June 20, 2019
The rise of short-term rental services such as Airbnb and VRBO has had an enormous impact on how people plan vacations. This trend has also created an exciting alternative for those who invest in rental properties.
Deciding whether to use a property as a short-term rental is largely a matter of location and regulation. Because the industry is still in its relative infancy, many jurisdictions are trying to catch up with lost revenue opportunities, while the hotel industry fights to maintain its position in tourist destinations.
A recent report from Forbes highlights several key advantages of short-term rentals, especially at a time when regulation remains fluid.
Early adopters of this model still have a huge opportunity to capitalize on a market that will likely continue to expand.
The first and primary benefit of short-term rentals is that they have a greater return on investment. Investor Ryan Pineda wrote the following for Forbes:
In the right market, the returns on short-term rentals are much higher than long-term rentals. One of my properties grosses $4,000 a month on average. If it were available for long-term rental, it would earn $1,500 per month. With STRs there comes more management work and fees, but even taking that into consideration, the net is usually going to be higher than if you rented the unit long-term.
Pineda emphasizes the importance of selecting the right market for a short-term rental. A place like Las Vegas, where regulation is tight and the city favors the hotel industry, isn't a great location for short-term rentals.
Areas that have more of a natural environment, such as mountain and lake houses, can be excellent choices because there aren't many surrounding hotel accommodations. In cities, as well, larger groups may find short-term rentals more appealing because the cost of lodging can be divided among them in one property, rather than spread across several hotel rooms.
The other points Pineda raises are personal use and diversified risk. You can choose when you want to rent the property and when you want to use it for your own leisure. You don't lose access to the benefits of the property itself. When you do rent it out, the risk is spread across multiple tenants, rather than taking on the potential risk of a long-term tenant whose circumstances change and prevent them from paying their rent.
More and more cities and towns are taking a closer, tougher look at the ordinances surrounding short-term rentals. Some of these battles have become intense, especially in places like Honolulu, Annapolis and Baton Rouge.
As the industry grows, the market is likely to see increased regulation through fees, taxes, permits, and licensing and insurance requirements. That shouldn't be a deterrent across the board. For those who want to invest in a property, now is still a great time to research locations and identify a great fit that will continue to draw guests for the foreseeable future.