Over the past few years, there has been a lot of excitement about owning a short-term vacation rental as part of an investment portfolio. This marks a dramatic change from the traditional long-term rental model which so many investors have worked to establish over time. Most investment in single-family rental homes, apartment buildings, or hotel facilities are based on a long-term Buy & Hold model. As more travelers utilize vacation rentals instead of hotel chains for their trips, you may be wondering if owning a short-term rental may be the right situation for your needs.
Now keep in mind, short-term rentals have caused a stir in many communities around the country. Many full-time homeowners do not like having these properties in their neighborhood. Unruly vacationers have been known to bring a party atmosphere to their quiet neighborhoods and some communities have banned short-term rental properties completely. In other areas, the short-term rentals are severely restricted in their use or have very specific requirements to operate one of these locations. It’s important to consider these potential market shift when deciding on a short-term rental and selecting a market.
Another consideration is the amount of time a short-term rental will take to manage. Unlike their long-term counterparts, short-term rentals often require more repairs and maintenance as the tenants do not treat these properties as their homes, like long-term tenants might do. Short-term rentals also require someone to be available 24/7 to address any needs of the guests or flip the property on a regular basis. Many short-term renters are only staying for a week or even a quick weekend trip, so the volume of cleaning, maintenance, and personnel to handle these schedules is certainly higher than long-term rentals. Of course, you can hire a property management company to handle these issues, but that will cut into profits and average 20%-30% of gross rental revenue.
Short-term rentals can have a larger return on investment than long-term rentals, but they come with more work. They also have significantly higher vacancy rates, advertising costs, cleaning, and maintenance costs. On the other hand, if having a vacation property where you can also travel to and enjoy yourself is part of your goal, that may tip the scale in favor of a short-term rental investment. If there is a vacation market you enjoy, investing now in the market so that you can enjoy the property later in life is not a bad idea.
There is no one-size-fits-all approach to real estate investing. Consider what works for you and make the best choice for your goals. Please Contact Us if you are looking to connect with one of our Realtors and learn more about vacation rental homes in your target area. Our team has years of experience with the acquisition and management of short-term rental properties and can help start the conversation regarding your next investment property. We look forward to helping guide you to the right market and the right investment for you!!
Homebuyer Compromise
