Investing in short term rentals can be an excellent strategy to diversify your portfolio. 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. Rather than getting tied into long-term leases, property owners can capitalize on local demand for temporary and vacation rental housing. A short term rental can be a condo at the beach or a basement apartment in a single family home in DC or Montgomery County that you live in.
The main advantage of investing in short term rentals, especially if they are furnished, is that an owner can charge more per month than a typical, long-term unfurnished rental. Owning this type of rental property allows investors to reap income over time while the underlying asset appreciates. The main advantage associated with these types of properties is that rental income may exceed that of a typical long-term rental on a yearly basis. For example, renting out a beachfront home at $2,000 per week for 12 weeks during the summer could yield more gross rental income than a mainland home that rents for a year for $1,000 or even $1,500 per month. As with any other type of investment, there are some ground rules to know before diving into short-term rental property ownership.
- Learn the legalities.
- Research the market carefully.
Upside of Investing in Short Term Rentals
When investing in short term rentals, the owner has flexibility in deciding when to rent or when not to, based on seasonality, to cash in on the highest rental rates. With a long-term rental, the rental rate is locked in for the entire lease term. That means property owners may have to wait a year or more before the lease expires to increase the rental rate.
Those are upsides of investing in properties for vacation rentals or home-sharing but consider what needs to be invested first, as well as on an ongoing basis.
Time Involved in Investing in Short Term Rentals
If you are new to investing in short term rentals you should consider all the expenses you’ll incur and ensure that the rental income coming in will more than cover the expenses. That includes costs for maintenance, repairs and upkeep as well as property taxes, homeowner’s insurance and mortgage payments for a property that’s financed.
As an investor in short term rentals you also need to factor in the time commitment that’s involved.
Short-term rentals are more of a business than a long term real estate investment. The owner is managing a lot more than just the real estate. They have to maintain the aesthetics, check-in/out process, cleaning, marketing, being a host, guest satisfaction and the accounting.
Investors shouldn’t think of vacation or temporary rentals as a “set it and forget it” arrangement. While the income generated may be largely passive, the property owner still has to be hands-on in protecting the investment.
Choosing Your Short Term Rental Location
In real estate, it’s all about location, location, location. That’s particularly true when it comes to investing in short term rental properties. The important thing you need to do is choose the best market for investing in a short-term rental property. While major cities attract a lot of tourists and business travelers, you should not ignore smaller towns. The key to choosing a location is finding the best combination of demand for short-term housing and profitability. Then you need to investigate the legal restrictions on offering your property as a short term rental. If you want to own a short term rental in DC or Montgomery County, you need to live in the property as your primary residence. That being said, you can definitely rent a part of your home, such as the basement, on a short term basis.
Short Term Rental Restrictions in DC
DC addresses short-term rentals specifically, those lasting less than 30 days at a time. Under DC law, any D.C. homeowner who wants to rent out a bedroom, basement, or entire home on Airbnb or any other platform has to get a short-term rental license from DCRA. (The two-year license costs $104.50.)
If the owner is present in the home during the rental (say they post their basement unit for Airbnb), they can host short-term renters as long as they want over the course of each year. But if they are not present (say they are renting their primary home while they are gone during the summer), those rentals are limited to a combined 90 days each year. Short-term rental licenses are not allowed for second homes.
Montgomery County MD Restrictions on Short Term Rentals
Montgomery County defines a short term residential rental is the rental of an entire home or a unit/room in a single-family home, apartment or condominium that is available for rent for less than 30 consecutive days through online sites such as Airbnb, Flipkey, Home Away and VRBO (Vacation Rental By Owner). The dwelling unit used as a short-term residential rental must be the property owner’s or owner authorized resident’s primary residence. All short term residential rentals must be licensed thru Montgomery County Health and Human Services.
If you are thinking of buying a new home, looking for one with a short term rental potential may be a great way to pay for a part of your mortgage with minimal effort.
Get Away to the Beach!
In the summer, the idea of getting away to the beach becomes very very appealing. You are not alone in that. Imagine owning your beach front (or bay front) property and renting to other sun worshippers like yourself throughout the year. The goal is to enjoy your time at the beach and have someone else pay your mortgage! If this sounds like a perfect idea, here is a link to homes for sale at Ocean City just to start your day dreams going!
What is Your Dream Location?
If your dream location is somewhere else – like Vail or Santa Fe, I can still help you with that. As a Realtor with Keller Williams, I am part of a national network (and international network) of agents who can help you purchase a short term rental property anywhere in the US and nearly anywhere else around the world. Paris, London, Cape Town, Cartagena or Ho Chi Minh City? I can help with that!