An Introduction to Short Term Rentals
In recent years, the concept of short term rentals has exploded in popularity, attracting travelers seeking unique accommodation experiences and investors looking to capitalize on higher rental rates. In this post, we delve into the fundamentals of short term rentals, examining their appeal, potential profitability, and the essential considerations for those venturing into this type of investment.
Understanding STRs
At its core, a short term rental refers to the renting of a furnished property for a duration of less than 30 days. Unlike traditional long-term rentals, which often entail lease agreements spanning six months or an entire year, short term rentals provide flexibility to book accommodation for any number of nights ranging from 1 to 29. This makes them a great option for short visits and puts this property type in a similar category as hotels or ‘bed and breakfasts’.
Typical Renters
Renters booking short term rental stays are referred to as ‘guests’ and more often than not, they’re looking for an experience rather than a simple stay. Thus, it’s important that the property is comfortable, convenient and exceeds the expectations of what one might encounter at a hotel. The property is usually an entire home, apartment, or condo that is completely furnished and fully stocked, down to spare batteries, every kitchen utensil you can imagine, and even board games for entertainment. These elements make short term rentals a great fit for the following audiences;
Vacationers: Individuals or families traveling during holidays, weekend getaways, or leisure trips.
Business travelers: Professionals visiting offsite locations for business related meetings, conferences, or projects.
Temporary renters: People moving or in transition between homes.
Owners: unlocking profit potential
From an owner standpoint, short term rentals present a compelling opportunity to maximize returns on a property’s rental income. Typically, they have a number of advantages over other types of investments and thus they have attracted real estate investors en masse.
By renting a property for a few nights at a time rather than an entire month or year, an owner can charge a steeper price for the space. They must account for upkeep like frequent cleaning and replacing amenities but there is also an underlying charge for the convenience of a shorter term. As such, they typically command the highest rental rate of any other rental term.
Nightly rates are often comparable to local, traditional accommodations like hotels, however; it can fluctuate depending on the quantity or quality of other available accommodations nearby. If it’s the last available home in the area, rental prices can be increased in real-time to capitalize on the market need. Additionally, if a property is especially unique or desirable, it may have a significantly higher rate. Many owners enhance their properties with hot tubs, pools, creative interior design or even high quality amenities to make their home more appealing than others in the area. There is an immense amount of flexibility and adaptability with short term rentals as long as you’re monitoring supply and demand.
Finally, with online platforms like Airbnb, Vrbo, and Booking.com, owners can tap into a vast pool of potential guests and get an incredible amount of exposure for their property. Finding a short term rental stay is as easy as going to the website, scrolling through a list of stays available during your desired travel dates and finalizing the booking in minutes. Within each listing, guests can also view the location, nightly rate, reviews of the property, and the amenities included, creating an incredibly fast and efficient.
Challenges and Considerations
Despite the allure of profit, it’s critical to be aware of the challenges inherent to this business model such as:
Above average maintenance and upkeep: By nature, guests are in an out every few days. Frequent turnover means cleaning numerous times per week which can be time intensive or expensive if you pay a service. Additionally, increased guest traffic through a home translates to more wear and tear to furniture, constant replacement of essentials and attentiveness to the appearance of the space.
Licensing and regulatory compliance: Short term rentals usually require a license and for certain requirements to be met. Applications can entail extensive proof of property ownership and compliance with local regulations like fire safety. Owners must also be aware of the local laws, ordinances and fees associated with short term rentals in order to avoid potential penalties or fines.
Occasional bad guests: Not every visitor will be on their best behavior when they’re away from their home. You may encounter unruly, disruptive, or unsatisfied guests creating any number of challenges to appease the neighbors, protect your property, or ameliorate the situation to avoid bad reviews. This can require rapid response times to messages or complaints or even having a team member close by who can help in urgent situations.
Management complexity: Beyond the considerations above, the daily management of a short term rental can be time consuming. Efficient processes, tools, and systems are critical and it may be best handled by an experience property manager.
Conclusion
In conclusion, short term rentals can be highly lucrative and an attractive options for those looking to expand their investment portfolio. While the possibility of cashflow and profit is enticing, owners must consider the associated challenges and nuances that come with this type of property. With efficient processes, systems and a team in place, any owner can unlock the full potential of short term rentals and create exceptional experiences for their guests.
