Short-term rentals (STRs) have become all the rage in cities across the country, whether they be tucked along the coastline or in a downtown high-rise overlooking the bustle of a big city. Property owners and property management groups alike are diving into the market, eager to absorb the profit potential that seems to envelope such rentals. All of that aside, there are several risks and rewards that should be taken into consideration when considering either an investment property or conversion of existing conventional rentals into short-term rentals.
RISKS
Additional costs – It’s important to consider the added costs of upkeep and maintenance for a short-term rental. This includes utilities, regular housecleaning, etc. There may also be fees associated with STRs that aren’t applicable to standard, long-term rentals. Depending on your location, this can include Hotel Occupancy Taxes, inspection fees and additional insurance requirements.
Competition – It’s valuable to weigh potential competition. In order to stand out amongst this growing group of rentals, marketing and advertising, added amenities and an appealing environment can all add to the costs of maintenance. Some property owners offer things like kayaks, groceries, or bicycles. And these properties are attractive to renters.
Restrictions – Because of the growing popularity, it’s important to assess whether or not your property will be at risk of bans or restrictions. Some cities are implementing total bans on STRs, whereas others are placing restrictions on rental frequency or tax reporting requirements.
Community Risk – Some neighbors and city officials claim that transient tenants pose a threat to neighborhoods, raise the likelihood of parking issues and noise complaints and may introduce unforeseen crime to areas.
REWARDS
Revenue Potential – This is the most obvious reward, though it should be carefully compared to the potential added costs. Some property owners claim earning 25% of their mortgage in a single night. And the capability to charge exponentially higher rates during peak rental periods can raise that number even more.
Preservation – Some property owners prefer short-term rentals because they say this type of renter is easier on a property. It also allows the property owner regular access to the property for upkeep and maintenance. This is particularly valuable for owners who have a sentiment to the property that they’re renting.
Tax Breaks – This is a sophisticated topic that requires significant research, but there can be tax breaks and deduction allowances for things like marketing, advertising, maintenance costs and large-ticket purchases associated with a designated vacation rental.
Community Rewards – Some property owners believe that short-term rentals help increase neighboring real estate values because of the regular upkeep associated with such properties. Others also claim it helps promote tourism.
No matter which factor is the most attractive for your interest in potentially jumping on the short-term bandwagon, it’s important to fully assess and balance all of the potential risks and rewards to fully maximize your property’s (and your profit) potential. Read the full guide here.
