It’s summer!
And that means longer days, warm nights and, best of all, vacation time. We know you’ve earned it.
Traditionally, vacation planning has involved direct booking of often over-priced and over-crowded hotels. But, with the advent of the internet, new travel options abound. Whether it’s VRBO, AirBNB, HomeAway or FlipKey, short term rentals are here to stay. According to FutureStay, the 2019 vacation rental market is estimated to reach $169.7 billion globally. In fact, on AirBNB alone, there are over 6 million worldwide listings. Suffice it to say, it’s a big market.
We know what you’re thinking. How can I get a piece of it?
Well, real estate investors are uniquely situated to take advantage of this growing trend. More and more often, we are hearing from clients and potential borrowers that they intend to fix up a property for the express purpose of short term renting. In areas near popular tourist destinations, especially, it’s an exit strategy worth considering.
But what exactly should you look for in a short term rental?
Location, Location, Location
For anyone working in real estate, this one should be obvious. Location is the one thing about a property that can’t be changed so weigh it carefully. For short-term rentals, the unit’s proximity to specific tourist attractions or accessibility to landmarks such as beaches or mountain ranges is key. Consider, also, the local occupancy rate to assess whether there is pent-up demand for additional lodging options. Occupancy rates above 70 percent are a good rule of thumb, according to the FitSmallBusiness site.
Keep It Legal
But a good location will only get you so far. Imagine that you discover a quaint fixer upper with lots of rental potential right in the heart of town. You spend time and a fair chunk of change making it listable only to find out the local legislature has just passed new zoning laws prohibiting short-term rentals. Don’t let that happen to you. Be proactive and pay a visit to your local zoning office and City Hall to find out what existing or pending changes may impact you. Or check out AirBNB’s evolving list of local regulations searchable by city, county or region.
Do Your Homework
So you’ve chosen a location and made sure that the short-term rental laws are in your favor—what next? It’s time to do a little research to make sure the numbers add up. Consider the property’s potential for long-term price growth as well as its estimated cash flow. Research your competitors’ listings to determine the going rental rates and occupancy levels. If you want to really dive in, there are several paid platforms that will help you analyze a particular short-term rental market by neighborhood, allowing you to optimize your pricing strategy. Some of the more popular options are Transparent which tracks 3.9 million listings in North America alone and nearly 20 million worldwide, and AirDNA which offers 3 years of historical data on 10 million listings worldwide.
Set Up Financing
No matter what the intended exit strategy of your next project, finding the right financing is critical. Navigator Private Capital can help customize a loan package that fits your needs to a tee. Whether you are buying a short-term vacation rental, a long-term rental, or a fix and flip property, let us design a financing solution for you. Contact us by phone at 888.444.3160 or by email at info@gonavcap.com to find out more.