Investing in Short-Term Rental Properties: A Beginner’s Guide & How to Get Started

Short-term rentals (STRs) have gotten a lot of attention over the past decade with the rise of Airbnb, VRBO, and other companies. And, during the COVID-19 pandemic, STRs turned out to be a good bet for real estate investors. Data suggests that revenue per room was only down about 4.5% in the first half of 2020 – despite a 65% decrease for hotels and an estimated loss of $1.3 trillion for the tourism industry as a whole.

If you’re thinking about dipping your toes into the world of short-term rental investing and need advice, look no further than this guide.

What is a Short-Term Rental?

Much like a hotel, short-term rentals are properties that are rented out to guests on a nightly basis, rather than via a monthly or annual lease. Also like a hotel, short-term rental properties are fully furnished and equipped with everything guests may need during their stay. In most states, guests must stay for 30 days or fewer for it to be considered a “short-term” stay.

Owners often buy short-term rentals as a secondary or vacation home, not with the intention of living in them. Since the creation of sites like Airbnb and VRBO, real estate investors are realizing the true potential of a short-term rental property. What used to be considered a side-gig for property owners looking to make passive income is now a booming industry with high-profit potential.

Why Purchase a Short-term Rental Property?

Very lucrative

First things first – short-term rentals are highly lucrative.

Because of the nature of STRs, you can earn more money per month than a traditional rental – provided you’ve done your homework and landed a great property in a popular area.

Just think about it. If you charge $300/night for a property that’s booked for 18 nights out of the month, then you can gross $5,400/month for a property that’s booked, on average, about 60% of the time.

You’ll have to calculate in the property’s rental-related expenses – which we’ll talk about later – but let’s say it costs $2,500/month to pay the taxes and the mortgage, maintain the property, and cover other expenses. When we consider that the average three-bedroom home in the United States is rented out at nearly $1,300/month, you’re still way ahead by opting for a short-term rental.

High Demand

If you can nab a property in a sought-after tourist destination at a reasonable price, then you’ve hit the short-term rental jackpot.

Vacation rental demand is through the roof, and platforms like Airbnb and VRBO have made huge strides against the hotel industry, so properties in these areas are typically an excellent investment. As long as you conduct your research and find a property that checks the boxes, you won’t have a hard time finding occupants.

More Growth To Come

Properties in prime vacation spots also tend to appreciate relatively well. It’s not a bad gamble to purchase something in an area that’s experiencing a lot of growth. Plus, since short-term rentals offer more flexibility in the rates you can charge, you’ll be able to take advantage of price appreciations happening market-wide immediately rather than waiting for the end of a lease agreement to hike the rates.

The Pros of Short-Term Rental Properties

The potential for higher income is just one of the many reasons that owning a short-term rental property is worth it. Here are a few more:

They Can Be Less Maintenance

This may sound counterintuitive, but a short-term rental can be easier to maintain than a long-term rental in several ways:

• If you hire a property manager, they’ll tidy up your rental and make sure it’s ready for your next guests. 
• Many vacation property companies include a cleaning fee, so even if you’re doing the cleaning yourself, the fee can pay for future maintenance needs. 
• Since your renters are staying for shorter periods, you can clean more frequently and detect potential issues before they become problems. 

You Manage the Schedule

You control your vacation home’s calendar, which means you can decide when you want to rent it out and when you want to stay there. If you want to spend a week in your summer beach house or take two weeks to redo your porch, you can do so with the click of a button.

You Can Optimize Your Pricing

You can alter the price of your rental as you see fit. If your rental property is in the middle of a popular ski destination, increase the price in winter. It’s also common to raise rates on weekends and holidays, so don’t miss out on easy opportunities to increase your cash flow. 

Sometimes, it may be to your benefit to reduce your pricing to remain competitive. Michael from the earlier example can offer a special rate for someone looking to stay in his rental home for a month. Instead of paying a monthly rate for all 30 days, which is $4,900, can he price it at $4,000 for the month. He’ll still make more money than if he rented it out for just 20 days, and he’ll remain competitive. Plus, he knows he’s less likely to get guests who only want to stay a couple days during the middle of the week, anyway. 

They’re Great for New Investors

Your short-term rental should increase in value year-over-year. The longer you own and maintain it, the more valuable it’ll become. Homes worth $100,000 in 1967 are worth over $960,000 in 2022. Your rental may not experience the same housing inflation, but it’s highly likely that it’ll appreciate in value. 

Tax Benefits of Short-Term Rentals

Short-term rental properties are teeming with tax advantages! Here are just a few:

• Maximize your deductions: All your marketing, management, upkeep, and insurance costs are deductible. This also includes business meals, educational expenses, and an eligible home office. 
• Track your trips: If you’re making frequent trips to and from your rental to set up and manage the property, you can deduct travel time. Also, if you buy a vehicle you’re using primarily to rehab, stage, and manage your short-term rental, you can deduct its entire purchase price. If you write off $24,000 on your car, you can save close to $8,000 in taxes!
• Appreciate depreciation: If you spend $7,500 on furniture, appliances, and entertainment for your rental, you can deduct that money immediately during the first tax season. Just be sure to keep an itemized receipt.

Are you reaping all the tax benefits from your short-term rental? If your answer isn’t immediately, “yes!” read Reduce Your Taxes with Short-Term Rental Properties. 

The Cons of Short-Term Rentals

No investment strategy is without flaws, including short-term rentals. Here are the main downsides of owning a short-term rental property:

They Can Be High Maintenance

If you don’t have a property manager, running a short-term rental can become a full-time job. You may end up in charge of:

• Scheduling bookings
• Screening renters
• Collecting payments
• Maintaining the property
• Doing all the marketing. 

If you’re not great at customer service and marketing, there’s also a steep learning curve to managing a rental. You’ll learn a lot, but it may be more effort than you want to put in. 

There’s a Lack of Steady Cash Flow

It’s not uncommon for short-term rentals to make two or three times more than their long-term counterparts. However, they lack the predictability investors of long-term properties enjoy. When the pandemic started, demand for vacation properties plummeted, and many companies went out of business.

Although the pandemic is an extreme example, last-minute cancellations and seasonal vacancies are common. Also, there may be months where you’re booked for thirty days straight, and others where you could struggle to book a single weekend.

Less Thorough Screening Processes

For long-term rentals, landlords and property managers usually run prospective tenants through a rigorous screening process that may include:

• Rental history
• Background check
• Credit check
• Proof of income
• Proof of income
• Verifiable references

Short-term rentals lack this luxury. Sometimes, the only information you have to go on is their online reviews. Also, since you’ll have more traffic coming through your vacation rental, you are assuming greater risk. 

You’re Paying the Bills

In general, long-term tenants pay your utility bills because they’re the ones using them. Short-term renters don’t, so water/sewage/garbage, electricity, and internet all come out of your pocket.

Your Neighbors May Not Approve

People usually want to live in a comfortable, quiet environment where they feel safe – especially if they have kids. If there’s a new cast of characters living next door each week, your neighbors may get frustrated with you. 

Let’s be realistic: not everyone renting from you will be an ideal house-guest. They may be loud or throw parties, or do something else your neighbors won’t approve of. 

You May Be Subject to Strict Guidelines

Your neighborhood may have an HOA with special rules for short-term rental properties or may prohibit them altogether. Research your neighborhood extensively and read HOA bylaws before purchasing any property. If you violate their rules, you could be subject to a lawsuit. Read one to learn more about laws and regulation challenges.

How To Find a Good Property

Before making any investment, quality research is key.

When it comes to short-term rentals, you may have to explore outside of your local market to find the right properties. Areas with a strong tourism sector tend to yield the best results, as the demand from vacationers will be higher.

Finding deals can be a challenge, but let’s go over how you should conduct research to put yourself in a position for the best results possible. This includes:

1. Evaluating the market

Before you begin looking for actual properties, you need to determine whether the market you’re attempting to enter is worth your time.

Off the top of our heads, we can think of tons of popular tourist destinations in the United States: Austin, Texas or New York, New York, and Charleston, North Carolina just to name a few. But just because we know that these markets boast strong tourism industries doesn’t mean you should invest in them.

Competition for STRs is fierce in many of these areas, which helps to drive prices up. As such, finding a deal is hard, and when you do find something, it might need more improvements and repairs than you bargained for.

It would be smart to start by evaluating the number of visitors to the market over the past year. Most of this data is published online so it’s easy to find. Some areas might require you to dig deep to find the values, but typically a Google search for “Charleston tourism stats” will provide you the type of information you need. In fact, cities will often publish their tourism data in an effort to garner more interest from investors and tourists.

Once you have these numbers, take a close look at year-over-year growth. Are more visitors arriving each year? If so, that’s a good indication that the real estate market will continue to appreciate, adding to your equity margins. Plus, you can use this information to help avoid vacancy woes later down the line.

You also want to see what the area’s local economy has been up to. The best way to approach this is through qualitative means. You can do that by looking up local news articles or reading local government websites for announcements. You’re looking for information on new developments like hotels, clubs, restaurants, sports venues, concerts, or anything that brings in tourists.

If you see a lot of news about recent development and attractions, it’s likely that this area is making an effort to invest in its tourism infrastructure. That gives you a good reason to purchase an STR in the area.

Overall, you’re looking for local economic and tourism growth. The more strength in this arena, the more likely it is that your investment will pay off.

2. Evaluating seasonality

Another major factor in short-term rental investing is the seasonality of the market you’re looking to purchase in.

In many areas, tourism only occurs at certain times of the year. For example, tourism to beaches tends to lag in the winter months while the flow of visitors to mountain cabin retreats remains steady throughout the year.

Or, some markets may experience brutal winters that create a lot of snowfall, which can push away tourists. However, that same market could have an amazing autumn season with sharp leaf colors, causing a huge tourism boom.

Taking a deeper look at the market’s monthly data for tourism while studying weather patterns, geographical factors, and geological features is critical to finding a strong year-round tourist season.

A prime example is Asheville, North Carolina. Asheville, North Carolina is a strong tourist city nestled in the Blue Ridge Mountains and hosts a robust summer and fall tourism season. By winter, tourism slows down – although not completely. Because the mountains are a unique geological feature, the cabin and chalet rentals remain steady despite the cold weather. This also means ski resorts are open, making tourism a year-round industry in Asheville, North Carolina despite the inclement weather.

In other cities, you might have flat terrain that cannot support skiing or picturesque cabin scenes in the winter. In turn, you would see a visible drop in tourism when cold weather strikes – which would mean that tourism in these areas follows different trends than in areas like Asheville.

Finding a year-round tourism market is ideal. That said, if you were to invest in markets with robust seasonality, then your investment could still be worth it.

3. Evaluating demand

Demand ties into the local economy and tourism. You’ll want to find data on the occupancy rates of the area you’re looking to buy in. You can find this information on websites like AirDNA, which provides information on lots of useful metrics.

Your target occupancy rate is completely up to you. While you may like to see 100% occupancy, that’s not a realistic goal. Markets with occupancy rates higher than 65% are generally seen as strong markets. An occupancy rate of 50% is about average, and anything below that becomes undesirable. Aim for a minimum to ensure your numbers work.

4. Recession resistance

In real estate, nothing is “recession-proof” – no matter what you do. However, some properties are better at resisting economic pressures than others. Once again, whether or not a property is more recession-proof than normal will depend on the local economy, the strength and makeup of the tourism industry, and the demand in that region.

As we’ve seen in recent years, tourism can get bludgeoned badly when there’s a downturn. Because of this, it’s extremely important to realize the risks when picking a certain market and property type.

For example, established tourism markets with strong year-round attractions, like Walt Disney World or other theme parks, might be more resistant to recessions when compared to small markets with tourist draws related to art, history, and culture.

While the latter has a solid pull in normal conditions, traveling to these types of destinations might get put on the back burner when a recession occurs. On the other hand, many tourists will still go to Disney World because of how strong the pull is.

5. Local regulations

Some markets will have tighter short-term rental regulations than others. For example, some counties have outright banned short-term rentals, while others have imposed licensing and permit processes that cost both time and money.

Before you start your search for properties, make sure you read up on the local laws affecting short-term rentals in your target market. The best way to do this is to simply search for a term like “short-term rental laws in [market].” When possible, always prioritize the search results for government websites to make sure you get accurate, updated information.

Analyzing a Short-Term Rental Property

Once you’ve zeroed in on a market – all the research has been conducted and you may have found a property that could bode well for you – you need to make an analysis of the quality of the property and how much revenue it can generate.

Calculating revenue

Calculating revenue for an STR isn’t as straightforward as it is with traditional real estate investing. When it comes to traditional rentals, you make the same amount of money each month, as long as you have an occupant. With STRs, you’re constantly fighting for new guests. That’s one of the biggest tradeoffs of going the STR route. But that’s also why it’s so lucrative.

To calculate your potential revenue with an STR, you need two things: the occupancy rate and the average price. This type of data can be found on STR statistic websites like AirDNA. You can pull either the occupancy rate of the entire market or close in on the exact location in which you’re trying to buy.

Once you have that information, you need to determine what you’ll charge each guest per night. This number should be based on the property itself, your competitors, and any added value, such as amenities. Just be careful to not overprice, and try to stay within the realm of your competitors.

When you have those numbers, input them into this equation:

Occupancy Rate * Nightly Rate * 30 days = Monthly Revenue

Here’s an example: 75% occupancy * $300 per night * 30 days = $6,750/month

Isn’t that attractive?

But this is just revenue, of course – not profit. There are fees, maintenance, taxes, and other costs associated with managing an STR, but that number is a great start!

You can also adjust this equation as needed. For instance, if I were trying to compare two months in two separate seasons, I might reduce the occupancy rate or the price to better reflect the conditions.

The other half of estimating revenue is determining whether or not you’ll charge cleaning fees. These are separate charges that you tack onto the night’s stay to cover the expense of cleaning.

Some hosts charge cleaning fees and some don’t. Whether you choose to or not is entirely at your discretion. Just make sure to support your decision with data from the market. If your competitors don’t charge cleaning fees but you do, you might lose out on some guests.

If you do decide to charge cleaning fees, you need to figure out whether you’ll clean the property yourself or have a cleaning company handle it for you. Finding their rates is as easy as looking it up online or calling around.

Once you have a rate, add it to your revenue by taking the total number of days in the month and dividing it by your minimum length of stay requirement. Multiply the result by the dollar amount of the fee you charge and add it to your revenue.

Here’s an example:

30 days / 2 night minimum = 15 total guests

15 guests * $75 = $1,125/month

You will almost certainly have a different number of guests from month to month, so these numbers are far from concrete. Still, it’s a good estimate of what you could earn in a month, and you can always adjust the numbers if you want a more conservative estimate.

Estimating Expenses

When it comes to estimating expenses for short-term rental properties, there is not too much deviation from traditional investing. In other words, PITI (principle, interest, taxes, and insurance) still dominates the expense category, but we’ll talk about a few other expenses as well. These include:

Mortgage

First and foremost, we need to account for the monthly mortgage payment if you’re leveraging the property. Let’s say you bought a $350,000 property with 20% down. Your terms are 30 years at 3% interest with a fixed-rate loan.

Your monthly payment, excluding taxes or insurance, would be about $1,200 per month. Once we start accounting for private mortgage insurance, which is typically required on homes with less than 20% equity, and property taxes, this number could climb up to $1,500 per month or more.

Insurance

You will also need to calculate in the costs of insurance for your short-term rental. To get an accurate estimate for your insurance costs, you should call different brokers and browse different websites to get quotes.

Be aware, though, that STRs might have varying rates that are more expensive than traditional insurance. For example, some insurance companies offer coverage for damage to furniture and other items in the home. This type of policy can be useful when a rowdy tenant leaves your property in shambles.

Property management

The vast majority of short-term rental properties are self-managed you can manage the rental yourself, and for good reason: the high cost of property management.

While the services of a property management (PM) company can be enticing, STR property managers can be very pricey and STR rates are higher than normal rental pricing. Expect to pay upward of 35% of the gross revenue, which will eat into most of the positive cash flow the property generates.

It is typically not worth the money to hire a property manager, as the real money in STR is remote self-managing. Everything can be done from a smartphone with a few short-term rental management tools to streamline it. That said, if you’re going to use a property management company for your short-term rental, you should calculate in the costs.

Taxes, permits, and licensing

It’s also important to take a close look at whether the local government charges tax levies on STRs. In some cases, STR owners must pay occupancy taxes or be required to get permits and licensing, which should be accounted for in your expense category.

Repairs and maintenance

Expect to appropriate 5-10% of revenue toward repairs and maintenance. Keep in mind that your guests are most likely on vacation and are staying at your place to have a good time. Because of that, it’s more likely that things will break, wear and tear will accelerate faster than normal, and costs will mount up.

Utilities

Unlike traditional rentals in which the tenant typically takes care of utilities, the costs for utilities are your responsibility with an STR. You’ll have to dig up some research on your market’s average utility cost, but assume that your costs will be on the higher end of the spectrum.

That’s because guests on vacation tend to throw environmental sustainability out the window. They leave TVs on, run the hot tub, blast the speakers, run every appliance at the same time, and forget to turn off the lights.

Listing fees

If you decide to list your STR on a platform like Airbnb or VRBO, then you should account for the commission fee you pay when a guest books a room. These prices vary across platforms and destinations, but they’re typically a small percentage of the total booking price.

Figuring out your return

Add in other variable expenses as they come, but you shouldn’t have much more than what we already covered. With that in mind, you simply subtract your expenses from your revenue to get your net income.

Let’s say we calculate expenses and they add up to $4,300 per month and we’re doing the math based on our projected revenue of $6,750 per month. Note that we’re not charging a cleaning fee in this equation.

The equation would be: $6,750 – $4,300 = $2,450/month

With that information, you can determine whether the investment is worth your time or not. Based on those numbers, however, that’s a pretty solid return.

Buying a Short-Term Rental

So, you’ve done all the research and now you’re ready to pull the trigger on a property. Where do you start?

Well, it’s the same as any other real estate transaction. You find an agent, tour the property, make an offer, line up financing, run through any inspections, and close.

Finding an agent

Getting in touch with a quality real estate agent who specializes in or has experience with short-term rental transactions is often the best route to take. If you’re purchasing a property in an outside market, you’ll need to do some online research to see if there are any brokers who are prominent in the area for STRs if you don’t know anyone already. If you have an agent that you work closely with on other transactions, ask if there are referrals that they can point you toward.

Touring the property

Touring the home can be a logistical challenge if the property is outside of your local market. However, it’s always recommended that you tour the property in person before ever signing an offer. Pictures don’t always do a home justice and descriptions can’t give you a clear enough idea of the property either. Getting a hands-on look at a home will reveal all of its pros and cons.

If you can’t get to the property, however, ask your agent to tour the home for you and give you their own feedback. You can also ask them to video call you during their visit. Or, ask about a virtual tour instead. Many properties have 3D tours set up so that any buyer can complete a virtual visit from their computer screen.

Do what you have to do, but make sure you examine the home closely. You want to take the time to discover any problems, get a feel for the space, imagine it as a vacation spot, and make a decision.

Making an offer

When the market is hot, there is less flexibility on offers. Sellers are getting bombarded by offers, many of which are above the asking price.

An easy way to know how much leverage you have on an offer is to see how many days the property has been listed on the market. If it’s been listed for a month or more, you’ll likely be able to talk the seller down – even if it’s a hot market.

You can also figure out how flexible or motivated a seller is by looking at the number of times they’ve lowered the price – and by how much they’ve dropped it. Less price fluctuation and higher days on market will often mean the seller is either unmotivated or inflexible.

If the seller has been dropping the price significantly, it typically means the opposite. They want to sell and may be willing to take any realistic offer at this point.

Lining up financing

Sellers like to know that you’ll be able to buy the house, so sending a pre-qualification letter with your offer is a good start. If the seller decides to accept your offer and you’re using a mortgage loan to purchase the home, it’s time to start the full approval process.

Work with your lender to submit the proper documentation and make the underwriting process clean and easy. The mortgage loan process doesn’t typically deviate significantly when purchasing an STR, but keep in mind that you won’t be able to get an FHA loan or other government-backed loans since this will be considered an investment property or your second home.

Due diligence and the road to closing

After your offer is accepted, there is a short window of time, called the due diligence period, in which you can pull out of the deal without sacrificing your earnest money deposit. This is the best time to get the ball rolling on inspections.

General home inspections should do the trick when buying an STR, but if you think you need further inspections, be sure to line those up as well

Closing

Closing is the process in which you sign the paperwork, complete the purchase, transfer titles, and get the house keys.

The closing process may vary significantly depending on the state you’re purchasing in. In many states, the buyer brings the attorney. In others, it may be quite different. How this process looks really just depends on where you are.

Once the closing process is complete, it’s time to start making money.

Listing, Marketing, and Managing Your Short-Term Rental

At this point, you should have figured out whether you’ll be using a property management company. If you are, it’s a good time to engage with them and start setting up shop.

Just because you have the property open for booking doesn’t mean it will fill itself. You need to market it. Luckily, platforms like Airbnb and VRBO make this easy to do. The process of listing, marketing, and managing your STR includes:

Preparing and furnishing the property

Before you create the listing, you need to furnish the space and make it livable. And, ideally, you will make it more than livable. Make it a destination.

Remember to include enough beds, set up a living room space, and decorate. You can choose any direction with your design, but clean and fresh is the safest bet. You should also make sure to tailor the interior design to the types of guests you want to attract.

For example, if you have a cabin rental in the mountains, a rustic, outdoor feel is an ideal theme. If the property is in the Hamptons, however, you likely wouldn’t opt for the same style.

Creating a listing

You need to fill your listing with descriptions, professional photos, and important information – which is quite similar to creating a listing for a home you are selling. This includes the maximum occupancy, minimum stays, and any other details the guest should know.

Note that your list of amenities can also be the key determining factor for getting bookings. Most guests expect you to offer free Wi-Fi, clean laundry, kitchen cutlery, TV access, and other amenities.

Marketing Your Listing

Having your listing up on Airbnb and supported by a range of accurate, professional pictures, a detailed description, and a long list of amenities is enough to get some bookings. However, if you really wanted to ramp up your marketing, you could run online ads on Facebook, Instagram, or Google with links to your listing. You could also make landing pages and websites with a sales funnel.

Just note that one of the best ways to keep a constant stream of guests coming to your property is by receiving 5-star reviews from former guests. This provides social proof, enhances your profile, and gives you better odds of securing more bookings. Regardless of your marketing strategy, make sure advertising costs are accounted for and always ask for reviews from guests.

How to Start a Short-Term Rental Business

Buying a vacation property is a huge investment, so do your research and be prepared before purchasing:

Understand Daily Rates and Fees

You can’t predict the future, but studying average daily rates (ADR) and occupancy rates can give you an estimated guess of what your gross monthly income may be. 

ADRs can vary greatly from rental to rental, even in the same neighborhood! Even the same property on Airbnb may be $300 one night, and $400 the next. Luckily, there are several data sites you can use to hone in on an estimated ADR. These include:

• AirDNA
• AllTheRooms
• Mashvisor
• data.rabbu.com

These sites also provide valuable information on occupancy rates, such as the average occupancy rate for an area and even the occupancy rates for individual properties (usually you’ll have to pay for this feature). 

Unfortunately, information on occupancy rates is harder to calculate, because their numbers may be skewed by a number of factors:

• Blackout dates
• Owners listing their properties on multiple sites
• How far out in advance are bookings available?
• How long has the property been available?

Check the property’s booking schedule and compare it to the occupancy rates listed on the above sites. If it’s consistent, it’s likely a reliable source.

One-Time Fees: Furnishing and Rehab Costs

We’ll dive deeper into furnishing your short-term rental or Airbnb later on, but for now you need to estimate how much it will cost to furnish your rental. Pricing varies greatly depending on the size of your home and what items you’re including as furnishings. 

In general, for mid-grade, budget-friendly items, you can expect to pay:

• $5,000 – $10,000 for 1-2 bedrooms
• $12,000 – $20,000 for 3-4 bedrooms

Rehab fees also vary, depending on the condition of the property and what renovations and repairs you’re looking to put into it. 

Your On-going Operating Expenses

A long-term rental’s operating expenses are comparable to a primary residence. Short-term rentals have a few more expenses to consider. Update operating expenses spreadsheet regularly. Your estimates will become more accurate over time. Create a spreadsheet with this list, and based on the size and location of your vacation property, estimate what each item will cost:

Research Common Laws and Regulations

Never buy a short-term rental without first knowing the law and regulations of your city and neighborhood. If a city has licensing requirements, you can find them on the planning and zoning of your city’s website. Since they’re common, there’s usually a link or section that outlines the ordinances and regulation requirements for short-term rentals.

It’s common for cities with regulations to require you or the property manager to obtain a license to run a vacation rental. You’ll also likely need a tax/business ID. 

While laws and regulations vary from city to city, here are the most common requirements you’ll encounter:

• Primary residence requirements – Many cities are adopting policies that require your short-term rental to also be a primary residence. In some cases, a property can be used as a short-term rental while the homeowner is away. In others, you can only rent portions of your home, such as an accessory dwelling unit (ADU), basement, or bedroom. 
• Property requirements – Some cities require your lot to be a specific size or have multiple off-street parking spots available. 
• Operation limits – Cities can limit the number of days you can rent out your home. 240-day maximums (approximately 20 days a month) are common, but sometimes they’re even less. 
• License fees – These fees are pretty standard and reasonable. For example, a one-year licensing fee in Seattle is $75. However, some destinations charge hundreds—or more—in licensing fees. 
• Lodgers tax – Certain cities and states require property owners and managers to pay a lodger’s tax for renting out a room or property. The tax rate varies from state to state. 
• Zoning laws – You must meet the zoning requirements of your city. 

Build Your Power Team

Entrepreneurs rarely operate alone. Running a short-term rental is a team effort, so even if you’re planning on doing most of the heavy lifting, you’re still going to be outsourcing some of the work. 

Here are a few key players in your power team:

Investor-friendly Real Estate Agent 

Find an agent who specializes in short-term rental properties. The right agent will save you a lot of the work and is well worth their commission. Your agent should know the short-term rental laws and regulations in your city and state, have keen knowledge of your local market, have connections to property management companies, and know the process from start to finish. 

Property Manager or Management Team

The right property manager can turn your high-stress rental into a low-maintenance breeze. Depending on how you work with, your property manager may do some or all of the following:

• Furnish your property or provide you with an itemized checklist
• Market your property on Airbnb/VRBO platforms
• Manage scheduling and customer service relations
• Manage invoicing and payment processing 
• Schedule cleaners, landscapers, and other maintenance professionals as needs
• Set up licensing and tax IDs for your rental 

In some cases, all you need to do is buy a property and get it ready to rent. The property manager handles the rest. 

Depending on your needs, the industry average for property managers is 25% – 30% of your gross rental income, depending on their fee structure. Airbnb property managers tend to charge between 25% – 50%, depending on where the rental is located and what services they’re offering. 

Maintenance Crew

Reliable handymen/handywomen and other vendors must be available to address functional issues with your property on short notice, should they arise. If your hot tub isn’t working or your heater malfunctions, speedy repairs can help you maintain a high property and experience ratings. 

Cleaning Crew

Reliable cleaners are in high demand and well worth their fee. You can find reliable short-term rental cleaners like TurnoverBNB. Even better, these cleaners can gain immediate access to your booking calendar, so they know exactly when they need to “turn” your rental. 

High-quality cleaners may also:

• Restock supplies
• Order/replace items and invoice you
• Wash and change linens
• Inform you if something is missing or broken

How to Choose the Best Locations for a Short-Term Rental

There are three main short-term rental markets: 

• Metro markets
• National fly-to vacation markets
• Regional drive-to vacation and leisure markets

Each of these markets have varying degrees of stability or volatility, attract different types of renters, and specific rules and regulations. 

Metro Markets

Metro markets attract many visitors but aren’t dependent on tourism. You may experience busier or slower times, but it’s usually desirable year-round, as opposed to a beach house or ski resort. Short-term rentals in metro markets are a great alternative to hotels, especially for those staying more than a few days. Metro rentals tend to attract professionals on business trips, traveling medical professionals, and locals taking a “staycation.”

The metro market is high risk, high reward. Metro markets are very rewarding in terms of cash flow, but they’re also more regulated. In these markets, you’re also dealing with disgruntled neighbors, building or HOA rules, hotel lobbyists looking to limit zones where short-term rentals are allowed, and a lack of affordable housing due to Airbnb investors. 

In short: 

• Metro markets – potentially highest return, high risk
• National vacation markets – potentially high return, medium risk
• Regional vacation markets – modest return, low risk

National Vacation Markets

National vacation markets depend on tourists, like Aspen or Hawaii. Short-term rentals are part of the very fabric of these markets, but some areas still experience pushback from permanent residents.

The national vacation market can be lucrative, but it’s also often tied to the economy. If there’s a recession, you may have a more difficult time getting renters. If there’s a boom, you can be booked out for months!

In short: 

• Metro markets – potentially highest return, high risk
• National vacation markets – potentially high return, medium risk
• Regional vacation markets – modest return, low risk

Regional Vacation Markets

Regional vacation markets also depend on tourists, and they’re easier to drive to, like Big Bear Lake, California or Branson, Missouri. These markets are often smaller towns and more affordable than national markets, so they’re not as dependent on the economy as their national counterparts. They also usually have fewer permanent residents or others looking to make running a short-term rental difficult. 

In short: 

• Metro markets – potentially highest return, high risk
• National vacation markets – potentially high return, medium risk
• Regional vacation markets – modest return, low risk

Final Thoughts on STR Investment Properties

Congratulations! You now know what it takes to scope out, buy, and manage a short-term rental!

The next step is to scale your business over time. But for now, get started with your first property and learn the ropes.

This is the perfect time to get your toes wet. STRs are only gaining in popularity and demand is through the roof. If you can find a great property in a great location now, it’s hard to imagine that you’ll regret your decision in a few years.