Weighing In on Short Term & Vacation Rentals

Recently we have heard from a growing number of people who are interested in using their home or income property as a short-term rental.  With the growth of online vacation websites like homeaway.com, it may seem like a no-brainer to many who live in popular tourist destinations, like Venice and Marina Del Rey.

While vacation and short-term rentals are not a new idea, digital marketing has made these rental options exponentially more accessible to people around the globe.

For potential real estate investors, short-term rentals easily sound like an appealing option.  According to Ashley Halliganon RealtyTimes.com “…Bargain-seeking travelers and low-priced properties create an opportunity for an investment with a greater cash flow and larger investment return.”  In today’s market, short term and vacation rentals may seem like an attractive option to many investors and property managers.

But before you jump on the vacation rental bandwagon, you may want to consider this: In today’s wishy-washy market, how do the potential gains stack up against the various challenges and risks specific to shorter term leasing?

Costs and Expenses 

The costs that come with a short term rental can be hefty and often add up quickly, potentially offsetting any potential profits you stand to make.

Are there any taxes or fees owning and operating a vacation rental will make you subject to?  For example, is there an occupancy tax?  “Occupancy tax rules typically come with annual costs — a license, a permit and, perhaps, inspections. Researching those fees in advance are key to decisions you’ll need to make about your investment,” says Ashley.

Common fees or regulations that a short term rental could end up costing you include:

  • Zoning
  • City permits
  • Special taxes
  • Licenses and licensing fees

Consider the necessary maintenance and expenses that occur in between tenants. Now consider that you could be faced with similar repairs and upkeep for each turnaround.
Expect to pay regularly for cleaning services, touch up painting, landscaping, furnishings, just to name a few.

According to Ashley, “Unlike a long-term rental, short-term rentals must be maintained more often to continue to attract a steady flow of renters from business travelers to tourists. An attractive property is your ticket to regular rental income. Chances are, properties more appealing than yours, will rent faster than yours.”

Marketing and advertising your short term or vacation rental will also cost you.

“Unlike long-term rentals, which often advertise only when they are empty, short-term rentals, by nature, need a perpetual promotions.”

There are a number of websites which allow landlords to advertise for free, in addition to sites such as Craigslist and westsiderentals.

However, a number of sites do charge per property listing. Magazine and newspaper ads also charge as well. And you should expect to pay for any photographs or printed marketing materials you create.

Competitive Edge

Many landlords who operate a short term or vacation rental offer bonus features or amenities to give their rental property an edge over the rest.

Reveals Ashley: “Some creative property owners and managers include locally relevant amenities – kayaks, bicycles and hot tubs. Others outfit the rental with simple, yet thoughtful desirables, including local pastries or hand-written guides to the city.  Added amenities mean added costs, but whatever your strategy, you have to pay the price to stand out from the competition.”

Effects on Property Value

Lastly, you may want to consider any negative impact short term leasing may have on your property’s value, as well as the value of neighboring properties.

There are some that adamantly oppose short term rentals as they feel there is risk involvedwith a high rate of transient tenants, escalated noise levels, increased traffic, parking limitations, and more. Many local homeowners associations have regulations pertaining to a minimum length of time for any leases or rentals.  The Marina City Club, for example, does not permit any leases under 6 months.

Before investing, you should be aware of any regulations affecting short term rentals that the property might be subject to.

Bottom Line

While you may be drawn to the profit potential of a short-term rental,  be mindful of any costs and/or restrictions which could reduce or erase any return you stand to make.

It would be to your benefit to thoroughly research and scrutinize all short-term rental issues.

Read “Risks Come With Ever-More-Popular Short-Term Rentals” by Ashley Halligan on RealtyTimes.com.

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