The Ultimate Guide to Short-term Rentals (Part 1)
Unlike other asset classes, short-term rentals provide owners direct control over their investment (and its performance). As the owner of the vacation home: you set the availability of your property, you screen the guests who use it, you raise (and lower) nightly rates to cover your costs, you renovate as you see fit, and you make more money!
In other words, with STRs you can actually get more out of your investment through your direct intervention. During turbulent economic periods, when stocks and crypto currencies experience fantastical crashes, holding onto a physical investment that is generating cash is desirable. Even more so when you consider the fact that such hard assets (real estate) have performed reliably over a long time horizon. Even institutional investors like JP Morgan are recognizing this and beginning to pour money into this asset class.
2. Tax Benefits
One of the main benefits of short-term rental investing is that real estate has historically appreciated over time. This phenomenon is the secret behind the staggering net worth of real estate moguls. At the same time, real estate investors also claim depreciation of the asset, offsetting their tax obligations. In addition, there are a myriad of deductible expenses like furnitutre and repairs that benefit short-term rental owners. Not to mention tools that allow them to extract tax-free money from their investment like cash-out refinancing and Home Equity Lines of Credit (HELOCs). These tools allow real estate owners to take out loans against the equity that’s been accrued in the property. Many real estate investors leverage these tricks to finance renovations in the residence, and consequently, increase the value of their property. Obviously, when foraying into STR tax strategy one should consult a tax specialist. The key take away is that when done correctly, STRs are a valid path to tax benefits.
Short-term rentals are not just an investment, they represent a lifestyle. STRs are the face of a growing trend toward travel, remote work, and transnationalism. For example, Airbnb recorded a global total of 6M listings and 300M bookings in 2021, demonstrating a return to travel, and an increase of industry asset utilization. When you own an airbnb you might be providing the environment for a holiday get-away, a honeymoon, or the foothold for a young professionl starting work in a new city. You can create moments and experiences that are unique that transcend the cap rates and returns that we all like to see as investors. As the host of Short-term Rental expert, Richard Fertig, puts it:
" Airbnb 1.0 was individuals opening their homes and making extra money. Airbnb 2.0 was hospitality groups coming in and building experiences around these properties. Airbnb 3.0 is happening now — investors realizing they own 5, 10, 50 properties and generate massive passive income! "
How to get started building my STR portfolio?
- Option 1: DIY Approach
In this method, you start by information gathering through reading posts like this, following successful Airbnb Hosts on instagram like Airbnb Breakdown, STR University (and many more!) Ultimately, it will be up to you to find, finance, and furnish your rental property which is admittedly easier said than done.
- Option 2: Fractional Investing
There is no shortage of startups that will let you own a piece of an Airbnb “for as little as $50”. The downside to this of course is you have less ownership rights of the property and consequently can’t exercise all the benefits of control that were mentioned previously. This is more akin to the spray and pray approach but can be executed successfully with the right market research.
- Option 3: Done-for-you Service
The last method, and of course my personal favorite as cofounder at Andes STR, is finding a seasoned investment professional to do absolutely everything for you. I mean absolutely EVERYTHING. Find, Furnish, Finance, Market, Property Manage, Legal. This type of a service is not cheap but you get what you pay especially when seeking a larger property to generate those big returns. For most busy executives that want in on sophisticated STR plays, this is a no-brainer.
Ready to invest in short-term rentals?
Let the experts at Andes STR help you get started!