Short term rentals are taking the real estate investing industry by storm. Travelers are increasingly choosing vacation rentals over hotels, and investors have taken notice. According to the National Association of Realtors (NAR), a fourth of all investment and vacation property owners rented them out in 2017, a third plan to continue in 2018, and more than 45% of investment buyers are banking on renting to generate income instead of more traditional methods like price appreciation and flipping.
How Did This Happen?
Travel is more accessible than ever, while hotels have become more expensive. Enter companies like Airbnb, VRBO, and FlipKey. These platforms became a medium between property owners and short-term tenants, streamlining the rental process.
So let’s say you wanted to take a vacation in Indiana. Today, hotels are not your only option anymore; you can look up single-family homes, townhomes, studios, condos, and other real estate properties in the area and rent them for your holiday.
This strategy revolutionized the housing market, making short-term rentals a booming source of income for many investors. For instance, many report higher returns on investment (ROI) based on nightly rental rates as opposed to long-term leases. Other benefits include:
- Less risk of interior or exterior damage, since this risk increases when properties are rented for more than six months
- Better occupancy ratios thanks to more manageable and shorter agreements
- Premium price during high-demand months
- Use of the property as own vacation home
Should You Join the Gold Rush? Yes, But…
The National Association of Realtors (NAR) reported a significant surge in the number of short-term rental properties being purchased recently. NAR also indicated that a third of buyers bought properties in subdivisions or suburbs, and a third bought properties in resort areas, suggesting that a lot of these buyers are new to the real estate investing industry.
If you’re new to the industry and not a member of a real estate investment group, investing in short-term rentals can be risky.
- A major reason is the constantly-shifting laws and regulations that govern short-term rentals (heavily influenced by hotel lobbies), which can vary greatly from city to city. It can be difficult to stay up-to-date on new rulings on your own.
- Another potential drawback is using a self-directed retirement account. You might run into complications with both managing the rental and using it for your own.
- On top of this, renting out your property also comes with additional expenses. This can cover extra insurance costs, as well as payment to short-term rental platforms for hosting your booking. Knowing what kind of taxes apply to your rental is also critical.
Join CIREIA, and Reap the Many Benefits of Its Membership! With proper preparation, short-term rentals offer a brilliant opportunity to earn more, and with the right strategy, even turn the investment into an outright business. If you’re interested in venturing into this sector, joining a real estate investors association like CIREIA is highly recommended to help you avoid the common pitfalls of real estate investing while giving you access to established networks and a wide range of resources. Each month, CIREIA hosts multiple classes on investing including one on short term and AirBnB investing that members are encouraged to attend. Experience the CIREIA benefits today!