Short Term Rentals: Investments For Your Future

Jonathan Branson, REALTOR®

What are short term rentals? Well it really depends on where you are located as to how it is defined. The State of Alabama defines short term rental as the use of a property for rental purposes to a single individual for less than 180 consecutive days. The City of Tuscaloosa defines short term rentals as the transient use of a property for the use of rental purposes for less than 30 consecutive nights. Short term rentals are an underused but highly lucrative option for investing in real estate. If you've never considered investing in short term rentals, you're certainly not alone. However, this is actually an excellent investment opportunity for even the novice real estate investor. Although the vacancy rate for short term rentals is generally higher than for long term rentals, the additional income typically covers the difference. Short-term rentals also offer more flexibility than properties with a monthly or yearly lease. Companies such as Airbnb and VRBO have brought the short-term rental market into the mainstream, making it easier than ever for investors to profit from real estate ownership. Owning this type of rental property allows investors to reap income over time while the underlying asset appreciates.

Benefits Of Short Term Rentals

Short term rentals give their owners flexibility and greater control over their property and many other benefits. So let's take a look at some of the main advantages that short term rentals offer their owners:

Personal vacation use: Many investors like to make personal use of their vacation rental property and rent it out to others when it is not in use. When a property is listed on the short term rental market, it is much easier for the owner to block off the dates they would like to use the property.
Less wear and tear: Short term rentals tend to be occupied around weekends and busy tourism seasons, but not throughout the entire year. Because of this, it tends to take relatively longer to build up noticeable wear and tear on the property.
Easier maintenance: Similar to the less frequent wear and tear of short term rentals, these properties are often easier to maintain. Short term rentals are cleaned and prepared for new occupants more regularly, which translated to better-maintained properties. This helps to prevent any long term damage to the property. If any maintenance problems arise, a short term rental owner has easier access to the property without disturbing residences.
More overall rental income: Owners are typically able to charge a higher nightly rate for short term rentals, compared to long term vacation rentals. Although occupancy can fluctuate, making rental income less consistent, short term rentals tend to provide more rental income long term.
Price Adjustment: Short term rentals offer their owners the ability to adjust the price of rent more often than owners of long term rentals can. Short term rental homeowners can change the price of rent in between occupants as they see fit. If there is a higher demand for their rental in the summer season, they can raise their rent and produce more income. They are not limited to year-long lease terms that long term rental homeowners experience.

Short term rentals are not without potential downsides. Because rental income is a direct result of being able to book short-term guests throughout the year, short term rental owners will find that they need to put in more effort to market their home. This could include messaging back and forth between interested guests, updating listing sites, or offering promotional discounts. Also, many rental owners will choose to manage tenant turnover on their own to help lower costs but that could become time consuming. Finally, most guests will expect their short term rental to be nicely furnished when going on vacation. This will require owners to update or replace furnishings as needed, which is a cost that should be considered.

In summary, when weighing the pros and cons of investing in a property for short term rental, the pros significantly outweigh the cons. Why not have a property that you can benefit from both financially and personally.

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