A short-term rental property is a property you rent out for a few days, weeks, or months. It is usually a vacation-type rental used by tourists on separate occasions. Such investments are considered profitable due to the following reasons:
- Higher rental income potential compared to medium- and long-term leases
- Tax savings due to tax deductions related to property expenses, depreciation, and maintenance
- Enhanced property value compared to traditional residential properties.
When deciding to invest in short-term rental objects, you have to first consider a few important things, which we will discuss in this article.
1. Understand Your Target Market
The target market mainly depends on the property location (region and country) and its attractiveness to tourists. Here you have to consider a few criteria:
- The market dynamics in the target area: look at the real estate demand and supply to see if the market will be growing or shrinking.
- The demand for short-term rentals specifically: if there is a deficit or surplus of such properties.
- Seasonal trends like the influx of people for high seasons or long holidays.
- Competitive landscape: the market saturation of short-term rental options.
You don’t have to limit your search to your country of residence. Check out foreign states that are known for their attractiveness to tourists and favorable investment conditions. For example, Dubai in OAE is one of the most dynamic and profitable rental markets. By investing in real estate in Dubai you can also get tax and visa benefits.
2. Consider Legal Requirements
Depending on the country and specific location you want to invest in, there will be some legal requirements to pay attention to. Every time you consider a location, you have to conduct proper due diligence to make sure it suits your investment purpose.
Familiarize yourself with licensing requirements. Another important consideration is occupancy limits. Such limits can be established by local regulations, building codes, or homeowner associations. Exceeding them can result in penalties. Make sure to check the tax obligations in the specific area since they can also differ. For this part of the job, you can hire a local consultant who will help you navigate legal and tax requirements.
3. Set the Right Price
After you’ve studied the market and the specific area, it’s time to set the right price and calculate investment profitability. This will determine how will you proceed with renting out and whether you will be able to hire a property manager and still make a profit. In other cases, you can do the property management yourself, which will increase your revenue but add an increased responsibility.
To calculate the profitability, you can use a simple method. You have to determine the rent income potential and the carrying costs you will spend on maintaining the property. This is also called the net operating income or NOI. It is basically a gross rent amount minus your costs. You want to make sure that NOI aligns with your investment goals and includes the risks associated with renting like downtime or low season and unexpected costs you may incur.
4. Integrate Smart Home Technology
Embracing smart home technology can set your property apart from the competition and enhance the guest experience. Such technologies include connected devices and appliances aimed to perform actions and automated routines in the house. They can save money, time, and energy and cut some costs for property owners.
Such devices include keyless entry systems, smart thermostats, voice-controlled assistants, and entertainment systems. They can ensure the guests’ safety and comfort and help avoid accidents. Besides, such devices can increase the property value and make the investment more profitable.
5. Leverage Online Platforms
One of the benefits of investing in short-term rentals is the low entry threshold. After you’ve bought the property and made any fixes, repairs, and renovations needed, you can already start making money. The easiest way to do it is through online platforms. You can even do it yourself without engaging any paid specialists. Such platforms include Airbnb, Vrbo, Booking.com, HomeAway, etc. You do have to pay the commission to the platform, but in return, you get guaranteed safety and the ability to see your guests’ profiles and reviews.
One of the bigger challenges of such services is adding high-quality pictures that will showcase the property and attract future guests. You also have to add an enticing and detailed description that will help customers learn about the stay and make sure it fits them.Â
In Conclusion
Short-term rentals can be a lucrative investment if done right. The entry threshold for this business is relatively low, but you have to make sure to research the market, learn about the location specifics, study the legal and tax requirements, calculate the investment profitability to set the right rental price, and improve and maintain the guest experience. You can use online platforms to showcase your property and attract clients. Once you’ve honed the process and lived through a few high seasons, you can consider yourself a seasoned businessman and investor.
