A short-term rental is a residential property offered for rent to interested guests for a brief period, usually less than 30 consecutive days. The concept of a short-term rental is quite similar to home-sharing except that accommodation is granted only to the guests without the presence of the resident or homeowner on-site. Therefore, guests are allowed extensive use of facilities in the property. Short-term rentals have been existing for quite a long time but it's popular in coastal and vacation communities such as Big Bear, Palm Springs, and so on.
The rate at which homes are used for long-term rent is staggering. This is due to the rise of the sharing economy which is triggered by increasing tourism and technological advancement worldwide. People now look into their homes to provide accommodation for millions of tourists from various parts of the world annually. In London alone, Airbnb has now emerged a record 60% growth in just over 12 months to over 53,000 listings.
With the emergence and gaining popularity of over 100 renting platforms on the internet such as Airbnb, HomeAway, Booking.com, and VRBO, it is now easier for property owners to advertise their property for short-term occupancy. The short-term rental industry is growing rapidly because of the additional revenue it generates to property owners who would rather rent than to see the property go unused. It has now become a reliable secondary source of income for people who want to make money from their assets. For instance, if you decide to take some time away on a holiday or work trip, you can generate some additional income by turning your home into a short-term let. Besides renting out your property gives you the peace of mind that your facilities are properly maintained and secured.
Housing platforms like Airbnb are now the driving force of the tourism sector with Airbnb reporting that about 60 million people have used its site. Since its inception in 2007 by two graduates in San Francisco who advertised their room for rent, it has significantly grown to become the leading short-term and home-sharing platform all over the world. The idea was to enable property owners to advertise their properties on the Airbnb platform and rent it out to interested guests. It was recently disclosed that the properties rented out on Airbnb are mostly homes, shared rooms, private rooms, and apartments. However, a report by a web scraper site- InsideAirbnb depicts that 57% of listings on Airbnb are homes or apartments. The impact of Airbnb has been debated to harm the tourist industry and communities through the loss of affordable housing on short-term rentals.
In some places like London, it is a breach of planning controls to rent out a property for short-term let on Airbnb or other housing platforms without asking for permission from the Local Authority. However, a modification of that regulation has passed that makes it possible to offer short-term rents for as long as 90 nights a year without the authorization of local authorities. The modification did more harm than good to long-term rental landlords, causing the Residential Landlords Association (RLA) to formulate a task force on the issue of short-term renting on Airbnb. This task force discovered that there were 33,715 listings available in London in 2016 and about 65% of these were active for more than 90 nights per year. This data proves that short-term lets were attracting all the customers and removing many housings from the market.
The condition of your home might be a determining factor that influences its rental performance but an expert short-term rental property manager would be able to predict and advise on the returns expected. Location is a major factor to be considered while running a short-term rental because some places deliver seasonal returns while others may provide steadier returns. It is imperative to know that if your property is at a location of low demand and the returns are average rather than high, it may be difficult to survive against competition and make successful returns. However, if your property is in a location of high demand, you stand a chance against your competition and make higher returns.
Another reason housing managers prefer to go for the short-term lease is the issue of damages. An experience by housing managers proves that short-term rentals help prevent property damages. This seems to be the case because guests tend to stay for a few weeks without taking luxury furniture along or seeking to alter the property state. keeping it properly maintained, secured, and monitored from undergoing deterioration over time.
Of course, there are pros and cons to offering your property for a short-term lease and precautions to follow while considering this service. But before diving into that, there are a few questions you need to ask yourself.
1. Is your property on a holiday or tourist location?
2. Is your property well-furnished and prepared for rent?
3. Can you afford higher vacancy rates?
4. Can you create time for the task?
You also have to make sure that your home is well insured for short-term lease. This is to provide cover for additional risks during the guest's stay. Other contingencies such as contents cover and liability insurance should be considered in the case of an injury, damage, and loss of properties due to fire or leakage.
The high returns imagined in short-term rent also pertains to the potential risks and additional effort involved in renting out your property short-term to a prospective guest. For issues such as wear and tear caused by multiple incoming tenants and invalid availability which are the two common issues experienced by landlords in a short-term lease, an additional cost is added so as not to eat out from the landlord’s profits.
Tenants sought out short-term lease because it is a cheaper and better alternative to hotels. lodging in hotels, they are viewed as tourists in the community while short-term guests are viewed as Locals. Managing a short-term let is a skilled practice and those who are in the business know
What properties can be offered for short-term rent?
What makes home-sharing and renting services special is that there are numerous ways to go about it. Once you get a place people can sleep, you can decide to share the apartment or opt-out of the apartment for the guest to acquire cash. These are some properties that can be listed on housing platforms.
1. Additional rooms
2. Guesthouses and quarters
3. Tent
4. Condos and townhouses
5. Extended family suites
6. Vacation homes and luxury condos
7. Single-family homes
8. Self-contained apartments
Benefits of Short-term Rental Investments
- Higher returns potential
A major advantage of short-term rentals is that homeowners are allowed to set their prices based on demand, events, and season. This affords them the luxury of increasing the rates to maximize their rental returns. Take for instance, during popular traveling times, a Landlord has the freedom to raise the nightly rate for a couple of nights which might not be possible in long-term rent.
- Flexibility
Short-term rental offers great flexibility to the property owner. It gives owners the freedom to use their property however they want even to the extent of blocking off interested guests whenever they want to use the property.
- Property maintenance and security
Short-term rentals help keep home equipment up and running. It also helps reduce damages such as wear and tear to the property since tenants occupy the home for a brief period. In a way, short-term rentals help protect your property from being breached while you are away.
- Minimal Commitment
Tenants come and go which helps avoid unnecessary commitments. In short-term rentals, guests spend a brief time before moving out and making way for other guests whenever the period you choose.
- Online platforms
Online tools such as Airbnb and VBRO make it easier and faster for property managers to advertise, find, and manage prospective tenants for their property.
- Tax breaks and deductions
Short-term rentals are immune to certain excessive taxes that are imposed on long-term managers. In some places, the local authority has reduced the imposed tax significantly to assist the sharing economy.
Disadvantages of Short-term Rental Investments
- Inconsistent income
As favorable as the rates charged by short-term mangers, it might be difficult finding interested customers. This is mostly attributed to the location of the property and season. Short-term rentals realize its most customers during vacation and holiday periods.
- High competition
A short-term manager competes with hotels and other short-term homes. This makes the competition fierce especially in locations where there are more homes than travelers.
- Time demanding
There are a lot of tasks that require time and presence. Tasks such as cleaning, gardening, and so on are important to provide comfort throughout the guest's stay.
- Various restrictions
Several locations have their litigation regulations for short-term rentals. You have to check in with your locality regulations to avoid legal problems.
Problems of Short-term rentals
Due to the simplicity and fiscal benefits of short-term rentals, the rental business has grown globally into many suburban communities and cities. It offers many facilities such as kitchen, bedrooms, bathrooms, and outdoor which are the basic requirements needed for a well-structured home. These facilities provide a great deal of flexibility to visitors often at a cheaper price to hotels. People living in short-term residential properties can be considered to be more of a credible member of a community rather than a tourist. However, due to its short-lived nature, guests find it difficult to keep good neighborly relations or follow the laws of the locality which can end up in situations such as illegal parking, excessive parties, unruly neighbors, and other activities that are against the local laws. To help reduce the nuisance activities associated with short-term rentals, some cities have required that every short-term occupant should submit the short-term rental permit application. The permit contains requirements and regulations that occupants must abide throughout the stay. In most cases, short-term rental permits application should require safety inspections, business licenses, and proof of insurance from the property owner. The Transient Occupancy Tax (“TOT”) which is required to be paid by the property operator is considered a major revenue source for short-term rentals jurisdictions that are vacation-oriented communities. It is widely pursued to be utilized by cities which have also seen the importance of the TOT as a revenue-generating source in the rental industry. A few local cities pursuing this endeavor are Palm Springs, Pasadena, and Newport Beach.
As said, there are over a hundred rental platforms that provide listings of short-term homes. These listings are added or removed daily and because rental platforms do not provide designated addresses of short-term rentals until it been booked, identifying property and property owners may be a difficult task.
The short-term industry has come a long way that many rental managers are now motivated to offer their properties as short-term rentals rather as an alternative long-term rental. The major reason for this shift is because guests tend to pay more for short-term rentals. And this is because as many properties intended for long-term housing are converted to short-term rentals, they cease to be part of the housing stock and hereby regarded to as a rental. This reduces the number of housing properties which can contribute to an increasing interest in short-term rentals, hence, affecting the price of long-term housing negatively.
Conclusion
Short-term rental is a service anyone with a modest property can provide. It is a convenient way of generating additional income for property owners. However, it not advisable for persons to rely on short-term rental as the primary source of income because of the inconsistency in getting interested customers. Housing platforms such as Airbnb and VBRO have made it easier for homeowners to advertise and manage their properties. Customers can now find any home of their choice and lodge there for a brief period.