Be Ready to Invest in Short-Term Rentals With These Three Helpful Tips

Oct 12, 2021
Be Ready to Invest in Short-Term Rentals With These Three Helpful Tips

Everyone knows that investing in real estate properties can give you a massive passive income stream over time. It may not happen right away but you’ll surely be setting yourself up for success and achieving your cash flow goals when you do your research and make informed decisions. But, it can be intimidating to venture into this type of industry, especially if you’re new to this particular way of generating money. You can also add to that the tough competition in the market that may result in having some hesitation and trepidation.

However, when you exert more effort and spend a considerable amount of time to gain enough knowledge about the important things you need to learn, you’ll surely get so much advantage and see your cash flowing from your investments sooner than later. Hence, for you to have a good head start over the competition, here are a few helpful tips to get ready to invest in short-term rental properties.

Do Intensive Research in Your Target Market

One of the most important things you need to do is your research in your desired target market. It’s vital that you know where the best location is for your short-term rental investments. You may already know that most cities get more attraction from many travelers and tourists than others but you should not forget about the potentiality of smaller towns, your own city and in your own backyard may be a great place to start and to grow in this industry and should be part of your list.

Moreover, it should also be part of your research to find out the charge for the daily rate of the short-term rentals in a particular location where you are interested in buying a property. The details you’ll get will significantly help you have an estimate of your possible income and the overall cash on cash ROI or return of your investment. Keep in mind that the best place to invest in this particular type of real estate property has a good demand for profitability and short-term rental businesses.

Hence, before making any final decision for this investment, here are some of the important things you need to look into when you do your research for your target market.

  • One thing that should be part of your search is the job trends in the prospective location for your short-term rental property. Since getting more guests is your main goal, find a target market where there are a lot of job opportunities to offer to people looking for work, who can be your tenants or guests for a particular period of time.
  • The population is another factor that makes a city or town become a good market for short-term rental owners. It’s because the more people residing in the area, you’ll also have opportunities to get more guests to stay in your property.
  • Safety is another important thing that all people will look for a place to stay in. Of course, you don’t want to stay in a particular rental property that can’t give you enough protection from any possible harm or any type of violence. So you need to investigate the current crime rate of the particular location where you are interested in buying a property.
  • Accessibility is another factor that most guests consider in looking for short-term rentals. It’s where they can easily go to the shopping malls, restaurants, and other mostly frequented locations in the area. Hence, that’s something you need to include in searching for your target market. One indicator is if there are hotels in the area, if there are hotels in the area then we know there’s already a demand for short term rentals.

Learn the Legalities in Short-Term Rental Properties

Besides knowing the best target market to start your short-term rental business, you should also know the legalities around this industry. It’s because it’s important to learn how to shape the market by having enough understanding of the local regulations and state laws governing purchases and running of short-term rental businesses.

One thing that you should know is the correct definition of a short-term rental. In fact, the definition may vary in each county or city. For example, other states set a different guideline to consider your property a short-term rental. The guests should have an experience like they’re staying in their own home while they are in your property. So if you let people rent your travel trailers or RVs, it doesn’t consider them a short-term rental.

Knowing the correct definition doesn’t only help you know how to rent your space for your guests, but it’ll also help you know what permits and licenses you have to acquire and other important laws that you need to follow. It’s also the same thing with knowing about the required length of stay to consider your property a short-term rental. Some states will only allow you to stay less than 30 days and others have a limit of 120 days in total in the entire year. However, there may be exceptions to the rule for those who qualify.

Besides getting to know the definition and the required length of stay to consider your property a short-term rental, there are also important legal restrictions that you need to be aware of. It’s because some cities and HOA’s or POA’s prohibit this type of business to operate in any zone and others consider it a hotel, which is only allowed in certain locations. Besides that, you can also find some cities in the country that implement strict rules on short-term rentals.

For example, in New York, California, to help the hotel industry and avoid any disruptions to the residents in the area, you are only allowed to have rentals of less than thirty days for three or more families who live in separate units. Any violation of this rule will result in fines and penalties.

Moreover, one important thing that you need to know is the process and requirements to acquire permits and licenses to start your short-term rental business in the market. You have to check the list of requirements, like documents and other legal fees. On top of that, don’t forget about the zoning laws. It may be risky for you as an investor if the property you plan to purchase isn’t zoned for short-term rentals because you’ll only get limited options.

One last thing is the taxes. If you’ve been in the business world, you may already know the importance of tax compliance. The Internal Revenue Service or the IRS has become serious in implementing the tax laws and regulations across the country. Hence, you should do your best to prepare all of the documents and other relevant information for your short-term rentals, especially during the tax season. It’ll significantly help you save more money by avoiding any possible fines and penalties in the future.

Boost Your Potential Return of Investment

After doing your intensive research for your target market and knowing all legalities in short-term rental properties, now, you have to learn how to boost your return of investment. Of course, you surely want to earn more from this industry, so you need to find ways to do that. Here are some helpful tips to boost your ROI from your short-term rental properties in your chosen market.

  • Employ a dynamic pricing strategy. Setting up fixed daily rates doesn’t work well in the world of short-term rental businesses. So you need to know the perfect timing when to make your prices get an increase or a little bit lower. Checking the current market trend and the demand of your business are the things you have to look into from time to time on a daily basis.
  • Make use of your tax deductions to your maximum advantage. You may all know that bringing your overhead costs down will help you increase your revenue. To do that, leveraging a few tax benefits that you qualify for will be an immense help. You can check with the IRS and an experienced real estate investor CPA for further details and guidelines.
  • Upgrade your short-term rental properties with a few renovations and makeovers. It may seem like another set of expenses, but it’ll also be the best way to attract more guests and increase the number of repeat customers. You may consider repainting the walls, adding more furniture, and improving the lighting fixtures. Your goal here is to let the guests see something in your short-term rentals that will stand out from others in the market.
  • Offering discounts and special deals attract more guests. It may also seem a way to decrease your profits, but it’s another effective way to have more bookings from people who get interested in staying in your short-term rentals. On top of that, it’ll also help you boost referrals and repeat guests by getting you more 5 star reviews..

Takeaway

Investing in short-term rentals can be exciting and intimidating at the same time, especially if you’re new to the Real Estate Investing industry. However, as mentioned above, when you exert a considerable amount of effort and spend enough time to do your research, learn the legalities, and find ways to boost your ROI, your short-term rental investments can be very rewarding and may give you a passive income over time. So when you venture into a new income-generating opportunity like this, always remember all things discussed above and apply each tip to help you get on the right foot in this industry.

God Bless,
Phillip Warrick

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