Why Short Term Rentals Are Here to Stay
By Jeramie Worley, Author of Myths, Management & Mastery of Vacation Rentals
Photo by cottonbro from Pexels
In 2017 and 2018 the Missouri Legislature was proposing laws that would affect property owners. A bill was being circulated that not only violated the rights of short-term rental (STR) property owners but also had the broad overreach that, if passed, could begin to chip away at the profits of long-term rental (LTR) property owners.
As a result, I formed and ran the Missouri Vacation Home Alliance, a 502c6 advocacy group from 2017-2020. In all those efforts and through the many investors I’ve met, I realized we all have the same goal. Whether we are rich or want to be, we all need a greater return on our time. I discovered that short-term rentals fit the bill.
Many people say that short-term rentals are easy. I disagree; they can be challenging, but the learning curve for investors in the STR space is much shorter. I like to say it is the highest-paid, part-time job you will ever have.
Here is an example. Let’s say you have a five-bedroom, three-bath apartment. In an LTR scenario, you might be able to rent it out for $2,000 a month. That’s a total of $24,000 in rental income for the year. But remember, you’ll have expenses to cover, and those can add up quickly. By the time you factor in property taxes, insurance, repairs, and other costs, your profit margins may not be as high as you’d hoped.
Now, let’s look at the same property as an STR investment. If you rent it out for $400 a night, you could potentially make $62,000 a year in rental income. Yes, you’ll still have expenses to cover, but you can see how much more margin there is with STR. And here’s the kicker: if you only rent out your property for 155 nights a year, you still have almost 200 nights left to do whatever you want with. You can rent it out more often and earn even more income, donate some of those nights to charity or use them for your own personal enjoyment.
The added benefit is that payment is usually taken upfront from the renter so there is no more collecting late rent, when people are in your home they are sleeping half the time and the rest is spent out in the tourist attractions. There are fewer regulations, if any, regarding damage deposits, and the clean-up after each renter is handled by a janitorial service rather than a full carpet replacement or paint job.
You can literally run an extremely high cash flow real estate investment on a 60% vacancy rate. It doesn’t make sense, but it does. Most people would happily pay four times their monthly mortgage to spend a week at a Disney resort. Tourism trends ebb and flow, yet people still go on vacation. It is necessary and valued above most things. When you ask someone what is most important to them, family is usually in the top three. When the economy is bad, people do not stop going on vacation, they simply vacation smarter. They pool their resources and can rent a beautiful nine-bedroom, nine-bathroom cabin for less than the cost of a hotel when you share the cost with your crazy brothers and sisters.
Short-term rentals are here to stay, regardless of what you hear about them in the news. Established markets like Gatlinburg, Breckenridge, and Orlando are simply adjusting to a surge in popularity yet will never stop being massively popular destinations. Emerging markets are popping up constantly and so are many new income opportunities. The STR business has matured. It is no longer the new kid on the block. It has earned its place as a true asset class among multifamily, storage units, commercial real estate, and many others.
A nine-bedroom STR can outperform a 12-unit apartment building and a 12-bedroom STR can outperform a 20,000sq ft. commercial rental space, I’d love to show you how. We talk about this and many other real estate topics and recipes for success on my acclaimed podcast: Cocktails and Dreams Real Estate Podcast.
You can also connect with us on our website www.worleyrealestatenetwork.com or grab a copy of my book by texting the word MYTHS to 1-833-210-2091.
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