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More and more people are choosing to stay in vacation rentals over hotels. And the short term market is projected to grow.
71% of travelers with children preferred access to cooking their own meals, which is big reason for the preference for a vacation rental.
According to Vacation Rental Marketing, the average number of Airbnb apartments is doubling year over year as hotel supply increased by just 1.1 percent in 2018.
And don't just think of Airbnb when you think of short term rentals. VRBO and booking.com are great options also. In fact, later in this article there is some interesting data about Airbnb vs VRBO. Plus another option you need to know and seriously consider if you're looking to buy a short term rental investment.
Are short-term rentals good investments?
Short term rental properties could be a good move for real estate investing. But it depends.
Short-term rental investments differ from the typical real estate investments. Traditional investment properties, a property that has a tenant for six months, 12 months or more, offers more stable rental income. Property owners with short term rentals can potentially see better margins with a chance to increase that income.
You could see more revenue as a short term rental investor, but it could be more sporadic and inconsistent. The short term rental may be harder to manage than a traditional rental. Short term renters are not staying for a long period of time, so you may need to spend more time marketing and managing the property. This also includes things like cleaning fees, maintenance costs, and managing the entire process.
Do you have the down payment?
Before we get any further discussing the rental business, cash flow, and the market, let's chat about how much money you need to put down to be in the short term rental game.
If you were buying a straight-up vacation home you'd only need to put 10% down. But when it comes to a short term rental property you'll probably need a 20% down payment with most mortgage lenders.
Now, these number change from lender to lender and market to market. So find a lender to talk with about what you'll specifically need for your purchase and market.
How much more money can you make with a short term rental vs long term rental?
Depending on the location and style of home, a short term rental property may generate 3-4 times more revenue compared to long term rentals. So if you could find a tenant who would pay $2000/month for on a long term lease, you could potentially see $6000-$8000/month with the short term property.
Are short term rentals a good investment?
Buying a short rental could be one of the best ways to invest in real estate if...
- You like to travel, want a second home but want some revenue coming in to pay for that second mortgage. A vacation home as short term rental could be the move. Maybe you don't need to make money being in the short term rental world. You're just looking to offset some costs when you're not using your vacation home.
- You're ready to commit to the short term rental game as a side hustle. Typically real estate investing is thought of as passive income or mailbox money. There's nothing passive about short term rental investing. Not only are you real estate investing you are also in hospitality management. If you don't want to self-manage, then account for the increased business expenses of hiring a property manager.
What is a short-term rental property?
I define short term rentals as property that is rented out for periods of less than 30 days. These properties can be found on vacation rental websites such as Airbnb and VRBO.
We own real estate in North Idaho , Western Washington and Central Wisconsin:
In Washington, "A lease for longer than month to month must be in writing. Per RCW § 59.04. 010, if the lease is longer than one year, the execution of the lease must be acknowledged (i.e. notarized)."
In Idaho, "Leases longer than one year are legal, but they must be in writing (not verbal). Idaho recognizes verbal agreements for a duration of less than one year as long as the tenant and the landlord are in complete agreement."
In Wisconsin,"Wisconsin requires rental agreements for leases that are 12 months or longer."
So basically, anything less than 12 months could be considered short term. I would personally say any rental properties less than 30 days.
Some HOA's and neighborhoods have a no short term rentals policy and I've seen these fall in the 3 month - 6 month time period. Meaning if you're going to have a rental, there must be a minimum 3-month lease. Some other places require long term leases of a year.
Short term rental properties could be any type of property, not just a home or condo. I've seen vacant land with a tiny home on it. Or even a boat.
The most popular ones are in an ideal location, tourist - recreational area, making them a great vacation rental property.
How to find a good vacation rental property?
If your investment strategy is leaning short term vs long term, the safe bet is buying a place in a vacation destination. You already know there is a reason for people to come to the area.
A vacation rental + ideal location = cash flow
You want an area that's going to attract vacationers and there needs to be a large transient population. Areas with major tourist attractions such as state parks, golf courses, fun local events, lakes, ski resorts, hunting and fishing areas and mountain views or other similar attractions could support a vacation rental.
Know the seasonality of your area.
Obviously, seasonality is going to impact your occupancy rates. Do you see a big flow of vacationers in the winter? Or is it more summer? Is there a peak season and low season?
11 Questions To Answer About Finding A Good Vacation Rental
- Are you looking in an area you're familiar with?
- Do you like the area?
- What are the rules, regulations, laws, and taxes/fees in the local area?
- Is it a seasonal or year-round destination? When is the off season?
- Are there local events, things to do year round?
- Will there be periods of high demand?
- Is there already high demand in the local short term rental marketplace? Supply vs Demand?
- Will you self manage or hire property management? Is there a local property manager?
- Would you ever use the property for your personal use?
- Who is your ideal guest? A couple? A family? A group?
- Back up plan: If the property isn't bringing in a big enough cash return or it's becoming a hassle to manage, would it make a good long term lease?
Another Path To Short Term Renting Success
Instead of only looking at homes that could be a vacation rental you could go the route of:
Many business travelers need a place to stay while on the road, and a short-term rental can be a great option. Short-term rentals can offer many amenities that hotels cannot, such as a kitchen and laundry facilities. They can also be more affordable than hotels, and can offer more space than a hotel room.
Many hospitals are looking for nurses to fill short-term positions, and traveling nurses are often in need of a place to stay. Most traveling nurse gigs are for over 90 days. So you'll have more stability with them. And this is a growing segment of tenants. There are even websites directly focused on matching traveling nurses with places to stay. Or you could just reach out to local hospitals and clinics and ask if there is a need for temporary housing locally.
How to maximize your profit
As I mentioned above, the challenge with being in the short term rental marketplace is you're not just a real estate investor you're a hospitality manager. You're providing an experience for your guests, not just providing a place for tenants.
Here are a few tips:
• Make sure you have a good internet connection. Guests will need access to the internet for things like checking in and out, booking reservations, and finding information about the area. (Unless your vibe is off-grid and getting away from it all. Could be the move in today's world.
• Furnish the property with everything guests will need. This includes things like linens, towels, dishes, cookware, and spices. You may also want to provide things like shampoo and soap. Coffee and a machine are a big deal. Don't forget the coffee.
• Have a welcome package that includes information about the property, the area, and local attractions. Provide contact information for the property manager or owner, and make sure that someone is available to answer any questions or address any problems that guests may have.
• Have a good marketing strategy. Don't take photos of the home with your phone. Hire a professional photographer. Write a detailed property description. List all the nearby amenities and benefits of staying at your place. The best stores, coffee shops, restaurants, and parks. Anything that could be of interest to your potential guests.
• Create a listing on websites like Airbnb, HomeAway and VRBO. These websites allow guests to search for properties to rent by location, amenities, price range and more.
• Encourage guests to review the property on sites like TripAdvisor or wherever they booked from. Positive reviews can help attract new guests and generate repeat business.
• Set up a website with direct booking calendar. You can create your own vacation rental website very easily. Think about how to reward repeat guests and referrals from them with special deals. Once you have some loyal guests you can start to even out your cashflow and make your occupancy rate more predictable.
Direct booking is more popular than Airbnb and VRBO combined. If you don't have a way for guests to direct book not only is it costing you in booking fees. You're probably leaving a lot of money on the table.
• Use dynamic pricing. Uber and ride-sharing apps do this. When there is higher demand, the price increases. Less demand, lower prices. You could do the same thing with your vacation rental property. During the summer, weekend, a special event going on, you maximize the price. Middle of winter, weekday, no events, the price gets very low. Maybe low enough price to attract a guest thinking, "Why not getaway for a couple nights at that price?"
Where can you find and buy short-term rentals?
I highly recommend starting your short term rental properties search close to where you live. At a minimum someplace you're already familiar with. Look for the places that are already vacation destinations. It could be for snow skiing, or close to the water. It might just be a unique destination and a place to get away. Even if you're planning on outsourcing to a property management company, it's important you know the area and be confident you're looking in the right area.
For example, Coeur d'Alene is a great place for a vacation rental. But not all locations are created equal. There are certain neighborhoods and areas where it makes sense to have vacation rentals. Close to downtown. Close to the lake. But if the vacation rental is not in the right location it's going to be hard to keep your occupancy full and charge enough money to generate good cash flow.
Another thing to consider in your investment property search
Close to major highways, airports etc. As a guest what's most important is that it's easy for them to get there without a lot of inconvenience or hassles. College students might be okay going out of the way if they can save a little money on lodging, but families would probably go elsewhere if they have very young kids or older parents with them and need specific accommodations like stairs free, elevator access etc.
Some of our favorite areas for vacation rentals in Washington and Idaho:
If you're looking for a great place to buy a vacation rental, consider Seabrook in Washington. This charming town on the coast is a popular destination for tourists, and with good reason – there's plenty to do and see here. And thanks to its close proximity to Seattle, it's also a popular spot for city-dwellers looking for a quick getaway.
Find a Seabrook home for sale
This resort town on Idaho's northern border is also a popular destination for vacationers, and for good reason – it has an incredible amount of natural beauty and outdoor recreation opportunities nearby. Plus, there's plenty of shopping and wonderful dining opportunities in the area.
Cle Elum is a unique destination. For one thing, it's more of a small town than a vacation destination. But those who come here are often pleasantly surprised at what they find – this historic town on the Yakima River has an incredible amount of natural beauty and some great shops and restaurants as well.
Look for a property for sale in Cle Elum
Suncadia is a resort community located in Cle Elum, Washington. It's a great place to buy a vacation rental because it has something for everyone. There's plenty of outdoor recreation opportunities, including golf, skiing, and fishing. Plus, it's close to Seattle, making it a convenient destination for city-dwellers looking for a quick getaway.
Find a Suncadia home or condo for sale here
Sandpoint, Idaho is quickly becoming a popular spot for vacationers. Located on the shores of Lake Pend Oreille, this charming town offers plenty of opportunities for outdoor recreation, as well as a variety of shops and restaurants. And with its close proximity to Spokane, Seattle, and other nearby towns, it's easy to see why Sandpoint is a favorite destination for vacationers.
Leavenworth, Washington is a charming town located in the Cascade Mountains. Originally founded as a logging town, Leavenworth has since become a popular destination for tourists, thanks to its Bavarian-themed architecture and charming small-town atmosphere.
Look for Leavenworth property that would be good in the short term rental market
Lake Osoyoos is a beautiful freshwater lake located on the border of USA and Canada. It's one of the warmest lakes in Canada, making it a popular destination for swimming, boating, and fishing. It also some great vineyards.
Schweitzer Mountain is a ski resort located in the Selkirk Mountains of Idaho. It's a great place to buy a vacation rental because it has something for everyone. There's plenty of outdoor recreation opportunities, including skiing, snowboarding, and mountain biking.
Short term rental properties are a great way to generate immediate cash flow and build wealth long term. Even though many people think of owning real estate and investment properties as passive income, a vacation rental is anything but passive. Unless you play that property management company card. And even then you're going to get calls, emails, check statements and make decisions.
If you're ready to get into the vacation rental industry, it's important that you understand how to find the right location. To help ensure that this is an investment worth making, consider buying properties close by large cities or towns so that they'll be convenient for city-dwellers looking for quick vacations. Whether your perfect spot has ski slopes just outside its doorstep or lakeside fishing opportunities on tap.
We hope our guide helps lead you to some excellent choices as part of your real estate investment search!
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