Are Short-Term Rentals a Good Investment?
Thanks to apps like Airbnb, Homeaway, and VRBO, short-term renal investing can be a very lucrative business depending on the property’s location. In an expensive place like the Bay Area, short-term rentals can be even more lucrative than the nation’s expectation, but a strategy is key.
Over the past couple of years, California has proven itself a worthy competitor in the short-term rental market. In 2018, California welcomed 9.5 million Airbnb guests for revenue of $2 million. Even in 2020, while occupancy rates dropped due to COVID restrictions, the Bay Area enjoyed high occupancy rates: 63% in Oakland and 62% in San Fransisco.
These stats look pretty compelling, but even seasoned investors might not be ready to brave the world of short-term rentals. There are many different elements required to achieve a high ROI, like constant marketing, a keyword-rich listing description, getting great reviews, and setting flexible prices.
Should you have a short-term rental property? Or is a normal investment property more up your alley? Here are my pros, cons, and tips for strategic short-term renal investing.
Pros of Short-Term Rentals
Higher Rental Income. A short-term rental has the potential to generate more rental income than a standard rental (assuming you choose a good location, market it well, and set reasonable prices). The average price of an Airbnb in San Francisco is $193 per night. If you achieve 80% occupancy, you’re generating $4,786 per month on a one-bedroom.
Flexible Pricing. You can increase your occupancy rate by setting prices based on demand. Set higher prices for weekends and holidays to maximize your returns.
More Control. Since guests will only be on your property for a few days, you have the power to clean it, make repairs, and even block off certain days that you don’t want any occupants.
Cons of Short-Term Rentals
No Guaranteed Income. Short-term rentals are a riskier investment because you’re not guaranteed to achieve your goal occupancy rate. If you do a poor job marketing, tourism drops in your location or something like COVID happens, you could lose a lot of money.
Time-Consuming. Managing a short-term rental requires more time and marketing knowledge. You have to stay on top of publishing new photos, promoting the property online, running ads during peak tourist season, and getting good reviews. A good marketing strategy pays off, but if you’re looking for a source of passive income, owning a short-term rental is not the right move.
Tips for Buying a Short-Term Rental Property
Find a Good Location
When you’re buying a vacation rental property, choose a location with a high tourism rate and population. Even within your city, some neighborhoods are better than others. For example, in San Francisco, everyone knows about the Golden Gate Bridge. If you find a property near the Golden Gate Bridge, your search rates will go through the roof since everyone wants to stay there.
Find Your Purpose
If you purchase a property near an urban area or technology center, your occupants are more likely to be business people traveling for work. Two coworkers probably want separate bedrooms but are okay sharing common areas. If you purchase a property near a tourist attraction, you are more likely to host couples and families. Consider what amenities your guests expect.
Analyze the Market
Your short-term rental income will depend on many factors including the price of the property, curb appeal, mortgage, and operating costs. Use the average prices and occupancy rates of short-term rentals in your area to calculate your monthly revenue. Do the same thing for normal rentals. If the numbers are close, you might want to err on the side of caution and purchase a long-term rental property instead. Remember, running a successful short-term rental is a full-time job!
More on Rental Properties
As a San Fransisco dweller myself, I can point you in the right direction for maximum short-term rental ROI. For more information on investment properties, check out these other blog posts:
For more information or questions, drop me a line. Happy house hunting!
