With real estate prices rising faster than rents in some markets, investors need to weigh forecasted income for long-term rentals against what they must pay for the property.
Investors hoping to turn a house or condo into a viable long-term rental (LTR) may have trouble charging rent that covers their investment and generates a return during a rising real estate market.
Meanwhile, short-term rentals (STRs) such as vacation homes are experiencing a boom as people seek safe and healthy vacation options. Today, many prefer a rented vacation property to crowded hotels and resorts.
What is an STR?
Short-term rentals are fully furnished vacation properties, often listed with such sources as Airbnb, VRBO, Evolve, or other vacation rental property marketers. The length of occupancy usually ranges from at least 2-30 nights.
Families and groups use STRs as their private escape when visiting local attractions while still enjoying the comforts and privacy of a home. Vacation rentals charge by the night or week and may include cleaning and other fees.
Some advantages for renting a fully equipped STR include, but are not limited to:
- Cooking meals “at home” to save on restaurant expenses.
- Enjoying the outdoor privacy of a backyard, porch, patio, or balcony.
- Avoiding a hotel’s hassles, interruptions, lines, and noises.
- Having more space and privacy with more bedrooms and bathrooms.
- Ability to maintain a personal schedule, not the hotel’s schedule.
- Some STRs allow pets (usually for an additional fee).
STR Benefits for Real Estate Investors
The best STR markets tend to be in high-appreciation markets that are also top vacation destinations. While the purchase price may be higher in these markets, the short-term nightly rental charge and occupancy rates are also higher. Additionally, property value appreciation tends to rise faster.
Next are some market examples compiled by AirDNA to show how particular markets manage the STR environment. This resource is a data-gathering enterprise that identifies trends and performance in the STR industry.
Some examples of individual market STR performance gathered from existing 2021 AirDNA data include:
- Active STR Units: 5,978
- Daily Rate: $233
- Occupancy: 77%
- Average Monthly Gross Revenue: $5,382/month (Daily Rate x % Occupancy x 30 days)
- Active STR Units: 4,910
- Daily Rate: $176
- Occupancy: 75%
- Average Monthly Gross Revenue: $3,960/month (Daily Rate x % Occupancy x 30 days)
- Active STR Units: 2,439
- Daily Rate: $573
- Occupancy: 61%
- Average Monthly Gross Revenue: $10,486/month (Daily Rate x % Occupancy x 30 days)
Highly desirable seasonal destinations tend to have lower occupancies throughout the year. Still, they can charge a much higher daily rental rate. Ocean-front properties and those near or within walking distances of water tend to do well year-round. However, the daily rental rates may be lower in the off-season.
Sometimes vacationers are looking for a simple escape from the stress of a large urban environment. These individuals look for smaller towns with a more relaxed atmosphere, so successful STRs are not limited to beachside or tourist locations.
Managing Other Expenses
Of course, some expenses occur in rental company fees and commissions, cleaning, maintenance, and more. But many of these are offset by surcharges added to the guests’ nightly rental price. In addition, having a property management company handle the day-to-day reservations and oversight eliminates many of the headaches.
If expenses are managed, buying the right property in a desirable destination to become an STR can be a worthwhile investment.
Making a Profit with Short-Term Rentals
It is essential to research property before investing. Having insufficient information before buying an STR property can be a costly mistake. A professional, experienced real estate professional can help investors locate properties that can generate a profit in today’s dynamic market. Whether the investor is new or experienced, an expert real estate agent can help devise a strategy to generate a steady income stream.