Owning a short-term rental property can be a great way to earn a passive income and add to your portfolio of investments. The idea of a short-term rental has grown increasingly popular over the last few years, and those renting out are finding amazing success. So, it makes sense that many investors are looking to it for additional revenue. If short-term rentals have caught your eye, learning more about the process and what owning one could mean to you before jumping into it is crucial. That’s what we are here for.
How a Property Qualifies as a Short-Term Rental
A short-term rental is any property with a lease of twelve months or less. They can be considered popular vacation destinations, and it is easy to assume that most of the properties you see on Airbnb, VRBO, FlipKey, HomeAway, and Booking.com are owned by others with the same goals. Essentially, short-term and vacation rental properties are the same from a tax perspective. However, if you want to take advantage of possible short-term rental tax loopholes, you must stay an average of seven days or less or 30 days or less with substantial services.
Additionally, your property might qualify for deductions depending on how you are invested.
These deductions can be anything, such as cleaning, advertising, repairs, supplies, utilities, and mortgage interest. So, if you use platforms like online rental services, these deductions might help you save money and earn even more at the end of the month.
How to Get Your Short-Term Rental to Succeed
Firstly, you must prepare. A short-term rental allows multiple tenants to stay per year, allowing for more property changes and upkeep than a standard yearly rental. You want to ensure you start on the right foot and keep yourself and the property safe and at high standards.
Choosing the right property is one of the most significant choices to make. You want it to be rented, so choosing a property in a popular city or near a popular city can ensure a need for it. You can find a realtor or speak to other investors in the area you are scouting to find the right property. Then, the financing comes into play. You need a budget to stick to, including one for a mortgage. You can also look to bank loans or hard money lenders to help support your investment ventures.
Moving forward, once you own the property, you must decide how you will rent it out and if you want to use an online rental service like Airbnb. Either way, bookkeeping software is essential to keep track of payments, deductions, and income.
Ideally, you want to create a property that is appealing to the public. Similar to flipping a house, you want to sell the look and feel of the property once you have it. Things like landscaping, new appliances, and decor can make a huge difference in whether or not people choose your property over other options. A short-term rental is often compared to a business because you must manage, maintain, and grow it over the months and years of ownership. With many renters going in and out, you don’t want the upkeep and safety of the property to be put on the back burner.
Decide How Much You Want to Be Involved
Deciding how much you want to be involved should be figured out before purchasing a property. Whether you want to hand it over to a property manager or if you want to be a phone call away for the tenants is crucial for the management and maintenance of the property, as well as upholding a high standard of communication for the renters. If this is your first short-term rental property and you live in the city where it is, it could be an easy choice to be the sole person looking over it. However, if you have a handful of properties, all spread throughout the state, hiring a property management company may be best for your own priorities and the well-being of the home.
Additionally, online rental platforms like Airbnb allow you to have renters clean up before they leave the property. While you can only enforce this so much, it can help take some stress off of you or the property manager.
How to Start Your Journey
From day one, you should look at your short-term rental as a business rather than solely a passive income. The purchase of the property will always be the most expensive step. You have the initial down payment, the mortgage, property taxes, homeowner’s insurance, and any repairs or upgrades you want to make. If you are getting your first short-term rental property and are looking for the funds, hard money loans can help get you the property you are looking for.
From there, you want to obtain the proper software, lawyer, accountant, bookkeeper, and possible property manager to ensure you are protected at every avenue. This type of investment is not one you should do alone. To ensure you keep the property safe and profitable, assistance from outside help, like a bookkeeper and lawyer, is the right answer.
Then, once you determine how much you are going to charge per month or night, you can start renting it out! You can start earning the passive income that is so enticing from a short-term rental property.
If you have questions or are interested in purchasing your first short-term rental property and want financial help from a hard money loan, contact the team at KC Investor Funding.