THINGS TO KNOW BEFORE INVESTING IN SHORT-TERM RENTALS

 THINGS TO KNOW BEFORE INVESTING IN SHORT-TERM RENTALS

Investing in short-term rentals is no longer a secret in the real estate investment community. It can be very profitable.

In fact, it is possible to double your return on investment compared to traditional rental.

But for all that, this activity is so different from classic real estate investment that it is necessary to learn.

Because yes, as we will see, investing in real estate for short-term rental requires meeting certain conditions.

First, there's a legal issue. Are you familiar with the legal rules surrounding this activity in the city where you're planning your project?

Then there's the financial stakes. The initial investment, sometimes substantial, requires a thorough understanding of your anticipated costs and revenues.

We're now going back over all of this with 4 essential things to know before embarking on a short-term rental investment.

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Short-term rentals are all about numbers

We support French-speaking investors who wish to develop their assets in the United States. To achieve this, many of them choose to rent out their investments for the short term.

This is indeed ideal for them. It gives them the flexibility to reserve a few days in Florida for their vacation. Especially in Port Charlotte ( read the article here ).

At the same time, they maximize their profitability by using a system where the return on investment can sometimes be doubled or even tripled compared to a traditional model.

Moreover, in a market with high inflation and high interest rates, short-term rentals can be the solution to many problems.

Before you start, you need to know a number of concepts and figures to be able to correctly analyze the situation.

Some simple concepts:

Average daily rate: how much does a night cost on average?

Occupancy rate: What is the occupancy rate? Here we are talking about an annual percentage.

estimated gross monthly income / estimated gross monthly income: (ADR x occupancy rate) x 365/12 = estimated gross monthly income.

This is a quick, necessary analysis. Obviously, we are looking at average data that in no way guarantees the future.

However, this quick calculation should allow you to know what you are getting into.

Once you've estimated your income, focus on your expenses. This is also an important aspect of short-term rentals. Expenses can sometimes be significant when implementing this model. Remember, the rental, or rather, the guest, pays for their stay and does not incur any other expenses (with a few exceptions, such as cleaning, etc.).

There are three types of costs to plan for: energy, property maintenance, and furnishings.

Each of these categories must be carefully analyzed to avoid any unpleasant surprises.

You need to make a mindset shift

Through financial analysis, we have seen that short-term rental is not at all like traditional rental.

This is what you need to get into your head right now. You are no longer investing in real estate.

Or more precisely, you invest in real estate AND hotels.

If we generalize, short-term rental is much closer to the hotel sector than to real estate investment.

This is the change you need to make in your mindset.

With short-term rentals, you provide a service. Unforeseen events and unexpected expenses are much more likely than with long-term rentals.

But remember, income is also multiplied...

Knowing how to surround yourself to make the right investment.

This point is a perfect continuation of what we have just seen.

Having the support of an existing team is crucial to the success of your investment.

First, it starts with a good real estate agent. They must fully understand your needs and what you are looking for.

This first step is just as important as the next, because it determines from the outset whether the property can be used for short-term rental.

Next comes the property manager, who is a determining factor in whether or not you will be able to operate this accommodation as a short-term rental.

It is up to you to find a competent partner on site who can take care of the various necessary tasks.

For example, your partner will have to manage the relationship with travelers, payments, maintenance, the relationship with cleaning ladies, online advertisements.

Ensure the rules and laws in force in your market.

Understanding the laws and regulations of the city where the property is located is another essential element of short-term rental success.

You need to know if you can legally operate your property in this way.

If a city has licensing requirements for short-term rentals, they can often be found in the planning and zoning section of the city's website.

In the United States, cities with regulations will require an owner or manager to obtain a license to operate a short-term rental property.

Sometimes cities require that a property fall under a specific zoning code in order to be issued a short-term rental permit.

Many municipalities in the United States still do not have regulations on short-term rentals.

Moreover, many investors who have found their niche and developed in the field of short-term rentals warn against massive investments in unregulated areas.

They opt for areas that have declared regulations favorable to short-term rentals. They believe it's safer because there are decided and written regulations in place that are less likely to change.

If an unregulated city has a growing number of short-term rental properties, it may pass new laws and sometimes shut down profitable short-term rentals.

Very recently, for example, the city of Sarasota in Florida decided to implement regulations. 

With this new plan, each owner in the city will have to comply with a certain number of administrative formalities to carry out this activity.