Starting a Short-Term Rental Business: Risks and Rewards for Property Owners
Should You Start Your Own Airbnb Business?
In recent years, the short-term rental market has experienced explosive growth thanks to the popularity of home-sharing platforms like Airbnb and VRBO While these platforms offer property owners a unique opportunity to monetize their homes, there are also risks and challenges associated with short-term rentals (STRs). In this article, we will explore the profitability of owning an STR, the disadvantages and advantages of owning one, and how to structure and manage a short-term rental business.
Is owning a short-term rental profitable?
The profitability of owning a short-term rental property largely depends on the location, size, and type of property. In popular tourist destinations or cities with high demand for short-term rentals, owners can potentially earn more in a week than they would with a traditional long-term rental agreement. According to a study conducted by Airbnb, the typical U.S. Airbnb Host’s income rose to over $13,800 – an increase of 85 percent over 2019. However, it is important to note that these earnings are not guaranteed and can fluctuate depending on the season and local events.
What are the advantages of owning a short-term rental property?
Despite the challenges of owning a short-term rental property, there are several advantages that make it an attractive investment opportunity. Firstly, short-term rentals have the potential to generate significantly more income than traditional long-term rentals, especially in popular tourist destinations or cities with high demand for short-term accommodations. Additionally, owners have more flexibility in terms of when they can use the property themselves, as they can block off dates for personal use. Short-term rentals also offer owners the opportunity to interact with guests from all over the world and provide unique hospitality experiences.
What are the disadvantages of having a short-term rental property?
One of the biggest disadvantages of owning a short-term rental property is the potential for negative reviews from guests, which can impact the property’s future bookings and reputation. Additionally, short-term rentals require a significant amount of time and effort to manage, including cleaning, maintenance, and communicating with guests. There is also the risk of property damage or theft, which can result in costly repairs or replacement of furnishings and appliances. Furthermore, in some cities, short-term rentals may be subject to zoning and licensing laws, which can be time-consuming and costly to obtain.
What Makes a Good Short-Term Rental?
To be successful in the short-term rental market, it’s important to create an inviting and comfortable space that meets the needs and expectations of guests. Here are some factors to consider when designing and furnishing your short-term rental property:
- Location: Choose a location that is convenient for guests and offers easy access to local attractions, restaurants, and transportation options.
- Comfort: Ensure that the property is clean, well-maintained, and equipped with comfortable furnishings, high-quality bedding, and modern amenities such as Wi-Fi, cable TV, and air conditioning.
- Safety: Install smoke detectors, fire extinguishers, and other safety features to ensure the well-being of your guests.
- Unique Style: Incorporate unique and personal touches to make your rental stand out from others on the market, such as local artwork or decor.
- Well-stocked: Provide guests with basic necessities such as toiletries, linens, towels, and kitchen supplies to ensure a comfortable stay.
- Communication: Establish clear communication protocols with guests and provide them with detailed instructions and information about the property, local area, and check-in/check-out procedures.
How do you structure a short-term rental business?
To structure a successful short-term rental business, it is important to consider the following factors:
- Property type: Determine whether your property is suitable for short-term rentals based on its location, size, and amenities.
- Legal requirements: Research local zoning and licensing laws to ensure compliance with regulations.
- Marketing: Develop a marketing strategy to attract guests, including professional photos, detailed property descriptions, and competitive pricing.
- Guest communication: Establish clear communication protocols to ensure smooth check-in and check-out experiences for guests, and to address any issues that may arise during their stay.
- Property management: Establish a system for managing reservations, cleaning, maintenance, and repairs, either by self-managing or hiring a property management company. There are many software programs and short term rental property management apps to help with this.
Should I self-manage my short-term rental property or hire a management company?
The decision to self-manage or hire a property management company depends on the owner’s level of involvement and expertise. Self-managing a short-term rental property can be more cost-effective, but it requires a significant amount of time and effort. Owners must handle all aspects of the rental process, including marketing, guest communication, cleaning, maintenance, and repairs. This can be challenging, especially for owners who do not live in close proximity to the property or who have other professional or personal commitments.
On the other hand, hiring a property management company like Vacasa can alleviate some of the burden of owning a short-term rental property. A property management company can handle all aspects of the rental process, including marketing, guest communication, cleaning, maintenance, and repairs, freeing up the owner’s time and energy. However, this service comes at a cost, typically ranging from 10% to 30% of the rental income. Additionally, owners must research and choose a reputable property management company to ensure the success of their rental business.
How much are short-term rental property management fees?
The cost of short-term rental property management fees varies depending on the location, size, and type of property, as well as the level of services provided by the management company. On average, property management fees range from 10% to 30% of the rental income, with some companies charging a flat fee per booking or a monthly fee for ongoing management services. You’ll need to properly vet several companies to find the right fit and ensure its management style meshes well with you.
What percentage does Airbnb take from the rental property owner?
Airbnb charges a service fee to guests and a host fee to owners. The host fee is calculated as a percentage of the reservation subtotal (rental rate plus cleaning fee), and ranges from 3% to 14.2% depending on the host’s cancellation policy, number of listings, and other factors. However, Airbnb also offers hosts the option to set their own nightly rates and cleaning fees, giving them more control over their earnings.
Short-term rentals can be a profitable investment opportunity for property owners, but they also require careful consideration and management. Owners must weigh the potential advantages and disadvantages of owning a short-term rental property, as well as the associated costs and legal requirements. While the decision to self-manage or hire a property management company depends on the owner’s level of involvement and expertise, it is important to establish clear communication protocols and develop a marketing strategy to attract guests and ensure the success of the rental business. With careful planning and management, short-term rentals can provide a unique and lucrative source of income for property owners.
Airbnb Hosting Guide: Airbnb’s hosting guide is a comprehensive resource for short-term rental owners interested in listing their properties on the platform.
VRBO: Vacation Rental By Owner (VRBO) is another popular platform for short-term rentals. Their website provides helpful resources for property owners, including a blog, owner dashboard, and community forums.
AirDNA: AirDNA’s platform offers insights into the performance of vacation rental properties in various locations around the world, including occupancy rates, nightly rates, and revenue generated. Users can also access information about local regulations, rental demand, and property types in different markets.
Short-Term Rentalz: Short-Term Rentalz is an online publication that offers news, insights, and analysis on the short-term rental industry, including trends, regulations, and best practices for property owners and managers.
Smartbnb: Smartbnb is a property management tool that helps short-term rental owners automate and streamline their operations, from messaging guests to handling bookings and cleaning schedules.
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Stephen Parker, Realtor® & Real Estate Investor
Buy, Sell, Invest, Relocate
Call/Text: (615) 829-6410
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DISCLAIMERS & DISCLOSURES
For education & entertainment purposes only. Stephen does not provide legal, tax, or investment advice and nothing posted, linked, or referred to here should be construed as such. Please consult with your attorney, accountant, and/or tax advisor for advice concerning your particular circumstances.