You have decided you want to invest in short-term rentals and now you need to find the right market and the right property to get you started. When you are preparing to make your investment all the same rules apply with a few twists.
It’s important to:
1. Get clear on who your ideal client will be
2. Gather data on different markets and know how environment affects pricing
3. Understand the way the local community and regulations can impact you investment
The two major categories for short term rentals are called ‘Urban’ or ‘Metro’ and ‘Vacation.’ Vacation rentals are in areas generally designated as rural and often seasonally dependent vacation destination areas. An example of this would be beachfront or coastal adjacent property, cabins near ski resorts, or a property in an area with a yearly event or season that attracts a large influx of people. Both are potentially lucrative investments, AND it is important to understand the pros and cons of each so you can make the best decision for your needs.
Where do you start when choosing your market?
First you want to look at the markets for inefficiencies. There is travel demand everywhere. Don’t choose one market over the other, look for travel demand and then do a market segment analysis and understand that customer. Who are they? How do they travel? Who do they travel with? Then you cross reference this with travel trend data, search engine data, and define what the supply and demand is. You can identify exactly what is underrepresented but in high demand and target specifically what type of short-term rental property is needed in what market. What can you turn into a short term rental that would be the most profitable?
Urban vs. Vacation
The Urban Market:
The first thing to build is the profile of your ideal renter in an Urban market.
This will help you choose location, pricing and even the overall design and furnishings of your short-term rental. Beyond this, understanding the neighborhood, community, and housing regulations are key when entering a ‘non-vacation’ market.
Urban markets are not as seasonally dependent and can have year round renters if you choose your location and property well. Urban properties also hold higher conversion potential to long-term leases or resale and a likelihood of steeper value appreciation.
Urban rentals have regulations that change from city to city and even neighborhood to neighborhood. The two main things that contribute to short term regulations are Hotel presence and primary home owners that do not depend on tourism. HOA’s aren’t great. Units that don’t allow for multiple usage in the short term rental space can limit your flexibility. Really what you want to look for is a property that works well with a hybrid short-term/long-term model.
Expert Spencer Bailey likes legislation. Why?
Because you can look at the data and ask yourself what is short term rental really doing to the community? How is it affecting that community? You can then take that data and put it in front of policy holders. Every short term rental creates 2 to 3 jobs, and raises the value of surrounding properties etc. You can use this data to get involved in the community and contribute.
Even within urban and vacation markets themselves, it is important to know how ‘friendly’ the environment is to short term-rentals.
The Vacation Market:
Mature regional vacation rental markets are areas that have been vacation destinations for so long that they fought the tourism battles long ago. Mature markets have a steady seasonal flow of renters that tends to be predictable and are set up to support your rental with local staff. The primary homeowners that live there are probably retired and are accustomed to the vacation market presence or businesses that are symbiotic with vacationers. The tourism of the town depends on your renters to keep the economy of the town healthy.
If a ‘young’ vacation market becomes popular and you are at the leading edge, you may have a lower initial investment but you have to be aware of how the community and the town itself is set up to support and receive short-term renters. If the town resents the new ‘vacationers’ there will likely be resistance to your entry and it will affect the renter’s overall experience as well as ease of property management. This ranges from laundry to tech, to marketing. From a backend perspective you want to make sure you have the local staff and the travel clientele to support the property.
What exactly is a Mid-term rental?
Mid-term is anything over 31 days and are often 90 day contracts with traveling healthcare professionals. These are called ‘furnished rentals’ and often perform pretty well. You can get a property close to hospitals or universities. You can fill these properties by finding the right ‘marketer’ or manager to collaborate with. For example, FurnishedFinder.com is a mid-term rental site that works with recruiters in hospitals to say ‘I have housing.’ Your property has the potential for an extension if your renter’s work contracts turn into longer term contracts.
Other possible renters include anyone in need of temporary housing such as someone who is moving and their house isn’t ready, or someone whose house burned down. You work with insurance agents, and real estate agents.
For nurses houses need to be within a 30 minute drive of the hospital but then once you get your first nurse in, you begin to create your network by speaking to the nurse. Nurses know within the first month and a half if they will be extending, so you have a little bit of time to find your next renter.
- You don’t have to turn it over every three days.
- In counties that don’t allow short term contracts (anything below 30 days) or with any restrictions from HOA’s etc. it is a great option.
- You can charge higher rent under the shorter contracts in the urban market and still make a higher profit.
- More ‘niche’ renters can create a more competitive mid-term rental market. Collaborations are more key in your marketing process. Specific needs must be met to make the property suitable for your mid-term renter such as a higher standard for ‘fully furnished.’
Pro-tips on Furnishing Mid-Term Rental Properties:
A good rule of thumb is to furnish in alignment with your customer. Who are you trying to attract? When you are clear, build out your design accordingly. The big 3 needs you need to meet are: Experience, Sleep and Kitchen. What makes you different from a hotel for a longer term renter?
Going cheap on the furniture that will be lived in often isn’t worth it. We recommend finding higher quality furniture used and giving it a unique upcycle if needed. It will save you time and money in the long run and add to your renter’s ‘unique’ experience.
Put decent bedding and mattresses in your bedrooms. We recommend putting a one inch memory foam topper for bed comfort. Nice sheets are a plus!
A good block of sharp knives and nice cookware are key.
We hope this article will give you a head start on how to research and land on the short term market that best suits you! For more information watch the full podcast series of 3 with experts Spencer Bailey, Avery Carl, and Chad and Ashly Whitaker.