You’ve got some profitable long term rentals, but you’ve discovered that short term vacation renting may be a more profitable alternative to the standard long term lease.
You’ve looked at the rental prices in your area, and you’ve discovered that in your tourist season, you can charge a lot more with a nightly rate, assuming you have the apartment occupied 5 nights a week. Sometimes, even in the off season, operating a short term rental can be more profitable than a long term month-to-month lease.
The first thing to do is to check your local regulations. Codes, taxes, and regulations that apply to your city or county vary greatly across the county. Some cities may require a business license, and others may levy short term occupancy taxes of 14%. This type of tax is commonly called a “bed tax” and is intended for the hospitality industry.
On AirBnB, there is information listed for 50 major US cities. If your rental is outside of those, check with your local planning department for information about local regulations.
Once you’ve determined that renting your unit on as a short term or vacation rental makes financial sense, you need to think carefully about what is involved.
A short term vacation rental is different from a regular lease, because the business is really not real estate. It’s hospitality. The landlord is paying utilities. The landlord is stocking with consumables such as coffee, toilet paper, towels, soaps, etc. The landlord is paying for internet and cable. The landlord is also paying for a housekeeping service to come in and change linens, and prepare the unit for a change in guests.
Operating a short term vacation rental is not passive income from a hands off business. Unless you hire a manager for multiple properties, it can be very much a hands on business.
Your customers are not tenants, they are guests. You are not the landlord, you are the host. You or the person managing your units will have a great deal of interpersonal communication. This leads to better reviews, which can make or break your short term rental business. Hospitality and personal touches go a long way. Some hosts leave gift baskets, or stock the refrigerator with refreshments. Jet-lagged guests really appreciate these small touches that say “welcome, enjoy your stay.”
You don’t need to go overboard, but small decorative touches make the unit more attractive, especially in pictures. Write an attractive but accurate description. And don’t be shy about asking for good reviews.
If you do not already have the right kind of insurance, you need to obtain it. Homeowners may cover you for some losses but you need to check carefully for the terms of liability and damage coverage.
A short term vacation rental can be a profitable investment for the right person. But make no mistake, it is not for passive investors.