Deciding on a short-term rental investment (Part 2)

03/19/2019 | by astayabove | Uncategorized

Back to: Location, Location, Location

Zig when they Zag – my suggestion on location: walk the area.  Real Estate agents, even those that specialize and manage short-term rentals, aren’t good at recommending a location.  I’ve bought/sold many properties and have talked to many more agents – each one recommended purchasing where all other investors have purchased.  I don’t care where other investors have purchased – I care where the guests want to stay.  Guests want to be near shopping areas, the beach, restaurants, etc.  Often times there isn’t sufficient inventory in those locations so guests are forced to stay where the inventory is available and because of this the real estate data can be misleading.  By purchasing where the guests want to spend their time, you’ll direct that traffic to your location and beat the competition – especially in the off season.

As an additional note: if this is truly an investment, remove your personal ambitions and be willing to purchase a property that may not fit your personal needs.  At the time of this writing, all of my properties are 1 Bed / 1 Bath…and I have 5 kids. My properties are investments. I occasionally use them with my wife, but I find often times I can rent my property for more than I can stay in a 4-star hotel.  I’d rather rent my unit, let someone else pay for my hotel room and maybe keep some of the money in my pocket.

That was easy: Let’s get started

There are some challenges within the short-term rental market that you need to consider before you make your purchase.  Managing short-term rentals isn’t as easy as long-term rentals.

Channels – You have to become familiar with the channels (AirBnb, HomeAway, VRBO, Booking.com, etc.).  Each have their strengths and weaknesses – you have to determine your strategy and how your use and management of the channels fits into that strategy.  

Revenue Management – much like the hotel business, it’s important to adjust your rates based on demand.  It’s obvious you’ll increase your rates on the weekend compared to weekdays; Thursday should be higher than Tuesday; events drive demand so rates should reflect the increased traffic; holiday’s are a no-brainer…time to increase the rates!!!  That’s all great, but what if your property isn’t rented 3 weeks from now – do you know the historical demand curve…is it time to increase or decrease your rates? Do you offer 1-night stays if there’s a gap between the time one guest leaves and another arrives?  Good revenue management can easily increase your revenue 20-25%…that’s the difference of a $40k year and a $50k year – it’s worth the effort!

Managing Guests – everyone loves the idea of hosting a guest in their house, until the guest calls at 1:30 in the morning asking why the TV remote isn’t working.  Shouldn’t they be asleep? Hospitality is a lot less glamorous than you’d like to think. If you have a nice property and charge a premium rate, guests are going to expect as much in the service you provide.  Be prepared for the unexpected. We had a lightning strike on a property one summer and it blew the entire electrical panel. It was mid-summer in Texas, demand was high and there were no other properties available – and this guest was without A/C in 95 degree weather.  Fortunately, we had the resources to get the electrical panel replaced within 4 hours. We sent the guests out for lunch, got the work completed and had the house cooled down before they returned. That’s a guest that will continue to come back.

Managing Cleaning – probably the hardest component of this job!  It’s hard to get someone to clean to your standards – and even when they do, things happen…cars breakdown, kids get sick, people forget to clean!  If you have one guest leaving at 11:00am and another guest arriving at 4:00pm, you need to be organized and prepared for the worst. We had a guest decide to build a sandcastle in the family room (not literally – but why else would there be so much sand in the house?).  This particular cleaner had 3 turnovers that day (a term used when one guest leaves and another guest arrives the same day). We were able to rearrange schedules with other cleaners to get all units ready on time – but cleaning is certainly the biggest strain on our team.

 

Do it yourself or use a Property Manager

If you’re thinking you like the idea of investing in real-estate and the ability to use the property when it’s not rented is a benefit you’ll take advantage of, you may really want to consider short-term rentals.  The question then: is this going to be a passive investment or are you going to be an active manager? There are some tax considerations with that decision, but the bigger factor is coming to terms with the changes to your lifestyle.  Before finalizing the decision on buying that property, I’d recommend interviewing some Property Managers. If nothing else, it would be good to know where to turn if you decide managing it yourself is not as profitable or too disruptive to your life.

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