Short-term rentals, such as vacation rentals and Airbnbs, have a powerful return on investment; in some markets, one can easily earn a gross income of over $40,000 per year. When multiplied by several units and added to other investment vehicles, you can gain a steady passive income that affords you financial freedom.
In this article, we will discuss the basics of starting with short-term rentals, providing you with the knowledge to make sound investment decisions that will pay dividends for years to come.
Choose Your Market
First, you must decide upon your ideal market. Crucial considerations include property values, market saturation, and demand, all of which will influence your bottom line. When considering your expected revenue, AirDNA is an excellent resource that shows nightly rates, average revenue, and seasonal fluctuations.
While US News and World Report has developed a list of the top ten short-term rental markets, you should also consider other areas that may not be listed; after all, every other investor has the same access to this information and will clamor to access the choicest markets. For example, Miami is set up for explosive growth in the short-term rental market, even though it did not make the top ten. This is due to its balmy weather, plentiful recreational activities, and famous association with Spring Break.
You should also examine the tourist industry in the area to identify peak seasons and off-seasons, as this will identify when you can expect the highest incomes. As vacation rental cash flow can vary significantly throughout the year, understanding when you’re likely to receive the highest bookings allows you to budget appropriately for slower periods.
Check Regulations
Given concerns about housing shortages fueled by the short-term rental industry, some municipalities are limiting the operation of Airbnbs and rental condos. Most concerningly, Hawaii has advanced bills that would allow counties to limit vacation rentals so as to reduce the housing crunch for locals; Albany, NY, is also eyeing legislation that would require property owners to remain on the property for a portion of the year.
Once you have chosen your market, keep abreast of legislation that may limit your activities and remain flexible to different opportunities, whether that is purchasing a duplex to satisfy occupation requirements or renting out your property for only a portion of the year. Creating a strong network of other investors who can advise you on your journey will prove key to overcoming these hurdles and ensuring you get maximum benefit from your investment.
Identify Target Properties
Once you have determined a market and verified that there are no regulations that may impede your business, it’s time to get more granular and look at properties in the area. beycome can be a key ally in finding the right area for your needs, showing you properties that would be a good fit for a vacation rental. Considerations for this include proximity to major landmarks, ease of access, amenities like grocery stores in the area, and crime rates.
If you selected Miami as your market as mentioned above, you have an abundance of good options to choose from in such a popular vacation spot. There are many fine pre-constructions available here, such as Viceroy Brickell, a luxury condominium set for completion in Q1 2026. Viceroy Brickell – The Residences provides short-term condo options, as well as impeccable Viceroy hotel management to provide additional amenities to guests.
Attain Funding
Funding is just as important as the property itself. While it’s possible to obtain conventional loans, these often have a lengthy underwriting process that could impede your ability to quickly snap up properties. Thankfully, there are specific investment loans for short-term rentals, such as bank statement loans and DSCR loans, which rely on either your revenue stream or the property’s income-earning potential in order to identify your creditworthiness.
Speak to other investors in your area and learn what lender they chose for their own purchases, as they may clue you into options that you may not have considered when first seeking out loans.
Prepare Your Rental
Vacationers who visit your property expect a relaxing, home-like experience, meaning that you must take care when selecting furnishings and upgrades. For example, soundproofing your rental allows visitors to enjoy a quiet evening in their rental, even in loud areas next to major highways. For those who are renting out condos, keeping your short-term tenants’ noise levels down can prevent discord with the condo owner’s association that could imperil your income stream.
It’s important to consider the comfort of those who may book your rental for more than a few days, such as business travelers who may be stationed in an area for weeks or more. Smartly designed kitchen cabinets allow them to store groceries and cook meals to cut down on their expenses during their visit.
Investors seek to minimize their expenses, so focus on sturdy furniture and low-cost dishware that can be easily replaced. As visitors will likely spend much of their time in your rental elsewhere, you can select more economical decorations and keep them to a minimum.
Conclusion
A short-term rental can provide a steady income stream, especially in high-value areas well known as hot vacation areas. Selecting the right property in the right location is key to obtaining as many bookings as possible. Choose a market known for being investor-friendly, such as Miami, and make economical decisions in regards to your furnishings. With skill and research, you can develop a powerful side hustle that provides you with a strong cash flow.
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