Traditionally, investment properties mainly consisted of renting out homes and apartments or buying and flipping a home when it came to buying pre-built structures. While these investment options can be great sources of income, the amount of commitment involved and the limitations can make them daunting for new would-be investors. As an alternative investment, you may be interested in what is known as short term rentals—think Air Airbnb™. Renting a property out for just a few days or weeks can be an excellent way to make money off an investment property depending on your situation.
Below, we’ll take a look into short term rentals as an investment strategy and discuss the unique financial opportunities that set it apart from traditional property investment.
Why Consider Short Term Rentals?
The Simplicity & Convenience
Short term rentals aren’t necessarily the only alternative to traditional property investment. Other options might exist in the cases of vacant property or empty lots, but these all require larger amounts of capital. And when it comes to rentals, you are limited in the amount of money you can make monthly. Likewise, in the case of property flipping, you are subject to the whims of the market. Huge cost pits can happen that limit your ability to make money.
Short term rentals, on the other hand, can be a great earner—especially if you have a bit of help. If you have a manager who takes care of several properties, if you are retired, or if you have a spouse who doesn’t mind spending a little bit of time to clean up between clients, then you can have a great consistent source of income. As well, if you have a guest house, you can actually put certain days off-limits to renters. For example, if you have family that uses the property during the summer and at Christmas, then you can have it unavailable for short-term leases during these designated times.
Most rentals might fetch $1,000 a month in Austin for a 1 bedroom, but an Airbnb™ can go for $80-120 each night. Even if you only book 75% of the nights in a given month, you could be looking at $1600–2400 monthly. Airbnb™ also offers insurance plans, as well as the ability to ask for security deposits. This should be more than enough to cover any mortgage.
When Can You Do Short Term Rentals?
If Your City’s Ordinances Allow It
When it comes to finding out if you are allowed to do short term rentals at a prospective property, you will need to find out the local ordinances. Some cities allow them as long as you pay a $100 annual fee to have the property listed. Other cities, like San Marcos, have banned the practice altogether except in certain circumstances. The local planning and zoning office will let you know the next step.
If It Isn’t Banned by an HOA
You will also want to make sure that you do not buy in an area with an overzealous Homeowners Association or a condo association that has banned the practice either in their covenant, in their charter, or in a bylaw. And even if an HOA does not currently ban the practice, it is still a good idea to make sure that you buy in an area where it is unlikely to ever happen.
If you Rent Out by the Room
You can also decide to rent out your unit by the room, at your own home or at a rental property. In this situation, you might charge $50 a night for each room in a 3 bedroom instead of $125 for the entire unit. This practice can mean a bit of extra planning, but it may be a good solution if your property isn’t being listed. Most commonly though, by the room is better for renting out an extra room in your garage or something, rather than having a whole unit you do not live at being rented by the room.