Tips to buy a short-term rental property as passive income

If you want to buy a vacation rental or local short-term rental, look no further! We’re breaking down the steps and considerations – the buying process, rental management, cash flow, and going live with your listing on the popular rental sites.

We recently hosted an event in Edmonds with guest speaker Isabel Pineda who discussed how to invest in short-term rental properties. She owns five of her own properties and also consults and manages properties for her clients. We’ve compiled Isabel’s presentation here to share with you!

Short-term rental properties by the numbers. According to Forbes:

• Vacation revenue in the US is expected to show an annual growth rate of 10.55%
• The average revenue per user was approximately $299.96 in 2021
• Vacation rental usage was 13.3% in 2021, which is expected to hit 18.1% by 2025

Map out your goals – first, ask yourself the following questions:

1. Will this property also be used as a part-time vacation home for your family, or will it be used as a full-time rental? The answer to that questions will affect your cash flow.
2. What do you want your guest experience to be? Is a theme involved, or maybe you want to offer an adventure experience?
3. Who is your guest? Be clear on the demographics of your potential renters and how you will market to them.
4. What’s your bandwidth? Are you able to manage the property yourself, or will you need to hire a property manager to handle the bookings, maintenance, etc?

The steps to buying the short-term rental:

1. Determine your budget – Consider how much you can afford to invest in a property, including the down payment, closing costs, and any necessary renovations or upgrades.
2. Get pre-approved with a lender – talk with a lender to understand the differences between financing second homes and investment properties. 
3. Work with an experienced real estate agent who knows investment properties and has experience with short-term rentals. 
4. Research locations – Find out about the areas and their popularity for rental destinations. Make sure the communities you are interested in allow for rentals in the HOA rules and regulations. Some communities do not allow it! 
5. Research current rental listings – Once you narrow down your location, look on popular rental sites such as VRBO.com and Airbnb to see what properties rent for in the area.
6. Analyze potential properties: Once you identify potential properties, analyze them to determine whether they are a good investment. Look at factors, such as rental income potential, occupancy rates, and maintenance costs.
7. Negotiate the sale and become a happy owner of a short-term rental property!

Considerations for a successful rental property:

1. Prepare your property: Once you decide to rent the property, it’s time to prepare it for guests. These may include cleaning, repairs or upgrades, and purchasing furniture or decor to create a comfortable and appealing living space.
2. Set your rental rates – research what your competitors are renting their properties for, and calculate your expenses, net cash flow, and cash on cash return to ensure the numbers work for you….see steps 3 and 4!
3. Know your rental expenses:
   1. Mortgage/Insurance
   2. Property Management
   3. Monthly Supplies
   4. Cleaning
   5. Utilities – Cable/Internet/Etc
   6. HOA Fees
   7. Booking fees
   8. Renovation/Furnishing/Start-up Costs
4. Determine your cash on cash return – Net cash flow (gross income – expenses) / Cash invested = COCR. Aim for 20-25% COCR, or if you plan to also use the property as your family’s vacation home, 5-20%.
5. Set up a booking platform: the most popular booking sites are Airbnb and Vrbo. Make sure you understand their fee structures.
6. Create an eye-catching listing: Your listing should include professional-quality photos of your property, a detailed description of the property and its amenities, pricing, and availability.
7. Hire a property management company if you do not plan to manage bookings, schedule cleanings, manage your guest communication, etc yourself.
8. Have a local contact or in-case-of-emergency plan – you can expect to hear from renters if something breaks or there is an emergency on-site. If you do not live nearby, have a local contact or system in place so that you may quickly assist your guests.

Ready to get started or have more questions? We’re here to help! Visit our Buy page to learn more about how we work with our buyers. Or, drop us a line on our Contact page, and we can get you set up with daily emails of new listings in your desired areas…straight to your inbox!