Consider the 5 factors before investing in short-term rentals

According to Technavio, the vacation rental market share is expected to increase by USD 79.30 billion by 2026. The growing, trendy vacation rental market is a key part of the short-term rental business.

We’ve also seen the popularity of short-term rental properties during COVID periods when different types of travelers, leisure or business, are practicing social distancing and are more willing to rent out an entire house rather than booking a hotel room, reducing the risk of getting infected.

In the post-covid era, the short-term rental market continue to expand with a growth rate of 14% for 2022.

With a growing demand in short-term rentals, the question you now ask: is investing in short-term rentals right for me? There are some factors you can take into consideration before making a decision:

1. Local regulations and law 

First and foremost, you have to make sure listing your properties as short-term rental is legal by checking your city or county website. It is also a good idea to check with the local city zoning and planning department. Some cities pose strict regulations to curb the growth of profitable short-term rentals and protect local communities.

For example, New York State law largely bars apartment rentals for fewer than 30 days when the host is not present; whereas in Los Angeles, home sharing is permitted if the listing is the host’s primary residence.

Every city has different policies regarding short-term rentals and they can change from time to time. So do check your local regulations and policies before investing in short-term rentals.

2. Market opportunity

What are the demand drivers for accommodation in your area? Does this demand expect to grow over the upcoming years? Short-term rentals tend to attract more leisure travelers who are looking for unique experiences than business travelers who value efficiency and consistency (not saying business travelers don’t book short-term rentals, a lot of them do, but overall vacationers are more likely to book short-term rentals).

To understand the growth potential of a short-term rental market, one can research the local tourism market or any other demand drivers which attract short-term renters such as major conferences or games.

In the post-covid era, national parks or scenic destinations within 1-2 hour drive from major metropolitan cities grow popularity rapidly among short-term renters. Examining the  local demand drivers is a must when investing in short-term rentals. 

3. Location of the property

Can’t stress any more the importance of location in the world of real estate. If your property is in a city, is it conveniently located and easy for people to get around?

If your property is in a more remote destination, how long does it take to travel from the nearby city? Is it relatively close to popular destinations such as national parks or lakes?

It will be ideal if your property is located within 2-3 hours’ drive from the nearby metropolitan area.

4. Design and hospitality

Do you have an eye for design? Do you enjoy meeting and hosting new people? In the world of Airbnb and other short term rental platforms, standing out among hundreds, if not thousands, of listings is crucial.

Two important ways to stand out is to differentiate through design and customer reviews. Unique design and branding make great first impressions and give people unique experiences, which set short-term rentals apart from traditional hotels.

In addition, as we are in the hospitality business, treating your guests well and making them feel welcomed is key to get positive reviews, which in return boost your listing bookings. 

5. Management of the property

One of the biggest differences between a long-term rental vs. short-term rental is the owner’s level of involvement in the management of the property.

In a long-term rental, the owner and the renters often sign a lease that lasts at least 12 months; the owner does not have to do much besides collecting monthly rent and inspect the home by the end of the lease (or annually).

But in a short-term rental, most travelers stay for 1-3 nights and this high turn-over leads to a much more demanding level of management from the owner.

If you have the time and energy to manage the short-term rental, or have the budget to hire a property manager, then you can consider investing in short-term rentals as they are 50%-200% more profitable than their long-term rental counterparts in many markets.

Summary

To sum up, there are a couple of factors you shall consider before investing in short-term rentals: local regulations and law, market opportunity, location of the property, design and branding, and management of the property. If you are confident about all the five factors, then you are ready to start your short-term rental investment journey.

Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational and entertainment purposes only.