Rental Property Loan

The concept of a short term rental property is not an entirely new one.  Even before Airbnb began to emerge in 2007, property owners have been offering up rooms or other spaces to travelers on a short-term basis.  However, nowadays, the practice is much more widespread, and platforms such as Airbnb cater to 150 million users worldwide.

As we are dealing with such a big market, it is important to clarify precisely whom we are reaching out to with this guide.  We seek to provide advice and guidance to anyone that is considering entering the short-term rental property market, and this includes the following;

• Anyone who is considering investing in a property for short-term rental purposes
• Anyone who already has an vacation home investment property and is considering putting it on the short-term rental market
• Anyone with a space within their primary residence that may be suitable for short-term rental
• Anyone in the short-term rental market who wishes to learn more about getting the best from their property and investment

A wealth of opportunities is open to all of these user groups, provided that the short-term rental market is approached in the right way.

So, how can property owners and investors make sure that they approach the market correctly? Let's examine five critical factors you need to consider.

• The marketing angle of the property

Think about why people would want to rent your property, or what people are looking for in your area. There are myriad different marketing angles that you could pursue. These might include:

• The experience of staying in a historic, traditional, or luxury property
• Additional on-site elements such as saunas or pools
• Proximity to local attractions and places of interest
• Proximity to local business hubs and conference centers
• Convenient access to high-demand seasonal events such as marathons or music festivals, or seasonal attractions like ski resorts or beaches
• Parking facilities and transport links to nearby areas
• Anything else that might be of interest to travelers

Put yourself in the mind of someone who might wish to stay at your property, and then build your marketing initiatives around this.

• The pricing

Carry out some research into the local short-term rental market, as well as the local accommodation scene. In most cases, short-term rentals offer a more cost-effective option than traditional forms of short-term accommodation such as hotels. However, if you plan to target a more luxurious or experiential angle, your pricing should reflect this.

If you are a recent entrant into the market, it is advisable to pitch your property's pricing slightly below that of your local competitors. Doing so will help you get established and build up good reviews, which will become instrumental in your investment's long-term success.

For those targeting seasonal customers, consider altering your pricing based on relative levels of demand. Hotels commonly adjust their pricing for the on- and off-season, and short-term rental property owners should do the same. 

• The ongoing expenses of renting

Renting out a property or a space in the short term is not a passive income stream. Even after the initial investment is recouped, there will still be ongoing expenses associated with the rental.

Consider the following;

• General wear and tear and potential property depreciation
• Costs of ongoing repairs and maintenance
• Service fees for rental platforms — Airbnb charges a 3% service fee for each reservation
• Taxes and bills relating to the property
• Replacing appliances and items within the property
• Property insurance and other related expenses
• Any other liability that could be incurred

While the income from the property should make the investment worthwhile, it is still critical to consider these factors.

• The periods of vacancy

There are likely to be periods in which the short-term rental property is vacant. During these periods, of course, you will not be receiving any income from rentals. This is particularly the case for properties rented out on a seasonal basis.

So, what can you do? You may decide to use this time to carry out any needed repairs and renovations to maximize the rental income during those boom times. Alternatively, you may decide to drop the price to encourage more bookings during downtime (as noted above, you should already plan to do this if your property has seasonable appeal, but you may decide to reduce the price further if the lull continues). You may also consider re-marketing the property with a different angle, so that seasonal disparities in visitor numbers are not quite so severe.

• The lifestyle changes

Entering this market is going to result in significant lifestyle changes. These will be particularly acute if you will continue to occupy the property you are renting out, although all investors will experience lifestyle changes relating to increased income, additional responsibility, and the avenues of opportunity that open up for you.

Think about how your lifestyle will be affected, and consider how you can make the negative changes more bearable while taking full advantage of the positives.

There are certain risks involved in entering the short-term rental market. Plan for these risks ahead of time, and think about how you can mitigate them.

• Projected income may fall short: Even with the best market research, there is no guarantee that you will achieve the income you expect.
  • How to mitigate this: Aim to keep your costs as low as possible until you get established, even if projections look great.
• Usage may reduce the property's resale value: A big turnover of tenants equals plenty of wear and tear.
  • How to mitigate this: Keep up on your maintenance and repairs, and enter into a contract with tenants to ensure they treat the property with respect.
• The market may fluctuate: Even if you are expecting a year-round flow of tenants, there may be seasonal market fluctuations that harm your business.
  • How to mitigate this: Don't put all your eggs in one basket. Think about how you can attract visitors outside of peak times, and re-market your property to deal with the fluctuation.
• Liability laws and regulations may be confusing: It can be difficult to know your rights and responsibilities in the short-term rental market.
  • How to mitigate this: Seek legal advice and find out what exactly is expected of you, as well as your rights.
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It's important not to lose sight of the rewards when you rent out a property on a short-term basis. As long as the property is managed correctly and the right decisions are made during the investment, this could be the path to a solid rate of return. 

These are just a few of the rewards you can look forward to:

• A strong revenue stream that builds over time
• The opportunity to leverage initial successes, as you purchase additional properties to grow your investment
• A connection to the short-term rental lifestyle
• The chance to work with property managers and other third parties that can help you work remotely and achieve as close to a passive income as possible
• The chance to use your property for your own needs whenever you see fit, and to rent out the property whenever necessary, achieving the best of both worlds

If you would like to learn more about getting an investment property loan in Texas, reach out to our team.