It’s Not Too Late to Join the Short-Term Rental Investing Game
If you’re thinking about investing in a rental property, you’re likely imagining a scenario where you rent out apartments to tenants who are searching for a place to live on a long-term basis. While long-term rentals provide investors with consistent and stable income, investing in short-term rentals can be even more advantageous when done properly. These rentals are in particularly high demand when situated in popular tourist spots.
What Are Short-term Rental Properties?
Short-term rentals are properties that are available to lease for a period of 12 months or less. These rentals can be townhouses, condos, single-family homes, or multi-family homes. Over the past decade or so, short-term rental properties have become increasingly popular among people searching for vacation homes or an Airbnb to stay in.
It’s also common to provide leases to individuals who only require a place to stay for less than 12 months. Keep in mind that 12 months is the standard lease time for long-term rentals. While short-term rentals can add a lot to your portfolio, your management skills will be put to the test.
How to Manage a Short-term Rental
Short-term rentals tend to have more management requirements when compared to long-term rentals with 12-month leases. Whether a tenant stays for a couple of weeks or a few months, you’ll be tasked with coordinating cleanings on a regular basis, answering inquiries that your tenants may have, handling the accounting associated with expenses and the rent from each tenant, and overseeing the schedule.
Managing a short-term rental is like a mixture of managing a long-term rental and managing a hotel. In fact, short-term rentals are viewed as alternatives to hotels. As is the case with any rental property you invest in, your personal profits will be higher if you take care of managing the property on your own. However, a professional property manager will be able to accommodate all of your needs and effectively manage the property without requiring you to do anything in regards to screening tenants, scheduling repairs, and collecting payments.
Benefits of Investing in a Short-term Rental
Investing in short-term rentals can help you improve your portfolio and generate even higher returns. Many investors find short-term rentals to be among the most lucrative real estate investments. However, keep in mind, that the right approach is necessary if you want your investment to be profitable.
Potential for Higher Returns
The main benefit of investing in short-term rentals is the potential for higher returns. In most cases, short-term rentals that are located in popular and desirable areas should perform better than long-term rentals.
This investment needs to be paired with strong marketing to make sure that potential tenants know about it. You can bring in more income from vacation rentals as opposed to long-term rentals if the properties are situated in tourist destinations.
Short-term rentals come with a high number of tax benefits that you can take advantage of on your annual tax return. If you take out a loan to help you pay for the short-term rental, any interest you pay on the loan can be deducted. There are also numerous deductions that you can claim for management, maintenance, insurance, and marketing expenses.
Another deduction that you may not be aware of is a deduction for any depreciation that occurs on your property. While the value of short-term rental properties typically increases, this isn’t always the case depending on market conditions.
Unlike long-term rentals, you have ample flexibility and control over your calendar and when you want your property to be available to renters. If you decide to renovate the kitchen or add an entire room to the building, you can simply make the property unavailable to renters until renovations are complete. This isn’t as easy to do with long-term rentals.
Renting out units for long-term leases means that it can be some time before you can properly maintain the interiors of each unit. The same isn’t true with short-term rentals. You should be able to get inside to clean and maintain the property every time a tenant leaves.
Short-term rental investing may be able to provide a higher return in comparison to long-term rentals. While there are many factors to consider before you make this type of investment, the right location is essential. It can be the difference between a poorly performing investment and one that outperforms your goals.