Buying a house or an apartment for the purpose of renting it out short term is a smart investment in today’s economy. You build your financial portfolio and the return on your investment is immediate in most cases. When it’s tough to find long-term cash-flowing rental properties, short-term rentals may be the answer. There are pros and cons to investing in short-term rentals, Airbnb, or vacation rentals, but they can be great money makers. This post is brought to you by Wendy Dessler of Rentbelly.
What should you do before you buy a short-term rental?
Of course, short-term leases are most popular in certain areas. They should be near:
- Vacation locations such as the beach, ocean, or popular theme parks.
- Major cities where business people travel often:
- New York
- Los Angeles
- Washington DC
- Quiet and unique places, such as a mountain cabin, a private lake house, or a tourist destination like the Grand Canyon.
- Major educational facilities.
There are other areas and other reasons to invest in a short-lease, so do not limit yourself when you are looking at properties. For example, if an area is in a growth period, buying and selling property can happen very quickly. If buyers must move in before sellers are ready to move to their new residence, a short-term rental is preferable over staying in a hotel or with family while they wait.
How to prepare your property for short-term leasing
In most cases, you do a background check on your tenants, sign a contract, and when they move out, the house is in good condition. A deposit is required, which covers the normal wear and tear, but there can be issues with renting to short-term tenants. They may not want to leave or they may do excessive damage or your property may not be as nice as you think it is if you are managing it from out of the state. If you have a short-term management company, they will be your go-between. Companies like Rentbelly will do regular inspections and keep you up to date. But, if you try to do this on your own and you find yourself in court, you are going to have to prove what damages the leasee did.
In preparation for the unthinkable, here are some steps you should take:
- Interview STR management companies and select one before you put your rental on the market
- Take photographs with date stamps of every room of the house and the outdoors
- Make sure the entire room is in the photos, including the ceiling with fixtures and the floors
- Have the house inspected by professionals (keep all the inspections)
- HVAC company
- Consider putting the HVAC system under a maintenance contract
- Roof inspection
- Pest control inspection (again, consider putting them under contract)
- HVAC company
- Have a landscape company prepare the outside area and either put it in the contract that they must keep the area in like condition or have the landscape company do it during the stay.
- Do not neglect photos and inspection of the driveway, outside buildings, and conservatories
- Have a plumber check the plumbing
- Make sure the contract addresses the issues of pets
- Understand the issues of a short-term lease
If you rent to someone who damages your rental, you may have a tough time proving they did the damage if you are not taking these precautions with every tenant.
How can laws and community associations affect your short-term rental?
While your short-term leasing management company should research any restrictions, you are required to know the rules. At the end of the day, non-compliance responsibilities will fall on you. Some neighborhoods allow short-term leasing for up to three months, six months, a couple of days, or a week.
If there are neighborhood rules, include a copy to the leasee and have them sign it with the lease agreement. This is important if they are required to maintain the property. Other things that may be addressed are:
- Working on vehicles in the driveway.
- Working in the garage with the door up.
- Parking if there is a party.
- Signs in the yard.
- Work trucks not being parked on the street.
Know what is happening in advance in the area of your short-term rental!
If there is a huge concert coming to town in a few months, a rock-fest, a major sporting event, or a convention, you need to know about it well in advance. You have every right to raise your rates. These are money-making events, and making the most of them is just good business.
Be transparent about what your rental has or does not have
If your house does not have internet service or air conditioning, or if it sits within a block of a railroad track, let potential renters know. Some people will not care, but others will. You do not want people leaving bad reviews about your properties or company. Making a few bucks by tricking tenants will not pay off in the long run.
Give the tenants respect and privacy in short-term rentals
If you have an STR management team, they know how to politely and non-offensively handle the watching and protection of the property. Let them do their job. Do not show up unannounced, continually drive by, or call or email every day. This is rude and frustrating. You expect them to honor their agreements to you. Honor their right to privacy.
Short-term leasing is a great way to make some good money. It takes more management than long-term rentals, and with more tenants, there is a greater chance of running into problems. Hiring a management company that specializes in short-term rentals can be a great way to reduce the risk.