2020 was a scary year, and it sure did leave behind haunting effects across all sectors, with one of the most affected being the real estate industry. In the eyes of many, real estate investing ceased to be the golden avenue leading to imminent financial freedom. Instead, it became a shaky industry, holding on by taut thin threads to prevent a heavy collapse.
Nevertheless, the industry has continued to thrive against all odds. In 2021, the industry will remain a steady investment avenue for people in business who want to make the best out of their investment opportunities. Thus, investing in the real estate market, especially the need for short-term rentals, is still recognized as a viable and lucrative business decision for many.
However, regardless of the many benefits associated with short-term rental investments, the risk of failure is imminent should one fail to conduct careful research and deliberation before making any investment decisions. This article, therefore, aims at exposing the situation of short-term rentals investing in 2021, with a focus on the essential tips and general market knowledge required for achieving success in the industry.
First of all, let us examine the concept of short-term rentals.
What are Short-Term Rental Investments?
A short-term rental, mostly recognized with Airbnb, is a small furnished living area usually available for rent for a short period. These types of rentals are also known as vacation rentals, as the most frequent users of such rentals are tourists and vacationers.
In the United States, it’s now common for homeowners with more than one property to rent or lease out their second homes to interested clientele to generate passive income. The duration of leasing or renting varies among different clients and the nature of their trips or vacation plans. However, most rentals are usually within the range of a few days to six months.
Investing in Vacation Rentals
As said earlier, it’7s essential to understand the operating mechanism of every market or industry you plan to invest in, and this is the same for short-term rental investments. Research and consultations are necessary to ascertain the feasibility of the investments and their suitability for you.
Achieving success in the real estate industry, especially with short-term rental investments, depends on various determining factors such as location, demand, seasonality, attractions, investment/marketing strategy, environment, etc. One should carefully analyze these factors before the start of any investment process. The elements are dutifully discussed below.
Consider the Location, Environment, and Attractions
A property’s location is one of its most important factors. It goes a long way to determining other associated factors such as the value of the property, the availability of clients, the type of attractions, etcetera. You can make a series of changes to a property, but the one thing that’ll remain the same is the property’s location.
Hence, this factor tops the list of factors that you should consider during the research process. If your client base is predominantly tourists, you need to look for a location that offers breathtaking scenery with nearby tourist sites and attractions. Do well to utilize the results of your research to decide whether to invest in a property located in a city, town, or somewhere in the country.
While considering locations, endeavor to focus on finding safe spots to prevent attacks on your guests and your property too.
Demand and Seasonality
Done with identifying your locations? Then the next step to take is to consider the demand for short-term rental homes in the area. This factor is another crucial one as it determines the volume of traffic your property will entertain. High traffic influx equals a steady income flow; hence it translates to a successful investment.
Note that high demand for residential homes will not necessarily translate to increased demand for short-term vacation rentals. The population of the area can indicate whether vacation rental investing is good for you. However, should you decide on a location with low traffic, the odds of generating great returns are very low.
Take note of the high seasons when the market sees many clients, the low seasons when the market is slow, and how long these seasons last. In doing this, ensure to seek and utilize market reviews.
Examine the Expenses
At the end of the process, it’s vital to examine and calculate all the expenses involved in the investments and the total possible returns you can generate from the property. This means that you should calculate the cost of property maintenance and other miscellaneous expenses such as cleaning, hosting fees, etcetera.
Make a list of your expected monthly expenses and work out the different costs, making sure to calculate how much you’ll need to make a profit. Since this task may seem lengthy and tedious, you can utilize a vacation property investment calculator such as the AirDNA calculator to get accurate calculations.
How to Get Ahead in the Market in 2021
You can easily compare the real estate market to a jungle – only the brave and steadfast can survive. However, there are still ways to get ahead in the market, especially in 2021, where investors are poised to make the best of every opportunity. The following ways are fool-proof strategies and activities which work towards helping you stand in the market.
Utilizing Analytical Software and Tools
The importance of market data and analytics can’t be overemphasized. Their ability to assist with making data-based decisions goes a long way to influencing the success of short-term rental investments. Little wonder sites such AirDNA, AlltheRooms, and Mashvisor, are becoming popular as they offer data-backed analysis of short-term rental market trends and systems.
Draft A Killer Business Plan
A great business plan never goes wrong as it helps highlight your short-term and long-term goals, thus fostering a successful business. Ensure to draft a plan that covers all aspects of your business and answer crucial questions such as the future of the investments, the number of properties you wish the investment to include, the management of the investment, and many more.
Be Sure of Your Financing Method
Most investors consider this the last step of investment research. However, you can carry it out at any point in the research process. I recommend it be one of the first things you do, especially after drafting a business plan. With the procedure laid out, it’ll be easier to decide the best way to secure short-term vacation rental financing.
In the US, numerous financing options exist – from traditional loan financing to cash-out refinance to a home equity credit line and many more.
Interested in Short-Term Rental Investments?
Short-term rentals are coming back stronger in 2021, and there’s no better time to invest in them than now. If you’re keen to take advantage of this investment opportunity, the Short Term Shop is ready to work with you. Contact us today to get started on your real estate journey.