Short-term vacation rentals: Do they make money?

Property Management Blog

The real estate rental market has embarrassed vacation rentals and it’s getting popular in The United Nations. According to reports, the revenue generated by these rentals was more than $13 billion, which is huge for any industry. Not only new investors but experienced ones are also attracted to these vacation rentals. Different factors attract investors like location, price, and accommodation style. Moreover, they can also be used as long-term rentals, whenever needed.

However, many investors are concerned about the profitability of vacation rentals. Are they helping to make money or all their success stories are just hype? We are discussing it here today.

What makes short-term rentals a profitable business?

If you want to invest in real estate and think about short-term rentals, you are thinking along the correct lines. After the pandemic tourism industry is flourishing again and tourists love to stay in rentals instead of hotels. Rental units are more spacious, offer better privacy, and are usually cheaper as compared to big hotels. We have shortlisted some reasons that make short-term rentals a profitable business.

Easy maintenance

Maintaining a rental unit is not easy and if you choose short-term rentals the big plus is the easy maintenance. Realistically speaking, high turnover results in more cleaning, but if someone is staying for a few days your house will not demand the deep cleaning. Moreover, in long-term rentals, there are moving damages and you have to do a complete inspection when new tenants come. Cleaning short-term rentals are very easy. However, if maintenance is required, you must do it as soon as possible. Make a list of regular maintenance activities and things will be easier for you.  

Flexibility of use

Short-term rentals are profitable as they are very flexible to use. You can accept more tenants during peak time and make more money. All you need to do is to communicate with tenants. Book the next one as soon as one leaves. Moreover, you can use them as long-term rentals as well, if you find them difficult to manage. Additionally, you can use the rental unit yourself, whenever you need. For instance, if your primary house is undergoing repair or maintenance, your rental unit can be your home for a few days. 

Enjoy tax benefits

Along with other advantages you can enjoy tax benefits as well if you have a vacation rental. If you rent out your property for less than two weeks, your tax will be waived. The rules apply to the whole unit and single rooms also. It means landlords are not compelled to report their rental income if it was rented out for less than 14 weeks. You don’t have to pay taxes and that is a big relief. Occupant taxes apply to vacation rentals in some states, so you have to check local rules for that. 

Better earnings

Short-term rentals have better income potential as compared to long-term rentals. That is the reason, in the year 2021 short-term rental industry has generated a revenue of more than $13 billion and in coming years it is expected to be higher than that. If you have a decent rental unit at a good location, it can generate a good income for you, every month. 

Better value for the property

For real estate investors, property appreciation is very important. It is the value of the property, which increases with time. Investors are interested in cash flow but they want more value for their property in the future. If the value of the property increases, the landlord can increase the rent and generate more profit. Moreover, when they sell the property they can make a good profit. The average appreciation rate in the country is 3% to 5%. Proper maintenance and appreciation can have a positive impact on the appreciation rate. 

How to find vacation rentals for sale?

If you want to invest in short-term rentals but have no idea about how to find them. Following are a few steps that can help you. 

Plan your business: Real estate investment is not easy if you want to make money. You have to devise a proper plan for success. First of all, know about your assets and what you want to earn from the rental unit. Planning takes time, but it’s very significant for the success of your business. If you will not plan, you will face difficulties later. Decide your budget which you have to buy a rental home. If you are short of money, you can think about other financing options like a mortgage or private loans. 

Know your market: When you have a complete business plan, now it’s time to research the market. You need to spend time in the market. Meet with the property manager and agents and get information about the latest trends, hot spots, prices, etc. You can also use online tools and platforms to get this information. Select a neighborhood that suits your business needs and budget. There are some factors, which you need to consider before making a final choice. For instance, approach to tourist attractions, local property trends, listing price, nearby amenities, average daily rate, and the number of bedrooms in the property. If you know your priorities, it will be easy to decide. 

Do financial analysis: Next step is to do a financial analysis and see if the rental will be profitable for you or not. Check the average daily rate, cap rate, cash flow, etc. This calculation will help you to know your approximate earnings and you can make decisions accordingly. 

Make an offer: When you have selected the property, don’t hesitate to make an offer. However, make sure you have visited the property and have inspected it personally, indoors and outdoors. Arrange an appraisal as it’s important to make a realistic offer and it will help you to know the actual condition of the property. 

Hire a manager: Once you have brought property, you have to manage it properly to ensure steady cash flow. You can do it yourself if you have time and some expertise. But if you are new in business or are busy in your job, hiring a property manager is a better idea. Short-term rentals require more attention as compared to long-term rentals, due to quick turnover. So hiring a manager can be a good decision for busy landlords. 

If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.

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