Should I Invest In A Short-Term Rental?

What does the phrase "investment property" conjure up for you?

Most individuals, and even seasoned real estate investors, consider long-term rentals to be single-family residences rented out by private landlords.

Homes that are leased long-term are either occupied by the same people or new individuals coming and going, which makes them excellent investments for a constant cash flow or a time-consuming project with highs and lows.

However, long-term renting is not the only investment future property investors may pursue to build their portfolio and produce recurring passive income.

Short-term rentals are an excellent alternative to long-term rentals if you want to generate good cash flow faster and with less hassles than being a landlord. However, short-term rentals aren't simple to work with!

Here's everything you need to know about short-term rentals, as well as the tax distinctions and benefits.

The Biggest Benefits of Short-Term Rentals

Is it better to invest in a short-term rental property for new real estate professionals wanting to generate more money and develop their business faster?

Here are the major advantages of acquiring in the short-term rental industry:

Higher income

The main attraction of operating and maintaining a short-term rental is the potential for high earnings, as you may vary your rates throughout the year based on demand, adjusting your costs more frequently than a long-term renter could in the same month!

On top of that, short-term rental costs are already far greater than long-term vacation rentals, which are a type of property that lies in between the two.

Easier maintenance

Short-term rentals are also a lot easier to maintain, as there won't be as much wear and tear with clients only staying for a few days and using the space less than a long-term tenant would.

Of course, you'll still have to keep the home in perfect working order between guests arriving and departing, but as long as you find a fantastic property management and cleaning service to handle little problems, you won't be spending as much time repairing and updating!

Versatility

Short-term rentals are also more adaptable than long-term leases since they allow you to use the property as your primary residence or a holiday home at any time.

This implies you can use your real estate without losing money even if a short-term renting business does not work out as planned or fails to perform as anticipated, whether you need to convert your short-term vacation rental into a personal house throughout the off-season.

Generous tax breaks

Finally, short-term rentals are recognized for being one of the most tax-advantageous investments you can make since you may qualify for substantial deductions and even property expense write-offs.

Apart from common deductions and bonus depreciation, you could be eligible for a full income tax deduction if you rent your property out for only 14 days or less during the year.

 

The Risks of Short-Term Rentals

Short-term rental sites, on the other hand, have a number of disadvantages, and they are generally regarded as more difficult to manage than a regular long-term rental property or a hybrid vacation rental that is utilized less frequently.

Before you get into our suggestions and insights on everything short-term rental, be sure you're fully prepared for the hazards you might encounter along the route.

Off-season vacancy periods

A slow off-season may strike at any time, regardless of how effective your marketing and management. Even if you have a great marketing and management plan in place, you might experience a sluggish off-season at least once during your short-term rental business, bringing in less money than usual while avoiding months of pay.

If you're able to survive the high season, your money troubles will typically go away, as long as you manage your finances properly!

Growing competition

Short-term rentals are becoming increasingly popular among investors, many of whom utilize them as a key growth strategy. Make sure you're ready to deal with strong and increasing competition before investing in your first short-term rental.

The finest piece of advise for avoiding overfilling the market with similar offers is to concentrate your funds on an up-and-coming sector that is attractive enough to draw visitors but not too popular in the short-term rental industry to secure a piece of the pie.

Complexity and costliness of management

Managing short-term rentals as a remote landlord is more expensive than employing a property management firm for the long term, and if you want to take care of management responsibilities yourself (including booking guests, cleaning, and marketing), you'll have to learn new skills.

The good news is that management software like Vrbo and Airbnb have made finding houses to rent even easier!

Why should you stay away from markets where short-term rental restrictions don't exist?

As a final word of advice, make sure you're choosing the proper market; whether you're renting long-term or short-term dwellings.

In recent years, more and more cities have introduced tight short-term rental rules in an attempt to prevent future short-term rental operators from establishing shop in certain regions and fully making Airbnb enterprises unlawful.

On the other hand, some jurisdictions have no limits on short-term vacation rentals, making it difficult for investors to understand their legal rights and tax obligations.

If you're interested in short-term rental investment, be certain to avoid markets with no restrictions on short-term rentals and cities with anti-short-term rental laws — there are plenty of places where the market is strong!