If you want to venture into real estate, consider buying short term rentals. After all, a short term rental investment remains lucrative.
Despite the recent fears of a possible recession, real estate experts remain optimistic that the US real estate market will stay strong. Although we can expect a slight cooling off of the market due to increasing interest rates, the demand for real estate will persist. For real estate investors, investing in short term rentals continues to be the best investment strategy this year and beyond.
Table of Contents
- What Are Short Term Rentals?
- Are Short Term Rentals a Good Investment?
- How to Get Around Short Term Rental Restrictions
- How to Find the Best Location to Buy a Short Term Rental Property
- 10 Best Places to Buy Short Term Rental Property
With pandemic restrictions decreasing around the world, travel demand is increasing. More people are now eager to travel. Moreover, visitors can stay a little longer and discover a little more now that they are given the option to work from home. Private resorts in less crowded places with a home-away-from-home atmosphere appeal to today’s tourists.
The travel business is undergoing a significant shift due to popular home-sharing platforms like Airbnb. Large hotels and luxurious resorts are no longer the industry leaders in hospitality. Property owners and landlords are now seeing a growing market share in terms of hosting guests and travelers from around the world.
It’s best to buy a short term rental investment property this year. Aside from its profitability potential, you can enjoy many other benefits. Plus, it’s also a great way to mitigate the risks of investing in real estate.
What Are Short Term Rentals?
Short term rentals are property rentals that are leased out for a defined time, usually two to four weeks. Usually, short term rentals are furnished properties that are available for stays for 30 days or less. Most short term rental properties are typically in busy tourist areas, and the landlord is responsible for keeping it clean and ensuring that all needs are satisfied.
Short term rentals are also referred to as vacation rentals. They are typically advertised on home-sharing platforms that visitors use to find a place to stay when they visit a certain location. Unlike hotels and hostels, short term rentals offer home-like ambiance and amenities that make guests feel at home.
The major difference between short term rentals and hotels, motels, and hostels is that the former are just like regular homes and/or condominium units. Short term rentals typically allow guests to cook and wash their clothes on the property—just like they are staying at their own house.
Also, some short term rental owners only rent out a portion of their house to guests. In fact, some city ordinances require the owner of the short term rental to stay at the property during the guests’ stay. Also, short term rentals are typically not allowed to accommodate guests staying at the property for more than 30 days.
Important Things to Remember for Short Term Rentals
When renting out your house or a portion of it for a short period, there are a few things to keep in mind.
First of all, do your investigation before opting for a short term rental. Look at the reviews, compare pricing, and learn about the median rent in each area. Also, before deciding to buy the property, make sure to inspect it thoroughly. Performing an actual inspection will assist you in understanding any potential issues that may develop during your rental agreement.
Short Term Rentals vs Long Term Rentals
The most typical approach to investing in real estate is purchasing and operating a rental property, such as single family homes or multifamily complexes. Rental property in residential real estate is frequently categorized as either short term or long term. Both are investment strategies that determine how you rent out your property, as well as your target market.
Short Term Rentals
Short term rentals are usually rented on a daily or weekly basis. In some cases, short term rentals are also rented for up to one month at most. Vacation rental houses, a home hacker who leases out an extra room, a condominium unit are all examples of short term rentals. A single family rental property with a monthly lease belongs in the same category.
While the short term rental market is typically seasonal, many short term rental owners enjoy earning high profits from their investments. What’s nice about short term rentals is that you can charge more during peak season when demand is high. Short term rental owners can adjust their rates based on the seasonality of the business.
Long Term Rentals
Typically, long term rentals come with at least a one-year lease term with a preset annual rent. They are rented out to a tenant who will stay at the property for longer than one month. Most residential rental contracts are for 12 months, while some local landlord-tenant rules may enable more than a year’s lease.
With long term rentals, owners can expect to receive continuous cash flow because the lease term is usually longer. However, long term rentals usually need more attention, especially when it comes to maintenance. Although long term rentals provide more dependable rental income, there are specific reasons an investor would want to consider offering a short term rental.
Are Short Term Rentals a Good Investment?
The short answer is yes. Short term rentals will remain strong, amidst fears of a possible recession and a minor housing crash. In fact, vacation rentals will remain pretty profitable. People from across the US and all over the world are looking forward to traveling. And most of these travelers prefer to stay in short term rentals than in luxury hotels.
That being said, the profitability of a short term rental property depends on several factors. You need to consider many variables to become a successful short term rental owner. For instance, you must choose the right neighborhood for your rental. Also, consider the maintenance services and upfront fees to ensure your investment yields a better return.
When you compare two similar properties in the same neighborhood, a short term rental will typically generate at least two to three times the rental income of a long term annual rental. Furthermore, holiday rentals provide more possibilities to update the rental cost, making them an ideal inflation shield.
Renting for a short time offers other advantages. They can, for example, help you pay for your housing bills. Short term rentals might be an excellent alternative if you live in a city and need extra income without buying an additional property.
Furthermore, short term rentals are a good option if you want a second home in a different location. You can use it as your personal vacation home for yourself or your family. Because of the numerous advantages, a short term rental is an excellent investment.
Here are a few reasons why you should consider investing in short term rentals:
1. Higher Income
A well-marketed short term rental property in a desirable location will always beat a long term rental property in terms of profitability. It’s crucial to perform your research on rental demand in the neighborhood. However, there’s no denying that vacation rentals generate more cash than standard annual leases.
As mentioned, the short term rental market is a seasonal business. That is why it’s important to be prudent when pricing your property. Typically, during peak holiday seasons, when the demand is the highest, you should price your property higher than usual. It allows you to generate extra cash that will help you throughout the low season.
2. Easier Maintenance
Regarding short term rental property management, short term rentals enable you to manage your investment better. With shorter stays, you can get in and get the house cleaned more frequently, detecting any maintenance problems before they become too serious to fix. Many vacation rentals charge a cleaning fee, so you won’t need to pay for any maintenance yourself.
Additionally, since guests only stay for the short term, they are less likely to damage the property during their stay. Additionally, most short term rental guests are visiting the area for leisure or business purposes. Most of them are only staying at the property to rest at night, which means the property will experience less wear and tear due to the guests’ stay.
3. Control and Flexibility
You have total control over the calendar and when your short term rental is available. If you decide to undergo kitchen repairs, you can cut off a month on your schedule and complete the project when it is most suitable for you. If you want to use the property yourself, you can block off your preferred schedule so it will only be available when you want it to be.
You are also allowed to change the pricing as you see appropriate. If you wish to charge more per night after your kitchen makeover is finished, you can do so. If potential visitors want to stay for a month, you can alter your rental rate to be more competitive. Most individuals prefer staying at short term rentals than in hotels because it gives them more freedom and flexibility.
4. Value Appreciation
Aside from the monthly income flow, your property’s value will increase yearly. The longer you keep your rental property, the more valuable it will be when you choose to sell. Interest rates can go up or down, but real estate does not lose value.
It’s important to note that choosing the right location for your rental property is crucial. There are real estate markets that have a high appreciation rate. It means your property’s value will increase significantly in just a few years. In some markets, however, appreciation rates may be slower. It may take several years for you to actually see a significant difference in the value.
5. Tax Advantages
Short term rentals offer a variety of tax benefits that make them lucrative. For starters, if you purchase the property through a loan, the interest is tax-deductible. Also, let’s not forget the additional deductions for upkeep, management, advertising, insurance, and other expenses. Moreover, you can also deduct the cost of the property’s depreciation.
6. Cultural Interactions
Owning a short term rental home allows you to meet people from diverse cultural backgrounds worldwide. It can be appealing if you enjoy meeting new people and learning new stuff. Additionally, you can also invest in different locations other than your home city. It is a great way to explore other locations and people—including both locals and tourists.
7. High Market Demand
Another reason why you should buy vacation rental property is that there is an expected high demand from travelers from across the country and around the world. As mentioned earlier, people are still eager to travel despite the anticipated minor recession. In addition to leisure travelers, you can also expect rental demands from business travelers.
Keep in mind, however, that not all locations are ideal for short term rental investments. To enjoy the high demand for short term rentals, it’s important to find a location where there are plenty of attractions. Also, investing in an area where business districts are close is a good idea. You can easily attract guests who are visiting either for leisure or business.
8. Ease of Access
Unlike other investments, you can apply for a loan to buy the property and use the borrowed funds to generate additional income. It’s especially beneficial for first-time investors who don’t have a lot of cash. You can generate wealth much quicker when you understand how to use debt efficiently and manage a short term rental agreement.
In addition, there are several properties for sale that can be good candidates for short term rentals. When searching for the best investment property for sale, make sure to access its financials, as they can help you make the right decision. Fortunately, it’s easy to find the best short term rental markets with Mashvisor.
Using Mashvisor’s database, you can easily find an Airbnb for sale. Not only that—but you can also access the property’s real estate data. It allows you to use the figures to decide whether it will make a good investment. Mashvisor also provides useful real estate tools that can help you find the perfect vacation rentals for sale.
Start searching for the best investment property for short term rentals using Mashvisor.
How to Get Around Short Term Rental Restrictions
While short term rentals will make a lucrative investment, it’s worth noting that not all cities allow their operation. In fact, there are some cities where short term rentals are not yet legal. Before deciding to browse vacation homes for sale in a certain place, make sure that it is legal to operate a short term rental property in that area.
In some cases, even though short term rentals are allowed, there are some legal restrictions that you need to know before you can start operating one. Some cities impose certain rules and regulations regarding operating a short term rental business. And, in most cases, you need to register first before you can list your property for rent.
For instance, to be able to operate a short term rental business in Florida, you need to register your short term rental first and acquire a license. Sometimes, different cities in the same state may impose varying rules. Hillsborough County in Florida, for example, only allows short term rentals for seven nights or less only in selected residential and commercial zones.
To get around the short term rental law and restrictions, it is always advisable to follow the rules. You should also check your local ordinances in your place, as well as the HOA rules and condo by-laws. It is to ensure that it’s really allowed to rent out your property (or a portion of it) to short term rental guests.
Some cities will charge additional taxes to discourage vacation rentals, while others openly prohibit them. The additional taxes can increase your total costs.
Make sure to check the law before buying any investment property. Go to Mashvisor’s short term rental regulations page for more information.
How to Find the Best Location to Buy a Short Term Rental Property
Location is an important factor that can significantly affect your profitability as a real estate investor. When investing in short term rentals, choosing the best location is essential if you want to attract guests and achieve a high occupancy rate. Generally, the best locations for short term rentals should be accessible to tourist attractions and business districts.
Selecting the best location for your Airbnb business is vital. The criteria you would use to look for a long term rental do not always work for short term rentals. For vacation rentals, a place outside major cities is getting increasingly attractive. Furthermore, locations near outdoor activities, such as mountains, beaches, and national parks, perform exceptionally well.
The following factors are essential for selecting a lucrative short term rental investment:
Investing in a place with plenty of tourist attractions is a good idea. Most of your guests are traveling for leisure, and they would like to visit tourist sites during their stay in the city where your rental property is located. Also, if you can buy an investment property in certain places that are easily accessible to other nearby cities and attractions is a plus.
Another major source of business for short term rentals is business travelers. Most companies are now getting back to normal, which means business travels are also back. If you buy an investment property near business districts, you can also attract business travelers in addition to tourists and leisure visitors.
Access to Major Roads and Airports
A place that is easily accessible is ideal for investment. If visitors can access the location by plane or car, you can achieve a higher market share. If you conduct a short term rental analysis, you will find that properties located in accessible areas are more likely to get visitors. However, remote areas will not.
Vacation Rental Interest
It’s also important to study the vacation rental interest in a particular area before you buy a short term rental property. It’s important to conduct a rental property analysis that shows the occupancy rate of vacation rental properties in a particular location. You’ll know if there is sufficient demand for short term rentals that can help you generate good returns.
Before you buy a vacation rental property in a particular neighborhood, you must ensure that the location is safe for your guests. Checking the crime rate in the area will give you an idea of how safe the place is. You don’t want to buy an investment property where crimes are rampant. The safety of the location is an important factor that will significantly affect your bottom line.
In general, finding the best short term rental property that is profitable can be challenging, especially if you don’t know how to get started. Fortunately, using real estate analytics platforms like Mashvisor can significantly help in this situation.
Mashvisor as a Smart Solution
Short term rentals allow you to lease the property as soon as it becomes available, allowing you to optimize your revenues. Furthermore, using short term rental sites such as Mashvisor can ensure that your unit is always accessible, increasing your chances of receiving a booking.
Mashvisor is an online real estate platform that provides investors of all types of investment properties with a one-stop destination for services. The website can assist investors in searching for the ideal investment property. They can look for a property based on their preferred location, budget, property type, cap rate, and cash on cash return.
Further, Mashvisor’s database includes thousands of listings from various sources, making it easier for investors to find the best short term rental property according to their preferences. It employs revolutionary AI-powered investment analytics for both long term and Airbnb analysis, making it simple for you to find the ideal investment property.
Here are the real estate investment tools you can take advantage of when you subscribe to Mashvisor:
1. Real Estate Heatmap
Mashvisor’s real estate heatmap tool displays data on specific locations or neighborhoods. It also provides an overview of the rental market research in a particular location, making it simple to determine the ideal place to buy a rental property. Using the heatmap tool, you can easily find the most profitable vacation rental property to buy based on your preference.
Investors can use the real estate heatmap to just look at the color-coded map to see the houses for sale in the best areas. While it is not the only thing that will contribute to the success of a vacation rental, purchasing property in a desirable location is an important first step.
2. Rental Property Analysis
Another best thing about using Mashvisor is that it can provide you with a summary of the property’s anticipated market performance after finding a location and suitable property. It will display Airbnb data, such as median listing prices, occupancy rates, daily Airbnb rates, monthly Airbnb rental income, and more. How can such information help you, you ask?
As an investor, you need to study and analyze the rental market to know whether buying an investment property in the area is a good idea. For instance, knowing the occupancy rate is important when evaluating real estate comps for a short term rental. Although a high daily rate and monthly income are critical, the occupancy rate determines the rental’s profitability.
In addition, you will also get a general overview of the property’s cap rate and cash on cash returns. They are two important metrics that can determine the property’s profitability. Plus, both figures are shown side-by-side for both long term and short term rentals. This way, you will know the best investment strategy for that particular investment property.
3. Rental Property Calculator
The Airbnb calculator assists investors in determining whether a particular short term rental property will be a worthwhile investment. You are free to insert your own estimates for financing and estimated expenses to get a personal result. You’ll see a summary of the critical metrics, like cap rate and cash on cash return, assisting you in making an informed investment decision.
The tool acts as a cap rate calculator so you can determine your rate of return based on the property’s current market value or selling price. The investment property calculator also lets you to calculate your monthly mortgage payments and include them in your recurring expenses. You can adjust the values of your expenses and mortgage details for more accurate computation.
This rental property calculator will help you see how the house will perform as a short term rental. You can ensure that you are buying an investment property that will make a profitable investment.
4. Real Estate Comps
To verify that you’re charging the right rental rate for short term rental, you should look into rental comps. Mashvisor can assist you in locating comparable homes to establish a competitive rent price for your rental home. It also provides valuable insights for analyzing the market’s short term investment results based on similar properties.
Mashvisor offers its users a downloadable spreadsheet file that includes all necessary data to help you make the right selection. By studying the rental comps, you can decide if it’s wise to buy the short term rental property you are eyeing.
Experience how Mashvisor can help you find the perfect investment property to buy. Start your 7-day free trial now!
10 Best Places to Buy Short Term Rental Property
The best cities to buy short term rental properties offer moderate tourist attractions ideal for first-time investors without a lot of cash. Investing in the following best short term rental markets will yield a cash on cash return of at least 5%, allowing you to diversify your portfolio further.
We only considered cities with a median property price of below $1 million and with at least 100 Airbnb listings. Also, the short term rental markets here are those that generate a short term rental income of at least $2,000 and with an occupancy rate of 50% or more.
Here are the ten best places to buy short term rental properties, based on Mashvisor’s January 2023 real estate data. The locations are arranged from those with the highest to the lowest cash on cash return:
1. Northlake, IL
- Median Property Price: $329,300
- Average Price per Square Foot: $204
- Days on Market: 95
- Number of Short Term Rental Listings: 116
- Monthly Short Term Rental Income: $4,259
- Short Term Rental Cash on Cash Return: 7.82%
- Short Term Rental Cap Rate: 7.96%
- Short Term Rental Daily Rate: $169
- Short Term Rental Occupancy Rate: 54%
- Walk Score: 33
Find profitable short term rental properties in Northlake, IL.
2. Bellwood, IL
- Median Property Price: $258,460
- Average Price per Square Foot: $208
- Days on Market: 84
- Number of Short Term Rental Listings: 173
- Monthly Short Term Rental Income: $3,820
- Short Term Rental Cash on Cash Return: 7.77%
- Short Term Rental Cap Rate: 7.91%
- Short Term Rental Daily Rate: $164
- Short Term Rental Occupancy Rate: 62%
- Walk Score: 83
3. Columbia, MO
- Median Property Price: $294,905
- Average Price per Square Foot: $137
- Days on Market: 82
- Number of Short Term Rental Listings: 258
- Monthly Short Term Rental Income: $3,264
- Short Term Rental Cash on Cash Return: 7.54%
- Short Term Rental Cap Rate: 7.67%
- Short Term Rental Daily Rate: $144
- Short Term Rental Occupancy Rate: 59%
- Walk Score: 30
4. Colonial Beach, VA
- Median Property Price: $348,061
- Average Price per Square Foot: $228
- Days on Market: 97
- Number of Short Term Rental Listings: 111
- Monthly Short Term Rental Income: $3,531
- Short Term Rental Cash on Cash Return: 7.50%
- Short Term Rental Cap Rate: 7.62%
- Short Term Rental Daily Rate: $201
- Short Term Rental Occupancy Rate: 55%
- Walk Score: 0
5. Parma Heights, OH
- Median Property Price: $194,232
- Average Price per Square Foot: $141
- Days on Market: 61
- Number of Short Term Rental Listings: 135
- Monthly Short Term Rental Income: $2,409
- Short Term Rental Cash on Cash Return: 7.40%
- Short Term Rental Cap Rate: 7.61%
- Short Term Rental Daily Rate: $140
- Short Term Rental Occupancy Rate: 50%
- Walk Score: 66
6. Antioch, TN
- Median Property Price: $357,241
- Average Price per Square Foot: $214
- Days on Market: 66
- Number of Short Term Rental Listings: 264
- Monthly Short Term Rental Income: $3,723
- Short Term Rental Cash on Cash Return: 7.26%
- Short Term Rental Cap Rate: 7.36%
- Short Term Rental Daily Rate: $172
- Short Term Rental Occupancy Rate: 54%
- Walk Score: 0
7. Kenmore, NY
- Median Property Price: $194,267
- Average Price per Square Foot: $152
- Days on Market: 149
- Number of Short Term Rental Listings: 475
- Monthly Short Term Rental Income: $2,723
- Short Term Rental Cash on Cash Return: 7.24%
- Short Term Rental Cap Rate: 7.43%
- Short Term Rental Daily Rate: $162
- Short Term Rental Occupancy Rate: 54%
- Walk Score: 80
8. Harpers Ferry, WV
- Median Property Price: $371,846
- Average Price per Square Foot: $298
- Days on Market: 75
- Number of Short Term Rental Listings: 131
- Monthly Short Term Rental Income: $3,719
- Short Term Rental Cash on Cash Return: 6.95%
- Short Term Rental Cap Rate: 7.05%
- Short Term Rental Daily Rate: $195
- Short Term Rental Occupancy Rate: 55%
- Walk Score: 0
9. Columbia Heights, MN
- Median Property Price: $272,780
- Average Price per Square Foot: $138
- Days on Market: 62
- Number of Short Term Rental Listings: 319
- Monthly Short Term Rental Income: $3,192
- Short Term Rental Cash on Cash Return: 6.81%
- Short Term Rental Cap Rate: 6.95%
- Short Term Rental Daily Rate: $161
- Short Term Rental Occupancy Rate: 57%
- Walk Score: 82
10. Saint Augustine, FL
- Median Property Price: $490,933
- Average Price per Square Foot: $254
- Days on Market: 89
- Number of Short Term Rental Listings: 1,286
- Monthly Short Term Rental Income: $4,473
- Short Term Rental Cash on Cash Return: 5.87%
- Short Term Rental Cap Rate: 5.94%
- Short Term Rental Daily Rate: $244
- Short Term Rental Occupancy Rate: 50%
- Walk Score: 0
Start searching for a profitable short term rental investment using Mashvisor’s investment property search tool.
Short Term Rentals Remain Strong
Short term rentals are still one of the best investment strategies. Despite the possible market cooldown, experts believe that the short term rental market will stay strong as ever. The excellent news is that there will be plenty of opportunities for vacation rental property investors—and you can expect a high Airbnb demand.
However, to determine whether short term rentals are a secure investment for you, you must consider both their advantages and disadvantages. Also, when you buy short term rental property, make sure to choose the right market. Choosing the best location is crucial to your overall profitability and success as an investor.
It is critical to investigate the vacation rental market before committing to a property to avoid losses. Moreover, use a real estate platform that can help you make the right decision based on accurate and updated real estate data.
Are you curious how Mashvisor can help you find the best short term rental investment? Schedule a demo now to find out more about Mashvisor’s tools.