Short-term rental rookie? 4 steps to dominate this investment strategy
There are numerous investment strategies to generate income. Choosing one over the other depends on many factors, such as available capital, experience, time, and resources in general. However, one of these strategies is not always taken into account when investing in real estate. For that reason, at Real Estate IQ, we asked Jamie Bounds, a full-time investor since 2015 who has flipped over 200 homes, to host a webinar about short-term rentals.
“Short-term rentals are just another great avenue to generate income,” assured Bounds. She and her husband started in this business after having a hard time selling one of their flips. She wasn’t quite sure at first, mainly because they didn’t have experience in that area. Still, afterward, they realized it’s an ideal business model, especially if you also have a rehab property that isn’t selling fast enough.
The first thing to know is that short-term rentals are not as intimidating as you may think. “Just like long-term rentals, you can choose to manage them yourself or outsource the management. Since I have so many long-term rentals, I might consider outsourcing if I got over five properties, but that’s a good number to handle”, the speaker observed.
What to expect when starting with short-term rentals?
The investor enumerated several aspects to take into account at the beginning. First of all, it’s essential to know that short-term rentals require much more attention than long-term. You need to be more hands-on because it’s definitely not as passive.
Second, it’s important to know that there will be vacancies. “Your property won’t be booked 100% of the time. We like to target at least 20 booked days per month. This way, we got about two or three times the income we’d receive for a long-term rental”, Bounds advised. In addition, this is an excellent way to tell if your property is worth renting for brief periods or if it’s better to look for long-term tenants.
The most important thing when running short-term rentals is to switch your mindset from housing to hospitality. You have to be hospitable; short-term rentals are all about the experience, from the moment your guests arrive until they walk out the door. It’s really about customer service.Jamie Bounds, real estate investor.
And last, the expert pointed out that there will also be maintenance issues and unexpected repairs. To address these, the best option is to have systems in place to manage problems, and that means being surrounded by a great crew.
Nonetheless, Bounds guaranteed that managing multiple short-term rentals is super seamless if you follow four simple steps.
Step 1: Before choosing this exit strategy
Not every property can be turned into a short-term rental. Before choosing this exit strategy, you might want to consider:
- If short-term rentals are allowed in the neighborhood – to determine this, Bounds recommended looking at the deed or the HOA to see if there’s some clarification.
- If the property is appropriately insured – you need to make sure you have the proper policy for this exit strategy. Platforms like Airbnb and VRBO offer damage liability, but you should compare them to the rates from private insurance and see what’s best for you.
Step 2: While setting up your property
Now that you are sure you have the perfect place for a short-term rental, it’s time to set it up. In order to do that, Bounds listed a couple of items to check:
- Advertise your property on multiple platforms – in her experience, Airbnb and VRBO provide more than enough bookings, so it’s not necessary to set up a third account.
- Pay attention to your account configurations when setting up – it’s crucial to cross-check the default setup and adjust it to your preferences. For instance, decide whether you want to pre-approve guests or allow instant bookings or if you need a minimum number of days between guests.
- Determine your rates – though it might seem complex, all you have to do is run comps! Search for similar properties for rent in your area to find out how much to charge for a night. You can also use the platforms’ suggested rates. Also, don’t forget to include utilities you offer (like internet or water).
- Know your breakeven – this will give you an idea of your projected cash flow.
- Prepare a house manual – this document will include your expectations and rules for your guests. It also details everything you offer (and don’t), so they also know what to expect. Bounds not only publishes this on the platform but also leaves a Welcome folder at the place.
- Don’t forget about the little things! – Cookies or water bottles will make the place cozier, and the guests welcomed. And it will make your place stand out, as well.
- Have a storage closet locked for housekeeping.
- Take professional pictures of the place – this makes all the difference in a listing, and it’s what gets your guests through the door.
Step 3: Build a network
We already mentioned you need to surround yourself with a great crew. And that means having the best employees you can find to solve any issue that might come up in no time. This is a huge part of running short-term rentals since a delay could quickly turn into a bad experience and an awful review.
Bounds encouraged to network on Facebook and get referrals. “Find a 5-star cleaning crew because without it, you don’t have a short-term rental. Give them a checklist of what to clean and your expectations. And find a handyperson! You need a team that wants to work for you,” she warned. You should also have among your contacts an electrician, HV AC company, and a plumber. And you need to make sure they work weekends because that’s when most of your listings are.
Step 4: Maximize your profits
If you play your cards well when choosing a short-term rental, you might receive two or three times the income you’d receive for a long-term one. With regards to this, Bounds shared some insights that can help you maximize your profits:
- Increase your cleaning fee – this is an excellent way to escrow maintenance costs.
- Increase pricing on all holidays and big events – go through the calendar and mark every important day: spring break, graduation, typical school holidays, etc.
- Market specials on social media for slow months.
- In the beginning, turning on smart pricing on Airbnb can be helpful to get bookings (you should turn it off once you achieve Super Host). Also, you can post different rates on the competing platform to see what books.
- Focus on getting amazing reviews – great reviews equal more bookings; let family and friends stay and write reviews when you’re starting. This will help your visibility and make you a Super Host.
- Try to achieve Super Host as quickly as possible – this will give you credibility, and it’ll make your listing appear on the first page of a search. To maintain this category, you need to have at least 80% 5-star reviews (4.5 or higher).
“There’s money to be made in short-term rentals. It can be lucrative if you do it right, and it’s a smart way to earn additional income. Therefore, I would recommend you to keep it in mind as a potential strategy when you’re reviewing your next deal,” the investor concluded.
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.