Investors seeking to generate passive income through short-term rental properties with minimal effort, look no further. On apps like Airbnb and Vrbo, ordinary people can rent out their extra bedrooms or couches by the night to bring in a few extra dollars. Depending on your location, this business model can be extremely lucrative.
What are Short-Term Rentals
A short-term rental, or vacation rental, is the renting out of a furnished home, apartment or condominium for a short-term stay. The best part of short-term rentals is that you don’t need to be the owner of the property to reap the rewards. This is great for individuals who want to get exposure to the real estate market, but don’t have the funds to purchase.
Short-Term Rental Apps
By far the most popular short-term rental app, Airbnb, Inc. is an online marketplace for arranging or offering lodging, primarily home stays, or tourism experiences. The company does not own any of the real estate listings, nor does it host events; it simply acts as a broker, receiving commissions from each booking.
Investors can rent out an apartments, homes, secondary spaces or a “unique space” included in any of the above. User’s simply input a few pertinent details about the location, outline a time period that the rental will be available and set a nightly price (suggested by Airbnb). After adding a few photos and creating a brief description of the space, the listing can be live in no time.
Other less popular but viable alternatives include Vrbo & HomeAway.
Leveraging Short-Term Rentals
Over time, short-term rentals can help individuals build wealth, to go towards purchasing properties of their own. But just because they make great investments doesn’t mean they don’t come with risk. Benefits of short-term rentals include higher than average passive income and the flexibility of renting on your own terms. The pitfalls include liability for the tenants, maintenance and repairs, cleaning, short leases and dealing with strangers.
In comparison, regular long-term rentals grant stability through longer leases, tenant screening and bring in relatively lower passive income. Long-term landlords must also deal with property taxes, business expenses,
Location, Location, Location
Although short-term rentals bring in extra passive income, the amount can vary greatly depending on location. The nightly rates in bigger cities and vacation destinations can be substantially higher than in rural or bad areas. The potential location of the rental should be taken into account before all else.
If you do happen to be in a less populated area, be on the lookout for other factors that could potentially boost your bottom line. Sporting events, college towns, and festivals can all increase the nightly rate of a property, but try not to depend on these factors as a steady source of passive income.
Requirements of Short Term Rentals
If passive income through short-term rentals sounds like the investment for you, here are a few things to be aware of.
Subleasing
If you don’t currently own property but want to start making passive income, you need to make sure that your lease allows subleases. A sublease allows you to rent out a portion of an entire property to another individual not included in the original lease. The best situation for sublease is when you have an extra bedroom or couch that is unoccupied. Utilizing platforms like Airbnb or Vrbo to do this is the easiest option, and can bring in enough passive income to cover your rent and/or bring in extra profits.
Furnishing
For someone to rent your property, the room or apartment will need to be properly furnished. Since you’ll be competing with others, a nice bed, couch, and other home necessities are essential for standing out to potential tenants. Since multiple tenants will be utilizing the furnishings, plan on replacing them sooner than you normally would.
Cleaning
Although you won’t need to clean the space daily, the location will need to be thoroughly cleaned before and after each stay. This can be done personally or through a cleaning service but needs to be accounted for when hosting short term rentals.
Insurance
Accidents happen, and when you are the host of a short term rental you are ultimately responsible for all damages to the property and tenants. Liability insurance must be valid during each rental to limit personal responsibility. You will also need to account for things breaking while other individuals are in the property. You should plan on regular maintenance and repairs to come up when hosting.
What’s the Big Deal?
For renters, short-term rentals are the perfect opportunity to bring in extra income with little to no upfront capital. Property owners can also boost their bottom line and cover expenses. Depending on the location and legal implications, each situation has its pros and cons but both can eventually help you become financially fit.