Are you thinking about investing in a short-term rental (STR)? With the rise of platforms like Airbnb, short-term rentals have become a popular and profitable investment opportunity. However, before diving in, there are several crucial factors to consider. In this article, we will explore the nine essential considerations for investing in a short-term rental property, ensuring you make an informed decision and maximize your returns.
Determine your goals
To start, it is essential to define your goals as an investor. Are you looking to cover the costs of a second home or vacation property, or are you aiming to build a real estate empire? Understanding your objectives will guide your property search and location selection. Erica Muller, a vacation rental real estate pro, suggests considering whether you can separate emotions from the numbers or if it's crucial to love the property you purchase.
Hire an agent who understands the STR market
Finding a knowledgeable real estate agent specializing in short-term rentals is crucial for your success. An experienced agent can save you time and potentially increase your profits. When interviewing potential agents, ask them about their expertise in buying and selling STR properties, their strategy for valuing assets and income, and if they are certified vacation rental agents.
Understand local laws and regulations
Before investing, thoroughly research the laws and regulations regarding short-term rentals in your desired location. Not all areas permit STRs, and there may be tax implications to consider. Work closely with your agent to ensure your investment aligns with local regulations and to identify any additional requirements, such as permit fees or registration.
Look into your competition and conduct market research
Understanding your competition and conducting thorough market research is vital for success. Your agent can provide insights into average occupancy rates, nightly rates, seasonal rates, HOA terms, mortgage payments, upkeep costs, operating expenses, and significant events that draw guests. Additionally, investigate listing sites like Airbnb and Vrbo to gather your own data on rental and occupancy rates.
Run the numbers for cash flow and rental income
Calculating potential cash flow and rental income is essential before making any investment. Utilize resources like Vrolio, which offers tools specifically designed for the short-term rental industry. Consider factors such as interest rates, credit score, cap rates, and cash-on-cash return. Don't forget to account for maintenance and property management costs, if applicable.
Make an offer and assess additional assets
Once you are ready to make an offer, consider what is included in the purchase price. Determine if existing bookings, furnishings, intellectual property, or other value-add items are part of the deal. Additionally, discuss the logistics of transferring these assets and whether your loan program allows for their inclusion in the contract.
Conduct due diligence on the property
During the due diligence phase, thoroughly review all reports, such as home inspections, and carefully analyze the financials. Create a capital plan to account for any necessary repairs or replacements that may arise. If you want to hit the ground running, start setting up your listing on Airbnb and Vrbo, as well as preparing your social media presence.
Close the deal
Before closing the deal, ensure that any bookings made prior to your purchase have been transferred to you or your property manager. Account for advance deposits and down payments in the closing statement, review the numbers with the title company, and ensure that insurance and utilities have been transferred appropriately.
Get ready to open for business
Lastly, prepare yourself for business and strive to provide exceptional guest experiences. Utilize resources and guides to learn effective hospitality practices, earn great reviews, and cultivate repeat business that will contribute to your long-term success.
Investing in a short-term rental property can be both financially rewarding and personally fulfilling. By considering these nine essential factors, you will be well-equipped to make an informed investment decision that aligns with your goals and maximizes your returns.