About a quarter of all vacation and investment property owners rented those properties out as short-term rentals in 2017, and nearly a third plan to do so in 2018. According to a new report from the National Association of Realtors (NAR), nearly half (45%) of investment buyers report they plan to generate investment income through renting instead of flipping or price appreciation. Short-term renting may be a good way to do it.
“Our data at Mashvisor confirms that in many locations, especially tourist destinations like California and Florida, short-term renting is the optimal rental strategy,” observed Daniela Andreevska, the real estate rental data firm’s content marketing director. “Vacation homes seem to be the future of real estate investing as more and more travelers opt for this option instead of staying at hotels,” she added. STRs may generate more rental income and, as a result, higher returns on investment (ROI) thanks to nightly rental rates (vs. long-term leases), “not to mention the fact you can use your short-term rental property for your own vacation,” Andreevska said.
Who Is Buying and Where
According to the same NAR report, about a third of vacation buyers purchased properties for STRs in a “resort” area, while the same percentage of investors purchased a property in a suburb or subdivision. This indicates that many of the new STR investors may be new to the real estate investing sector entirely, especially in light of reports that about nearly three-quarters of the vacation-home-buying population believe “now is a good time to buy.”
Potential STR Pitfalls
With a new investor population in the mix, however, STR investors must be aware of the potential pitfalls associated with this type of investment. For example, buyers considering purchasing their STR using a self-directed retirement account may encounter unexpected complications associated with using the home personally or managing the rental in any way. Even more prevalent are instances of individuals purchasing such a property, then finding their plans for renting it out short-term via popular platforms like Airbnb thwarted by local regulations and an antagonistic hotel lobby.
“One thing investors should keep in mind is the legality of renting out on a short-term basis [in any given location],” warned Andreevska. “Before deciding to buy a vacation home to rent out, make sure to do due diligence research of not only the existing laws on short-term rentals, but also whether any significant change might be expected in the near future.”