Short-term rental (STR) investing is an excellent strategy to generate income and reduce tax liabilities. Some people use sites like Airbnb or numerous others for short-term rentals to develop enormous enterprises renting out properties.
Are you interested in short-term rental investing?
A few requirements must be met in order to participate. Let’s go over each of the fundamental first stages and how to launch a consistently lucrative short-term rental business.
Feel like a whole crash course is necessary? The most comprehensive guide to short-term rentals has been created by our company. Save that page for later reading, and get in touch with us if you think you’ll require a real estate CPA to assist you in starting your STR company.
First Step: Assessing Your Buying Power for STRs
The evaluation of your own purchasing power is a necessary first step before investing in short-term rentals. Your first team member should be a certified public accountant (CPA), preferably one with experience in real estate investing, who you enroll in this preliminary step. Having an expert on your side will enable you to evaluate your financial situation and come to the best conclusion.
To begin, think about how much money can you spend on this property. A 20 to 25 percent down payment is typically required for a house. Additionally, you’ll need money for closing expenses, which can range from 2-4 percent of the amount of the home being purchased.
Experts in short-term rental accounting, we’d be negligent if we didn’t remind you of the additional expenses you need to account for. For illustration:
- Upgrades and renovations to real estate
- Repairing or modernizing home appliances/features
- Setting up the rental
- This might cost tens of thousands of dollars, if not more.
Second Step: Locate your STR market.
You have two responsibilities to complete as you research the short-term rental market:
- Where are short-term rentals most profitable, according to a market analysis? Some markets are characterized by high pricing, while others are characterized by high prices just at certain times of the year. Other markets might be characterized by lower rents but more stable occupancy rates throughout the year.
- Additionally, you should look into licenses. Short-term rentals are prohibited in some places and some neighborhoods. Make sure you are well aware of your rights and obligations and whether you can even apply for a license to sell STRs in your target market. To determine where your best chances are for a profitable short-term rental, conduct a thorough market analysis.
What is a practical location for you to possess a short-term rental or vacation rental property? Convenience If you plan to manage the property yourself or employ a property management company, it will come down to operations.
Are you willing to purchase a short-term rental in a different state or region of the country if you don’t need to be able to physically travel to this location frequently? As you narrow down the markets for your short-term rental business, weigh all the advantages and disadvantages.
Third step: Begin looking for a short-term rental property.
You’ll recruit your second team member, a real estate expert, for the third step. Because they are familiar with the ins and outs of the market you are searching in, real estate agents are crucial. If you want to own numerous short-term rental properties, it’s also crucial that you team up with a great agency early on. To discover the greatest homes and give you early access to bidding, you need a trustworthy scout in the market.
Your real estate agent can advise you on the neighborhood, let you know about comparable properties, and have access to information on typical rental rates. While you may have looked into this in your market analysis, this may also be the right time to delve further into the precise figures around rent in a certain area.
You can achieve this precisely with the use of specific pricing tools. With the help of Air DNA, an Airbnb pricing tool, you can use variable pricing to increase earnings all year round by delivering smart rates using algorithms. Identify a few potential properties for short-term rentals with the help of your agent. Step four can be completed once you’ve chosen the one you desire.
Fourth: Work with a lender to buy the STR property
You are prepared to make your next professional connection in step four, a lender. As you search for the ideal property, you’ll want to start the financing process. You will actually proceed with buying the home at this step.
We also advise you to perform some critical calculations on the precise property you have picked right now. For instance, now that you own a home, you’ll be aware of information like property taxes, insurance premiums, typical energy costs, and other fixed expenses. To make sure you can afford the mortgage and other fixed expenses, compare this to the rent prices and days available.
Fifth: Look for other owners of short-term rentals.
Your team, which should include your accountant, real estate agent, property manager (if you go that route), and cleaning staff, is crucial. If your company expands, you’ll likely require a bookkeeper, an attorney, a personal assistant, and some other employees. These experts will all prevent you from making amateur errors or missing out on possibilities.
However, we also advise you to join a network of other owners of vacation rentals or real estate investors. This is significant because, like your realtor, they will be intimately familiar with market dynamics. You can look at sites like Reddit, and we strongly suggest the Facebook group for Tax-Smart InvestorsTM.
Although investing in STRs might be greatly influenced by the short-term rental loophole, it’s crucial that you comprehend the guidelines and know how to take advantage of them. All of that is frequently addressed on the TSI Facebook Group, and you can join our Tax Smart Insiders group to receive weekly newsletters, a tonne of helpful information, and access to a group of real estate CPAs (at a fraction of the cost of individualized tax planning).
Making a short-term rental investment
If done properly, investing in short-term rentals can be a terrific decision. You’ll cover the majority of the ground you need to cover if you follow these five stages. Of course, each circumstance is particular. We encourage you to contact our firm right away if you have any more inquiries or need advice. We assist STR investors just like you every single day, and we can assist you in maximizing STRs in every market across the country.
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