What are short-term rental properties in real estate investing?Short-term rentals, also known as Airbnb, HomeAway, or VRBO rentals, are real estate properties that are rented out for short periods of time, typically ranging from a single night to a couple of weeks.
Short-term rentals are a relatively new concept in real estate, and they were made popular by Airbnb – an online platform which lists and manages short-term and vacation rentals around the world.
There are several advantages, and some disadvantages, to investing in short-term rental properties. Generally, short-term rental properties behave and operate in a similar fashion to long-term or traditional rental properties. However, there are certain unique aspects of short-term rentals that any real estate investor must be aware of before investing in this type of rental properties.
In this article, I will highlight the major advantages and disadvantages associated with investing in short-term rental properties to help you determine whether this is the type of rental property that you would like to invest in.
Advantages of Short-Term Rental Properties
The main advantages of investing in short-term rental properties can be summed up as the following:
- High potential for profits
- Duality of use
- Easy to find
- Can be applied to your primary residence
High Potential for Profits
The biggest advantage to investing in short-term rentals is their high potential for profits.
In fact, short-term rentals are becoming among the most popular types of investment properties around the world, and in several cities and areas they have showed higher potential for profits than any other type of investment property.
Of course, there are certain aspects that you should take into consideration when investing in short-term rentals in order to maximize your profits, such as the location of the property, the seasonality, and the type of tenants that you’re marketing the property for.
Want to learn more about long-term rentals and their advantages and disadvantages before deciding on the type of rental property that you want to invest in? Click here to learn all about long-term rental properties in real estate investing.
Duality of Use
Another major advantage of investing in short-term rentals, and vacation rentals in particular, is the duality of use.
What I mean by the duality of use is that a vacation rental can be used for two purposes:
- As an investment property that you rent out in exchange for rent
- As a secondary residence that you and your family can stay in during your vacations or holidays
This makes vacation rentals a very popular choice among part-time investors who would like to own a property that can generate some profits, but who also want to own a vacation home that they can use to spend the weekend or for a summer vacation with the family.
Easy to Find
Similar to long-term rental properties, short-term rentals are very easy to find due to the high number of websites and platforms that are designed for the purpose of searching for and finding rental properties to invest in.
Some of the best examples of these websites include:
Can Be Applied to Your Primary Residence
Another major advantage of short-term rentals is that you don’t necessarily have to purchase a new property in order to rent it out for the short term.
If you own a primary residence that has some spare space that you can use, you can rent out the extra space in your home to short-term tenants to generate an extra amount of income and to help you pay off any mortgage that you have on the property.
This strategy is especially popular among younger investors who are just starting out in real estate, and it can be used to gain some beginner experience on running and managing rental properties before you move on to investing in other properties for renting them out.
Disadvantages of Short-Term Rental Properties
There are three main disadvantages that are associated with owning and investing in short-term rentals:
- They require more management
- They require more maintenance
- They might be illegal
Short-term rental properties require far more effort into managing them than other types of rental properties.
This is mainly due to the high tenant turnover. Every time a tenant moves in or out of the property, you will need to inspect the property and make sure no damages were made. You will also need to tend to the tenant’s needs, hand over the keys once they move in, collect the security deposit, and perform other tasks.
These are things that you will have to handle every time you rent out the property, which could happen twice or three times a week.
So, if you’re planning on investing in a short-term rental, make sure that you will have the time to spare on managing your rental property and tending to the tenants. Alternatively, if you can afford the extra expense, you can hire a professional property management company to handle all the management tasks for you.
Another disadvantage of investing in short-term rentals is that, due to the high tenant turnover, your property will need more maintenance, which also means higher maintenance costs.
This is because short-term tenants are typically more likely to cause damages to the property, and often times these tenants are travelers who are looking to enjoy their short stays, so they are less likely to take good care of the property.
You can avoid this by spending more time on tenant screening and choosing tenants who are more trustworthy and who are less likely to result in any damages to the property.
The biggest and most noteworthy disadvantage of investing in short-term rentals is that they are not legal everywhere.
Some cities, states, or even counties enforce severe laws and regulations that can greatly reduce the potential of your short-term rental and its profits.
These laws can range from limiting the number of nights that you can rent out your property during a year to laws that require you to reside in the property for a minimum number of days during a year in order to be able to rent it out on the short term.
Before investing in a property for the purpose of renting it out as a short-term rental property, it is absolutely crucial to do your research and learn about the laws and regulations that might affect your property and investment.
Want to learn more about the difference between long-term rental properties and short-term rental properties before deciding which rental strategy you want to use? Click here to read our short guide about the difference between these two rental strategies.
Short-term rental properties are the perfect investment for people who are willing to put more time and effort into planning their investment, and who are looking to achieve the maximum amount of profits on their investment.
As mentioned above, make sure to do your research before investing in any short-term rental property in order to make sure that your investment goes as planned and to avoid facing any unexpected and unnecessary complications that can affect the profitability of your investment.
Make sure to read our articles on long-term rentals to learn about the difference between long-term and short-term rental properties before deciding on the type of rental property that you want to invest in.