Why Short Term Rentals? The Pros, Cons, & Getting Started

Why Short Term Rentals? The Pros, Cons, & Getting Started

Let’s talk about short-term rentals. Some real estate investors won’t touch them. “Ugh, AirBnb is a constant headache, way too time-intensive, you have to pay cleaners constantly…”
But if you have the right systems and you know a trick or two you can make absolutely INSANE returns with STRs. This month we are diving into what it takes to successfully invest in and operate short term rentals. The gold dropped in these articles are from 7 Figure Altitude member Spencer Bailey who’s an expert with short-term rentals; Avery Carl, master of short-term vacation rentals in multiple markets; and Chad and Ashly Whitaker, Runway members who grew their passive income 8x by making one small ‘shift’ in their real estate investing.


Vacation rentals have always existed, but with the advent of Airbnb and Vrbo, the game of short term rentals completely changed. If you are in real estate and considering investing in short term rentals, these articles are MUST READS. 


Many of you have asked…..How do you make the switch from long term to short term rentals? Is it ok to start with just one property?


We always say that taking action and getting started is important. So by all means start with one property, but know short term rentals become exponentially more profitable when you scale. You can use that one property to start building your processes, your portfolio, and your client list. 


Pros: 

1. Short term rentals are a benefit from a value perspective and a wealth management perspective. The average short-term rental in the vacation market is driving 80-90% higher rates and in the urban market 50-60% higher rates than traditional rentals. 


2. With short-term rentals you can appraise and finance properties without going through commercial rezoning processes. You can take a typical residential asset, have it appraised commercially and change the evaluation of that property. You can generate appreciation on the property by generating revenue. 

3. Ongoing passive income with the likelihood of yearly property appreciation and income increase is the catalyst that brings most people to the short-term rental market. 



Cons: 

1. There are various factors that can knock the short term rental business from major world pandemics, to ever shifting housing regulations from city to city. These regulations can determine everything from the type of rental you can have (short-term, mid-term, long term) to how and where you are allowed to operate. 


2. Costs can be quite high if you are outsourcing your property management. To self-manage requires certain skills and a time commitment. See our next article for how to successfully and efficiently self-manage your rentals.  


3. Running the numbers on short term rentals can be tricky. With long term rentals the rent is what it is and it basically stays that way. With short term rentals, the season, events in town, etc. all influence the properties pricing and bookings. It’s also important to look out for something called rent-shifting. 


Rent-shifting is when a property management company books a property at a low nightly rate way in advance and then makes money on their processing fee all of which they keep. With more meticulous pricing adjustments your property could be renting for a higher nightly rate which increases to your net-income. External property managers aren’t invested in raising your net income. If you manage your own property you can pull in multiple data sources for market wide data and adjust your pricing to the highest market value. We recommend AirDNA, Rentalizer, and PriceLABS as tech tools to help you adjust your rental rates. 


Pro-tip: 

If you want another baseline to run numbers, (with the understanding this is a loose structure that needs flexibility for your individual circumstances), you can expect to net after mortgage and all your expenses, between 35 -50% of your gross. When you are deciding how much to invest, know that if you self-manage you can pay more for a short term rental but when running numbers it’s important to put these average expenses into your projection. 


It can be extremely rewarding to invest, design, and manage the ins and outs of every aspect of your short-term rental property. If you are reading these articles there is an interest or catalyst moving you toward short term rentals. We hope you read the next two in the series where we provide tips on How to Self-Manage your rental, and define the differences between short term ‘Vacation’ and ‘Urban’ Markets and Short-Term vs. Mid-term Rentals. 

How the Pros Find Deals: 18 Investors Share Their Top Acquisition Strategies

If you can’t find houses to flip or wholesale, you don’t have a business. I’ve said before that finding good dealand is all it takes to be successful as a real estate investor.

Read Now

Using Direct Mail to Generate Consistent Motivated Seller Leads

I recently got an email from Justin asking me if I would be interested in doing a guest blog post here on The House Flipping HQ website — my immediate response was of course! But the hard part was going to be picking what I should write about!

Read Now

20 Top Real Estate Investors Reveal Their Secrets for House Flipping and Wholesaling Success!

To set the tone, and foundation for the rest of this website, I thought I would start out by asking 20 well known and respected house flipping pros for their advice to help you as you get started on your house flipping career. After all, who better to ask than those who gone from where you are to where you want to be?

Read Now

Flipping Houses 101: The Four Fundamental Pillars of Flipping Houses

Several years ago I was in the same boat as many of you. I had no idea what to do or how to go about doing it. My goal here with House Flipping HQ is to give you the resource I wish I had available when I first started in this business. If I had House Flipping HQ back then I would have saved myself $40,000 in coaching during my first two years, not to mention how much more profitable my business would have become.

Read Now

If you want to dive deeper into our world, these links lead the way...