The emergence of the sharing economy created a new business opportunity for many property owners: short-term rentals, as opposed to long-term tenants. This article will cover the main pros and cons of short-term renting so you could decide if it’s the right call for you as a landlord. Also, we’ll give you some advice on how to turn short-term renting into a profitable and successful undertaking.
Pros of Short-Term Renting
You can maximize your income
Listing your property on short-term renting platforms could potentially lead to an increase in your monthly income. The “price per night” rates usually add up to a significantly higher monthly income than the average long-term residential rent for the same property. Looking at a touristy city, like New Orleans, for example, we notice that the average monthly gross residential rent is about $1,000 per month, according to the US Census. At the same time, Airbnb lists the average rate per night of a property in New Orleans at over $200. This means that a property owner will hit the long-term monthly rental income from renting it for only five nights as a vacation rental. Of course, numbers can vary greatly, depending on various factors such as location, amenities, time of year, etc. However, properties located in areas that are reasonably attractive to visitors, either for tourist or business purposes, usually bring in a more significant income as short-term rentals.
Property maintenance will be less expensive and easier to do
There’s a positive side to having to visit your rental property often – you will be able to spot minor problems before they turn into bigger issues that are expensive to fix. Things like leaky faucets, furnace malfunctions, broken furniture handles, and stains on the carpet can be easily remedied if you intervene immediately.
More tax deductions available
A vacation rental allows you to deduct a variety of expenses: major improvements such as security systems, roofs, HVAC, fire systems, insurance, marketplace fees, or even travel expenses related to your rental property. Also, you can deduct the cost of appliances, furniture, or cleaning and maintenance services.
Less wear and tear
Short-term renting usually results in less wear and tear of your property, mainly because your place won’t be occupied every night. Also, people vacationing or traveling for business purposes tend to spend a lot less time indoors compared to long-term tenants.
Cons of Short-Term Renting
There’s more work in it for you
Short-term renting means that you are investing more time and more work in your property. The house or the apartment will require a substantial cleaning after each set of guests — or even while guests are at the property. Also, you will have to market the rental permanently, pay attention to seasonality and prices, and adjust your marketing strategy accordingly. If you’re living in a different city from where the rental property is located, you probably won’t be able to do all that yourself and resort to hiring someone.
You can’t really select your tenants
Renting a home or an apartment long-term is a process that starts with vetting potential tenants — you can require documents such as references from former landlords, credit history, or employment status. In the case of short-term rentals, the same precautions can’t be taken. However, you can protect yourself by charging deposits, particularly if you’re booking large groups or for occasions like New Year’s Eve.
Lack of income predictability
A short-term rental property doesn’t bring in an identical amount of money throughout the year. Occupancy rates and price per night vary depending on seasonality, so you can’t count on a fixed monthly income, as you would with long-term tenants.
Legal ramifications to consider
Local authorities in many cities and towns are restricting short-term rentals or increasing taxation for these types of properties. Do your research before buying a property, and don’t look only into the existing regulation but also the public discourse and debates related to vacation rentals in the area. If the public is currently against this type of business in that particular city, you might want to pick another place to purchase a property dedicated to short-term renting. And, if you set your mind to invest in real estate in this specific location, think about other available investment options.
Here’s how to turn a short-term rental property into a success:
Pick the right location for purchasing the property
The importance of the right location when it comes to short-term rentals cannot be overstated. The area must be appealing to visitors, either as a tourist hotspot or as an important economic area where people often travel for business-related reasons. Before deciding whether to purchase a property for short-term renting purposes, it’s a good idea to research how many properties from the same category are in the area, their occupancy rate, and price per night fare throughout the year.
Create a simple, elegant, decluttered interior
For people to book your property, it needs to be attractive. It can be difficult to hit just the right note, particularly if you’re also using the house or apartment and want it to suit your personal taste as well. The best strategy is to aim for a timeless interior with neutral colors and sturdy, good-quality furniture and appliances. Don’t go overboard with decorations and accessories, and don’t clutter the space. Rent a self storage unit close to your rental property to keep things you don’t want to leave around for visitors: cleaning supplies, your vacuum cleaner, the tools you use for small repairs and maintenance.
Hire professionals to take pictures of your property
Good, professional photos that show the strong points of your rental will encourage people to book it. Don’t rely on pictures you take with your phone and hire a photographer instead. It’s an expense that will pay off in the long run.
Adjust rates to seasonality
Pay attention to seasonality and adjust your rates accordingly. Listing lower than average rates during the peak season will cost you money. The same thing happens you’re asking for a high price per night during the busy season – your occupancy rates will drop, causing you to lose income
Offer some hotel-style amenities
You can attract more visitors by offering extra amenities at your vacation rental – think pick-ups and drop-off from and to the airport, a small basket with local goodies, or cleaning services for the duration of the stay, particularly if it’s longer than average. Any amenity that sets you apart from the rest of the short-term rental properties in the area is a plus and will likely bring you more booked nights.
Short-term renting is definitely an alternative worth exploring by people interested in becoming landlords — or landlords that are not happy with the return they get from long-term tenants. Although it involves more work, it can also be significantly more lucrative. That’s why we believe you should definitely look into the option of short-term renting if you decide to invest in real estate.