Investing in Short-Term Rentals: VRBO, HomeAway, and Airbnb

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Why have short-term rentals become so popular with real estate investors? What’s the appeal and what should I watch out for?

Many of us have become customers of short-term rental properties. Thanks to the increased popularity of Vrbo and Airbnb, discriminating travelers often prefer this route over hotel accommodations, especially since the pandemic.

But why would I want to OWN one of these properties?

Benefits for the short-term rental investor are several:

• The vacation rental industry is projected to reach $13 million in rental revenue in 2021, and to continue to grow over the next few years.

• The main advantage of owning short-term rentals is the option to charge more per night/week/month than the typical unfurnished long-term rentals.

• Vacation rentals allow for flexibility as to when to rent them out, as well as having the option to increase rental rates depending on season and location.

• Owners collect income while their property appreciates.

• Aligning with VRBO or similar organizations provides market support to keep units occupied, and to help manage and maintain properties.

• Owners may have the option to use the space for their own enjoyment as they choose while taking advantage of the tax benefits – check with your CPA.

What to watch out for:

• As with any real estate investment, it’s wise to consult with your RE investment mentor, and financial and tax advisors.

• Location is of the utmost importance when considering acquisition of a short-term rental. Choose a geographic location that is appealing for vacationers and/or traveling business folks. Pay attention to nearby activities and restaurants, a pleasant neighborhood, appealing views, an overall attractive environment.

• Research your funding sources. You may be able to finance the investment with creative financing. You can also use second home purchase financing with a lower down payment, at least on one property

• Conduct a careful cash flow analysis to make sure all expenses are anticipated: mortgage, taxes, insurance, maintenance, cleaning, and unexpected costs (there ALWAYS are some).

• This is not a hands-off type of real estate investment. Be prepared to pay for and manage many tasks to ensure units are nicely furnished, thoroughly cleaned, and fully rented.

• Carefully consider your target market and create units that will appeal to that group. Are you targeting guests with dogs, with kids, seniors, couples seeking romantic getaways, business people with specific location and technology needs, families who cook?

Lots to think about, right? It’s an exciting time to get into the game of short-term rental investing.

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