Foot: $121
- Days on Market: 27
- Walk Score: 85
Are you thinking about investing in a short-term rental? The great news is that there will be plenty of opportunities for vacation rental property investors in 2022—because of high Airbnb demand. However, to determine whether short-term rentals are a secure investment for you, you must consider both their advantages and disadvantages.
So, selecting the proper location is the first step when it comes to investing in short-term rentals. It is critical to investigate the rental market before committing to a property to avoid losses.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, sign up for a 7-day free trial, followed by 15% off of your quarterly or annual subscription.