Investing in a short-term rental property has become more and more popular with the rise of platforms like Airbnb and Vrbo, combined with the rise in short-term rental demand over the past year that accelerated through the pandemic.
From a real estate perspective, investing in a short-term rental property can also be much more lucrative than long-term renting. Our team at Beyond works with property managers, owners, and investors every day, so we’ve compiled our top 5 tips for anyone looking to learn more about investing in a short-term rental property. They are:
- Market Diversity is Key
- Study Up on Local Regulations
- Distribution, Distribution, Distribution
- Plan for the Future
- Automate With Technology
Market Diversity is Key
While it may seem like the entire short-term rental industry has been growing over the past year, different market types experienced a wide variety of pent-up demand. Urban markets and large cities, for example, saw a decrease in demand when the pandemic hit due to the risk factors associated with densely populated areas and the lack of single-family home inventory.
Meanwhile, coastal and drive-to markets in the United States experienced record-breaking growth last year as the demand for single-family homes within driving distance of many popular feeder markets helped short term rental properties stay afloat.
This is just one example of how important it can be to diversify your property investment portfolio across different types of markets, since each market attracts a different set of travelers.
Once you’ve targeted specific markets to build a portfolio in, it’s also important to measure the return on investment (ROI) by property type to maximize your investment. In some markets, a 1-bedroom/1-bathroom property that maximizes volume and occupancy may deliver the highest ROI compared to larger properties.
In other markets, larger luxury homes are a much better investment over time. Be sure to review current market performance by property size and type to see how you can maximize your investment from the start.
Study Up on Regulations
As most property owners and managers can tell you, state and local regulations on short-term rentals can have a big impact on your business. For example, the governor of Florida banned all short-term rental operations in the state at the beginning of the pandemic last year, while allowing hotels to continue to operate.
Understanding historical regulation changes can provide great context for potential future changes as many states and cities still grapple with how to regulate the industry. Some local governments restrict how many nights can be sold at a short-term rental property, while others may require special permits.
One main benefit of investing in more traditional vacation rental markets that have been established for many years is that regulation in these markets are unlikely to change. Markets that depend on tourism business know that short-term rental operations are key to the local economy and are unlikely to introduce new regulation that may impact your business.
Distribution, Distribution, Distribution
Most new investors in the short-term rental industry may be familiar with the popularity of Airbnb, but there are many other online channels to sell property inventory on that can boost your overall occupancy and revenue numbers.
Figuring out how to successfully price your property listing is only half the battle, especially if you don’t have a proper plan for distribution in place. Selling your property on multiple online channels like Airbnb, Vrbo, Booking.com and more can help expand the potential booking audience for your listing which can help bring in additional demand.
If you’re starting off with one property, it may be easy to manage these different channels on your own. As your portfolio grows, however, it will be more efficient and effective to switch to a channel manager like Beyond’s Relay tool to help you ensure that your listings are accurately represented on each channel automatically.
Plan for the Future
A key to success in short-term rental property management and investment is to ensure that your operational strategy is sound from day one. Having a reliable process for cleaning, maintenance, guest services, and more is crucial to growing a successful business.
As an investor, a property management company can take responsibility for every aspect of the short term rental operation for a fee of each booking. When searching for a property management company, be sure to ask to speak to current owners within their portfolio and make sure it will be a right fit for you.
If you’re planning on operating your own rental, be sure to research in online forums and websites to get advice on the best operational strategies. Many online channels like Airbnb and Vrbo also have resources available to help owner-operators.
Another useful tool when investing in a short-term rental property is understanding how to forecast monthly and annual revenue on a regular basis.
Before investing in a property, it’s important to get a quote from a reliable source to see how much booking revenue a property can pull in on a monthly and yearly basis.
Once you have acquired a property, be sure to keep up with revenue forecasts throughout the year to anticipate future changes in market demand and how that can impact your business.
There are quite a few tools available for forward-looking demand dates to help with this forecast, which we’ll cover in more detail next.
Automate with Technology
From the start, it’s important to understand how technology can help automate a lot of the “busy work” associated with property management. Whether or not you’re operating on your own or working with an outside property management company, make sure you are familiar with the technology landscape of the industry so you can know what may be best for your business.
Using a dynamic pricing tool from the start is key in maximizing revenue for your property. Stay away from pricing tools built into online travel agency channels like Airbnb and Vrbo as those tend to underprice listings to maximize occupancy and ultimately the host fee paid to each channel.
A good dynamic pricing tool will be easy to use and has multiple data sources from the past 5-10 years to accurately price your market.
If you’re planning on growing your property portfolio in the future, take a look at the property management systems available to help consolidate your inventory management into one place. Property management systems are going to be more helpful once you’ve started managing about 10 or more properties and can help keep track of future bookings, accounting, guest portfolios, and much more.
Additionally, a market insights tool like Beyond’s Insights is key to staying up to date with your property performance and the latest market trends. As mentioned before, a channel manager like Relay can help automatically sync your listings across different online channels.
Whether or not you have already started renting a property for short-term rentals, check out our full suite of products to help support your business.