Too often, I see individuals who want to become real estate investors but don't bother taking that first step because they don't have the savings for a house down payment and/or have no credit. What many don't know is that with a few strategic moves, anyone who lacks these essentials yet has that entrepreneurial mindset and drive to make money can get started.
Alongside the rising popularity of Airbnb and VRBO comes the opportunity for any person to reap the same benefits as a real estate investor who makes a killing while passively collecting rental income. Starting a vacation rental business by renting out other people's homes and apartments and hosting them to short-term guests has become the perfect side hustle for many. I encourage others with the right mindset to jump on that gravy train fast.
Many home owners have tapped into the hospitality market by advertising their space on short-term rental sites. A host could easily collect up to three times more with a short-term rental (STR) than they would by renting to long-term tenants.
Fortunately, we don't require a mastermind to see how this works. Let's use the town of Dunwoody, Georgia, where the homes neighbor Atlanta's downtown core. Single-family homes are available to long-term tenants in the range of $1,400–$1,600 per month, but hosting that same space as an STR could easily generate two to three times that amount. This means it's actually possible for a host to net $2,000–$3,000 per month on one property while being their own boss, working their own hours, and providing very little outlay. Now, imagine the prospect of that host scaling to multiple properties.
As the CEO of a real estate investment firm that has its own portfolio of vacation rentals, I've learned the most laborious part of the process is its initial set up. Once that's done, it's easy to sit back, relax and dip your feet into a sea of green.
When looking for your first home to host, I recommend playing it safe by hosting a space in the city as close to the downtown core as you can get within budget. Target cities like Montreal and Nashville where there is a good supply of tourists and long-term rental rates are low enough for your business to be profitable.
Be mindful of cities such as New York or Miami, whose municipal policies either don't allow short-term rentals or make it very difficult to host a property. If you're located in such a city, simply set your sights on a neighboring district, which is likely to do extremely well in those circumstances.
I should clarify, however, that targeting the city core is important for the first property you're hosting, not all of them. Once you start to scale the business and expand out of state, there are plenty of opportunities to be found in small towns, college towns, ranches, homes by the lake, etc.
Close The Deal
After you've decided on a location, seek out landlords who are actively advertising to renters on sites like Craigslist and apartment search sites. Call the landlord and request an in-person viewing; don't propose anything over the phone.
Airbnb expert and host coach Brian Page encourages his students to build a rapport with the landlord first, which makes it much easier to close the deal. The best way to guarantee a win is by making them a deal they can't say no to.
After viewing the place and assessing whether it works as a vacation rental, explain to the landlord that you are willing to pay at least three to six month's rent upfront in order to host the property. In addition, you should be offering liability insurance, reimbursement for minor damages, marketing services to advertise the property, management of its guests, different furniture if required and anything else needed to set up the space for short-term tenants. Make it clear that you, as the host, are taking on all the risk.
Calculating The Risk
When starting up any business, there comes a certain amount of risk that we, as the business owners, will have to take on. This doesn't mean we can’t take steps to mitigate those risks. The first step is to be aware of them.
For one, as a host, you are committing to pay a lease period plus damage deposit upfront, yet there's no guarantee of 100% occupancy. Mitigate the risk of low occupancy by ensuring the property is marketed successfully through the right channels, to the right target markets and frequently, with a plethora of immaculate pictures.
I always recommend doing as much of the work as you can on your own at the start. If that's not possible, there's a massive community of hosts and side businesses you can reach out to in order to outsource any aspect of the business, from advertising to cleaning.
In my experience, owning a vacation rental business is well worth the risks. It's even more worth it for those of us with access to very little outlay for an initial investment and possibly no credit. As a side hustle, this strategy can help investors save up for a down payment on your first fully owned property.
If the simplicity of the idea is not enough motivation, think about the prospects of scaling up the business instead. Finding 10–20 units to rent out in most metropolitan areas is very doable. Many owners don't have time to actively seek renters, especially if they have a portfolio of properties already. There is plenty of opportunity out there. And even at high occupancy rates for those units, there's lots of room in a sea of green for our aching feet to take a soothing dip.
@Ali Jamal , welcome to BP bud. You appear very articulate and seem to know a lot about vacation rentals. I am curious what you are selling? Everyone of your posts is about the "
the opportunity for any person to reap the same benefits as a real estate investor who makes a killing while passively collecting rental income"
It is obvious as hell you are selling something. Saying things like "
even at high occupancy rates for those units, there's lots of room in a sea of green for our aching feet to take a soothing dip"
are purely salesman language, not of a teacher trying to help someone understand how to do VRs. In fact it sounds dam near identical to the late night infomercials of guys on a boat in the Caribbean with girls in bikinis hanging around saying how easy it is to get rich. No real work involved, requires very little money, etc. I am all for educating people. Why don't you explain the nuts and bolts, not to mention there is a massive amount of risk, especially for first timers. How many folks renting out places and doing VRs in them just went belly up when Covid hit? What if the town changes regulations and you have 6 months or a year left on your lease? What if you get a short lease and the landlord likes what you are doing and kicks you out and starts his own VR in it? What about the average cost of starting up, or the cost of housekeepers? Your statements about projected profits seem pretty inflated to me, and the description of the work seems pretty understated. I only own 2 VRs and they are a lot more work than meets the eye, and there is dam sure a lot more cost than you are mentioning. Yes they might make 3 times the amount the monthly cost of the lease is, but they must supply the thing with furniture, linens, towels, cookware, spices, cleaning supplies, they must pay for lawncare in many of them, there is the cost of cleaners, would it be fair to say $30 to $60 per night for cleaners? What about your management company? 30% for them? What about utilities? $300 to $600 per month some months?
Where in this process do you make your money? Do you manage them? Do you line up cleaners, advertise, or even supply furniture and supplies? I really am not putting you down, I am trying to get you to be more factual and helpful and less selling snake oil. You might have a great system for folks, but be upfront about it please. Best of luck.
Horrible idea especially right now. Arbitrage companies are getting murdered with the lockdowns, mask mandates, etc. and there is no end in site. Get stuck in a lease where there is no plan B and you are screwed if you do not have the capital to float the lease payments. I know guys paying 50K a month and more with no way out. They tried negotiating out of their leases and landlords won't let them. The risk is wayyyy to high for arbitrage right now. Sure, several companies did well the past few years but their gains are being erased overnight. Not to mention the ever changing laws around STRs all over the country. Let's say a city changes the law of what is permitted and you are stuck in a lease, now what? I think investors, especially new ones, need to seek opportunities with multiple exits and low risk. This is not that
The increasing amount of red tape around STRs right now is quite scary. Landlords are also starting to put clauses in their leases specifically not allowing any sort of STR subletting.
If the city has to cite the property, they are going to cite the owner so owners are implementing measures to protect themselves.
Just to throw my input on this thread, I managed numerous units for short term rentals well before the Airbnb era.
I must say I took advantage of the high rental rates and the enormous amount of demand there was for short term rentals and thought this was the way to go without a doubt. Little by little the competition started to grow out of control and Not only the competition but the demands of each new tenant was also another factor to take into consideration. Every new reservation means new tenants which means new demands or issues and new complaints because after all in real estate rentals there will always be issues no matter how nice your unit looks. Basic issues could be as simple as them calling you on a Saturday night because the remote controls battery went out or the internet suddenly stopped working because of the rain. It can also be that the AC was leaking and now I have to call the actual owner at 9pm on a Saturday night and convince him to fix this urgently. Being caught in the middle of a demanding tenant that is paying premium to be comfortable and trying to convince the owner to fix the issue of maintenance issue could be big problems. Many times, I had to pay for maintenance repair on my own dime. I didn't even want to call the owner of the property because they are not or do not have a sense of urgency and I needed to resolve this asap for a premium tenant that is paying premium dollars. Being caught in the middle of these issues many times changed my mind regarding short term rentals. No matter how much it looks good on paper there will always be issues and it is not always as good as other people make it seem it is.
I now rent all my units traditionally 1-year lease and let me tell you I sleep well.
@Ali Jamal Nashville? Have you seen the impact COVID has had in Nashville? This is exactly a place where you don’t invest in STRs right now. Unless you can afford to hold them without producing for some time until everything stabilizes again.