Vacation rentals as an investment strategy

by Contributor09 Aug 2019

by Natasha Nikulina

Short-term rentals, like those listed on websites such as Airbnb and Homestay, are rapidly becoming an easier and cheaper option for travelers all around the world. Airbnb’s website alone boasts over 6 million listings worldwide. This growing area can be a great opportunity for real estate investors to diversify their portfolio and increase the amount of cash flow collected every month. Offering travelers a unique stay versus a typical hotel experience adds variety that many business people and world trekkers appreciate.

There are a few points to watch out for when searching for a property that will be listed as a short-term rental. First, check for existing or upcoming laws and regulations concerning rentals like those listed on Airbnb. Some cities restrict the use of properties as short-term rentals because they will cut profits for local hotels or decrease long-term rental options. Rising rents can be an issue for local residents if income is not rising with the rent increases and they are losing residential properties to short-term rental investors.

Second, evaluate the potential income collected based on similar properties in that area. A short-term rental property will likely have higher maintenance costs and fees compared to a traditional, long-term rental. Think of this, guests are staying for shorter periods of time, arriving during holidays, and spending long weekends to attend busy events. Every time a guest leaves, cleaning and upkeep are necessary to prepare for the next arrival. The frequent need for repair, cleaning, or restocking will eat into profits with these increased costs. Other costs may include insurance, higher taxes, and increased utility bills. Also, depending on the location of the property, there may be slow bookings during the off-season which will decrease cash flow in those months.

There are exceptional advantages to purchasing a property for the sole purpose of using it as a short-term vacation rental. Instead of a fixed monthly paycheck from a long-term renter, a short-term rental property has the potential to double or triple the amount of collected rent. However, it’s important to remember that increased cash flow comes hand in hand with increased expenses. A savvy real estate investor should carefully consider if a short-term rental is something they can handle and do their due diligence on exactly what kind of time, effort, and price they would need to commit to have a highly profitable short-term rental listing. Reach out to RCN Capital to discuss our short-term rental financing options!

Natasha Nikulina is the business development coordinator at RCN, and is committed to building and maintaining customer relationships, as well as educating potential clients on RCN Capital’s diverse product line. Joining the company in the summer of 2018, Natasha’s mission is to create open communication that benefits both the company and its clients. Natasha graduated from the University of Massachusetts Amherst, with an honors degree in Marketing.