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Airbnb Investment Loan Financing

Wednesday, 20 October 2021 19:25

Are Short-term Rental Properties a Good Investment?

airbnb loanWhen we first venture into the realm of real estate investing, we might consider vacation rentals as a good place to start. It can help us get our proverbial feet wet in the researching, financing, and prepping of investment properties, and provide the bonus of having our own getaway spot.

Are short-term rental properties a good investment? That answer might differ depending on who we ask, but to know the answer for ourselves requires a better understanding of what short-term rentals are and their potential benefits.

What are Short-term Rentals?

Short-term rental properties are those rented out for fewer than 30 days at a time. The typical lease is anywhere from a few days to a couple of weeks.

The shorter stay periods mean higher daily rates, which allow us to boost the rental property’s income more than what we would receive daily on long-term leases. These higher potential income streams are what steer real estate investors to short-term rental properties.

What Are the Benefits of Investing in Short-Term Rental Properties?

Nowadays, many travelers prefer short stays in multiple locations to the more traditional one-stop vacation. They save money hopping from one Airbnb to the next in lieu of booking a standard hotel room.

Compared to traditional hotels, short-term rental properties offer attractive rates, particularly when traveling as a family or in other large groups.

1. Supplemental Income

When we invest in a vacation rental property, we are looking to turn a profit. Airbnb hosts earned an average of $924 per month in rental income in 2020.

In cities of extremely high demand, however, those numbers were up to 7 times as high.

For example (and as discussed later in the article), the average daily rental for Airbnbs in Manhattan Beach, CA, is $360. An occupancy rate of 62% and an average of two rooms per property equates to approximately $13,600 in monthly income.

Manhattan Beach’s median mortgage payment for short-term rental properties is roughly $3,000. The net income (before upkeep costs) is thus around $10,600 (the exact number reported is $10,782 as listed later in the article).

2. We All Need Our Own Vacation

When we own a short-term vacation property, we choose when it is available for rent and when we want it unoccupied.

That means we are free to use it for our own vacations – and for however long we decide. We might use it for a romantic getaway, an impromptu party weekend with friends, or a full vacation with extended family.

3. The Tax Benefits

When we rent out a home for more than 14 days in a calendar year, the IRS considers the property a business for tax purposes. In other words, we must pay taxes on the rental income.

However, just like any other business, the IRS also allows us to write off many upkeep expenses related to the property’s repair and maintenance, including hosting fees charged by Airbnb, Vrbo, and other online platforms.

Items that we might consider writing off include (but are not necessarily limited to):

  • Online platform hosting fees

  • Property insurance premiums

  • Utility costs

  • Cleaning costs

  • Toiletries and other standard supplies

  • Occupancy taxes

  • Lawn maintenance costs

  • Mortgage interest payments

4. Adding to Our Nest Egg

A rental property can also be a great way to build our long-term wealth and provide a revenue source for retirement.

We never know what our finances will look like down the road, so owning real estate could prove useful if we find ourselves in need of more cash. We might sell the property to cover our future living expenses or unexpected healthcare costs or finance sightseeing trips around the world.

Alternatively, we could hold on to that property and use it as our primary residence. Assuming we have owned the home for several years, we have likely paid off the property, so we would enjoy a mortgage-free retirement in an ideal location.

5. Diversifying Our Investments

The more diversified our investment portfolio, the more protected we are from market volatility.

Income-generating investment vehicles – such as real estate – provide relative cashflow certainty (provided you can rent the property consistently) which helps us better absorb losses on riskier assets.

Even if we already own real estate properties, short-term vacation rental properties are considered a different market than traditional real estate properties. This means that we are still diversifying our portfolio.

What Are the Best Cities for Airbnb Investing?

Ranking the “best” cities for Airbnb investing is subject to which metrics are included or omitted.

Most lists factor in standard metrics such as occupancy rate, the return on expenses, and daily prices. Some also include the local area’s short-term rental property rules and regulations, which can impact the allowable number of occupants per unit, the number of units per area, license fees, and tax rates.

Many lists include the following cities or their surrounding metropolitan area:

1. Manhattan, California

  • Rate of Occupancy: 62%

  • Average per-day rate: $360

  • Average monthly income: $10,782

2. Malibu, California

  • Rate of Occupancy: 48%

  • Average per-day rate: $715

  • Average monthly income: $8122

3. Key West, Florida

  • Rate of Occupancy: 57%

  • Average per-day rate: $695

  • Average monthly income: $8822

4. Northport, New York

  • Rate of Occupancy: 51%

  • Average per-day rate: $290

  • Average monthly income: $6393

5. Southlake, Texas

  • Rate of Occupancy: 71%

  • Average per-day rate: $250

  • Average monthly income: $7055

When You Make Your Decision, We Are Here to Help

While there might be several benefits to investing in short-term rental properties, we first need to ask, “Are short-term rental properties a good investment for me?” If the answer is “Yes,” then it is time to take the next step in the investment process: securing your loan.

At Vacation Rental Loans, we know short-term property financings. Our team of loan experts want to help you pave the way to rental property investing with a loan that works best for you.

Contact us today to request a quote.

 

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Read 46 times Last modified on Thursday, 21 October 2021 00:47

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