Short-Term Rental Investment

So, you want to buy a property that you can list on Airbnb? Great! First, let's see what short-term rentals are and what you could do to maximize your investment.

Short-term rentals, also known as vacation rentals, have always been an option when people travel, but it wasn’t until websites like VRBO and Airbnb came on the scene that interest ramped up with wider access to these properties.

While these types of properties look like an easy investment—and it’s true, they can yield dividends in ways that long-term rentals might not— that doesn’t mean purchasing and managing a property is easy.

What about short-term rentals you need to know:

1. Short-term rentals typically generate about 30% more annually than long-term rentals.

2. Local zoning and municipal ordinances dictate which properties can and cannot be used as short-term rentals. Many municipalities have put restrictions on Airbnb rentals or banned them altogether. Neighborhoods and multiunit buildings may also have stringent rules around length of stay, so there may be multiple sets of rules and regulations to navigate.

3. Operating a short-term rental is considered a business by most local governments, and owners must comply with specific workplace regulations and business licensing rules established in their local communities.

More investment opportunities are popping up as the housing market begins to recover, and properties that investors can turn into short-term rentals are in demand. Short-term rentals can be profitable, but that depends on a wide range of factors. Educating yourself on short-term rentals in your market is important to achieve your goals.

Start by understanding these three principles:

1. There’s more to location than you think. Beach houses, areas with nightlife and cultural events, holiday destinations or places close to outdoor activities are all good bets.

2. Property management can be intense. While short-term rental platforms like Airbnb and VRBO can streamline short-term rental property management, they can’t do it all. Someone has to interact with guests, arrange the details and clean and maintain the property. It takes much more time to manage a short-term rental versus a long-term rental property.

3. Profit potential is high, but occupancy is unpredictable. A short-term rental must be able to prove ROI. On average, it is recommended to aim for an ROI above 15%. However, with a short-term vacation rental, occupancy can fluctuate wildly, so it is hard to say what the exact income would be.

Location is important, but you should also think about property management and occupancy rates before making a purchase.

The benefits and pitfalls of short-term rentals all come down to context. Location, management concerns, local regulations and overall value and profitability are just a few of the moving pieces. As an investor, educating yourself about the intricacies of your market will help you help you make the best decision possible for your real estate investment future.