Being in rental property investment, you are likely to do anything to generate more revenue and stabilize the cash flow. While this may push you ahead of your competitors, what’s the true secret to continuous success?
A thorough analysis before investing in your short-term rental will ensure steady success. An excellent and comprehensive analysis features several major drivers that you should focus on.
Let’s look at the key factors that will help you do a practical vacation rental analysis.
Comprehensive Short-Term Rental Analysis
Here are several factors to consider in conducting a comprehensive analysis of your short-term rental investment.
● Location
As real estate experts always say, location is everything. When searching for where to buy a rental property, prioritizing the guest’s needs is essential. It’s important to avoid going for a location just because it pleases you.
First, you need to establish your target market in your ideal location. Are the guests within the area business travelers or campus students? Are they large families or group travelers?
Once you understand these, you’ll know the number of bedrooms they like to book. Also, you can find a place near the preferred amenities that your guests would love to visit during their stay.
However, finding the ideal location alone can take time and effort. The best approach would be getting assistance from real estate experts. That way, it becomes possible and effortless to earn up to $250K annual wealth created per property. Using experts who offer the perfect STR strategy would make an ideal location easily accessible for your property and generate significant revenues.
Conversely, you can buy vacation rental property that you want for personal use. In this case, your personal preference for the ideal location is welcomed. So, you’ll be free to travel around and still earn passive income from the rental property during specific seasons.
● Demand
After knowing where to buy a vacation rental property, don’t stop there. It’s also essential to establish the current demand of the area. Operate using the law of demand and supply.
For example, the demand for your property type can be high, yet the property is scarce. In this case, the little supply available will earn the best rates. You want to be among the chosen few in such an area.
Because the demand for short-term rental is rising this year, assessing it will help you know if it’s worth investing in the first place. It will enable you to avoid regrets in the long run. Besides, nobody wants to buy a property that stays idle for most of the year. Ask yourself;
- What’s the current number of listings in the area?
- Has there been an increase or decrease in the STR demand between the current and the past years?
- Is the growth of Revenue per Available Room (RevPAR) noticeable?
By correctly answering these questions, it’ll be easy to conclude the expected revenue to help you plan accordingly.
● Property
The type of short-term rental property can also affect the demand. Still, the kind of property depends on the type of guests. If your target guest involves large families, buying vacation rentals with several rooms would be best. Likewise, a solo traveler usually looks for a studio or one-bedroom house for a short stay.
Nonetheless, most guests are after a unique experience in their preferred property type. Is the 3 bedroom near a beach, lake or forest? Is the vacation rental close to a mall, central restaurant, or cinema?
Conducting a short-term rental analysis effectively involves evaluating market trends, property performance, and potential income streams. Utilizing tools like Azibo rent collection can streamline the financial tracking process by providing detailed insights into rental income and expenses, helping you make more informed decisions. By integrating these financial metrics with your analysis, you can better gauge the profitability and viability of your short-term rental investments.
Moreover, the search for unique experiences can vary with seasonality. Many investors are buying single-family homes near resorts or rural areas.
● Seasonality
Seasonality is the statistical measure of patterns over time and is not necessary for actual seasons. When you invest in short-term rentals, you’ll experience an annual seasonality.
Usually, seasonality highly affects revenue. There’s a massive spike in revenue in the ski season of December to March, then a go-slow in the spring season of April to May.
Because the highs and lows of seasonality occur annually, you must ensure your real estate passive income is steady even in slower periods. The location also has a role to play in seasonality revenue.
Most people would want to know how to invest in apartments near beaches because of the high tourist attraction during summer. However, winter will leave such apartments empty for extended periods.
Getting vacation rentals in areas with average seasonality throughout the year is a better approach. It’s unlikely to miss a guest.
● Occupancy
Regarding long-term rentals, the occupancy rate is steady without unpredictability. However, short-term rental investments involve the number of nights a home is rented. Sometimes, it can go several nights in a month without any guests. While other times, guests can fully and continuously book it for up to 3 months.
While that occupancy rate may not be predictable, you can still generate enough revenue to pay your mortgage loan and more. The few nights occupied within a month are enough to earn you a considerable amount to offset several bills. Besides, the charges per night vary with the type of property, season, and demand.
● Expenses
Even though nightly costs are relatively higher in short-term rentals versus long-term rentals, they also have several expenses to consider. Aside from the usual costs of property management, maintenance and repairs, taxes, and insurance, other expenses include:
- Booking fees are paid to list platforms for vacation rentals like Airbnb or Vrbo
- Utilities handled by the owner like electric, water, WIFI, and cable TV
- Supplies like towels and linens, and kitchen utensils
- All-inclusive costs of home furnishing like furniture and decor to drive more guests and receive 5-star reviews
- High cleaning costs since STR rentals have regular guests turnover with short stays of even less than a week
● Appreciation
Apart from focusing on high passive income from rental property, investors want to make more money with property appreciation in the long run. Appreciation is a significant factor to consider when analyzing the STR market.
The historic appreciation trends help investors to predict the possible future. Unlike assets such as cars, and furniture, real estate properties have a strong appreciation. This means that with time, the value of the property goes up. Why is that?
Inflation and the general rise in the price of goods and services can cause properties to appreciate. However, demand is the main reason. Typically, the value increases when there are few houses, and the demand here is strong.
So, investors are investing in vacation rental properties in areas with high demand and low supply. This is a definite route to high appreciation of the short-term property.
Parting Shot
As part of your rental properties investment strategy, conducting a thorough analysis is crucial. You should know that an STR strategy differs from buying a property and renting it out to a long-term tenant. However, analysis of your short-term rental investment is very important.
The best markets are different from the usual. Sometimes, rural towns, coastal resorts, and destination locations are ideal for buying short-term rentals. Still, it pays to buy vacation rental property in a city with high occupancy rates and all-year demand.
Also Read: 5 Investment Decisions That Set Successful Real Estate Leaders Apart
