5 Big Reasons Why You Should Start Investing in Short-Term RentalsOct 19, 2021
The real estate industry has been a great place for people who want to have stable cash flow and a healthy return on investment. In the past few years, investing in short-term rental properties has been my favorite strategy and I have seen massive growth in the market and my personal portfolio. More and more today, more and more investors are looking for properties that they can transform into income-generating short-term rentals.
However, it may be daunting to venture into this type of industry for the first time, though, but with enough knowledge and skills to start with the right foot, you’ll surely have the potential to multiply your profit and revenue over time. Hence, to help you decide when to make your first investment, check these five big reasons below why you should make one and start running your short-term rentals in your chosen market.
When you own and run a short-term rental business, you’ll enjoy the benefit of setting up your own price. Besides that, you can also adjust the price depending on the current market trend in your location. When the demand gets high as there are more tourists and travelers in a particular season, you can increase your price a little bit and get more income.
Another advantage of owning a short-term rental is that you can have it for personal use whenever needed. If you want to go on vacation on your own or with your entire family, you can stop receiving guests within a particular period of time and enjoy your stay in your own property. Then, you can open it up again in the market for new guests and tourists in your area. So, besides earning extra income from your short-term rentals, you also have an alternative place to stay whenever you need another home in the future for a quick getaway to stay in.
Higher Return on Investment
One main reason why many people get involved in owning a short-term rental property is its potential to receive a higher return on investment. In fact, the profits you may get from short-term rentals are much higher than those who own long-term rental properties. For example, if one of your units books at a $200 daily rate, it means that you could receive have $3,000 as your income in one month with just a 50% occupancy rate. That’s pretty much 2-4X higher than the long-term rentals which might average around $1,000 per month.
Besides that, as mentioned earlier, you can change your price when the demand gets higher in your target market. You can do that during peak seasons, like in summer or holidays as well as when there are local events attracting more visitors to the area. As you can see, there’s so much potential to earn more income in owning and running short-term rentals in the market. That’s clearly one of the reasons why many investors get interested in this industry across the country.
Besides getting higher ROI in short-term rental investments, many people may not know the tax benefits that come with it. For example, just like any travels for real estate investing, traveling to your short-term rental properties is tax-deductible. It means that the costs of your travel every time you go to your STRs for guest turnovers, repairs, and other relevant purposes, will be deducted from your total taxable income. You only have to make sure that you have proper documentation that you can prove the reason for your trips.
In addition, every time you purchase new or used appliances, fixtures, furniture, and anything that you need in your STRs, these are eligible for bonus depreciation. So you may get the full depreciation of these items after one year from the date of purchasing them instead of depreciating the cost or value of these items over the years, just remember talk to a qualified bookkeeper and tax accountant for advanced tax strategies.
Besides that, the supplies that you provide for your guests, like beddings, towels, toilet papers, or even bath soap and shampoo, are also tax-deductible expenses. Again, you have to make sure that you can provide an itemized list of all these expenses with proper documents and proof to present to the IRS during the tax season.
Moreover, most short-term rental owners don’t offer hotel-type services to their guests, like food and beverage services, everyday cleaning, changing of beddings, and many others, which will make them pay more taxes. If you have this type of business, what you will usually do is to clean your property after your guest leaves and before a new one arrives. Because of that, you may avoid paying the self-employment taxes with the IRS.
These are some of the tax benefits you will get if you own and run a short-term rental business. You can further check in the IRS to see other tax deductibles and credits you may qualify for to significantly help you boost your profits. For example when you own investment properties you get some added tax benefits in the form of depreciation, you get to write off your interest expense from your mortgage payments, you get to write off your property taxes and your hazard insurance is also a tax deduction. You get the benefit of increased equity from your monthly payments reducing your mortgage balance as well as appreciation from property values going up year over year.
Continuous Growth in the Short-Term Rental Market
Many people always want to get more savings every time they make purchases or pay for any services they get. The same thing goes for travelers and tourists who look for a place to stay for a day or a couple of weeks. That’s why instead of staying in expensive hotels, the affordable daily rates that most short-term rentals offer can attract more guests. Hence, as the number of people who love to travel continues to increase every year, the industry of short-term rentals continues to grow and prosper.
As mentioned earlier, the real estate industry has been a profitable market for many people who want to have a stable cash flow and healthy investment returns. The list discussed above is a few benefits that you can enjoy when you start exploring your opportunities in this type of income-generating business in your preferred market. If you’re new to this industry, you have to do your research very carefully and get as much information as you need. Then, you can begin searching for the properties that you can transform into short-term rentals, which have the potential to give you another source of passive income over time.