What is a Short Term Rental and What to Know as a Potential Property Owner
What is a Short Term Rental and What to Know as a Potential Property Owner
Short term rentals are quite the buzz these days. There seem to be endless options for overnight accommodation, and the cultural shifts from the pandemic have blurred the lines between traveling and living.
Month-long stays in remote destinations, the emergence of “digital nomads,” and more frequent midweek trips are redefining what a “short term rental” is and who they appeal to. Short term apartments have become more sought after, more competitive, and more lucrative. As travel and tourism pick up pace, it seems like the perfect time to list your second home on a platform like AirBnb or buy an investment property.
Here are the ins and outs of short term rentals to help you decide if it’s the right time for you to join the STR landscape.
What is a Short Term Rental?
A short term rental is a “furnished property that is rented out for a short period of time.” Most people consider a short term rental to be a stay of fewer than 30 days, but with the rise of remote work, and longer-stay uses like corporate housing and extended stay beginning to take advantage of short term rental properties, the understanding of an STR is evolving.
Whether a residential property, an accessory dwelling unit (like a garage apartment or carriage house), a single-family home, or a townhome, short term rentals are a great way to earn extra income for second homeowners or people who are frequently away from their primary residence. Many traditional landlords are even opting to list their apartments for rent as short term rental properties because of their income potential and popularity compared to traditional long-term rentals.
What are the Different Types of Short Term Rentals?
Private homes: These are single-family homes or apartments that are rented out by the owner for short periods of time. Private homes can range from small, cozy apartments to large, luxurious houses, and can be a good option for families or groups who want more space and privacy than a hotel room can offer.
Villas: A villa is a large, privately-owned property that is often set in a scenic location, such as near the beach or in the countryside. Villas can be rented out to tourists and often include amenities such as pools and outdoor recreation areas.
Cabins: Cabins are small, rustic vacation homes that are often located in wooded or natural areas. They can be a good option for travelers who want to experience a more secluded or outdoor-oriented vacation.
Condos: A condo is a type of vacation rental that is located in a larger building or complex, such as a beachfront high-rise or a ski resort. Condos are often fully furnished and can offer a range of amenities, such as fitness centers and pools.
Beach houses: A beach house is a type of vacation rental that is located near the beach and is often designed with a beach-themed decor. Beach houses can be a good option for travelers who want to be close to the sand and sea.
Why short term rentals generate more revenue vs. long term rentals?
1. Higher rental income: Short-term rentals tend to have higher rental rates compared to long-term rentals, especially in popular tourist destinations. This can lead to higher rental income for the owner.
2. Greater flexibility: With short-term rentals, you have the flexibility to choose when to rent out your property and for how long. This can allow you to maximize your rental income by adjusting your pricing and availability based on demand.
3. More control: As the owner of a short-term rental, you have more control over the property and the rental process. This can allow you to customize your property and the guest experience to meet the needs of your target market.
4. Tax benefits: There may be tax benefits to owning a short-term rental, such as the ability to claim deductions for expenses related to the property.
5. Appreciation potential: Depending on the location of the property and market conditions, vacation rentals may have the potential to appreciate in value over time.
However, it's important to keep in mind that owning and managing a short-term rental can also be more time-consuming and require a greater level of customer service compared to long-term rentals. It's important to carefully consider the pros and cons before making the decision to invest in a short-term rental property. There also is required level of attention to detail and analysis to ensure the property is priced correctly to get a good balance of revenue and occupancy.
What are the different types of short term rental ownership and management ?
Individually Owned & Operated
For the hands-on, marketing-savvy owners, sites like AirBnb and VRBO offer easy-to-use platforms where owners can list, manage, and market their own properties. This option is appealing to homeowners that want to have frequent access to their property and total control over the booking schedule, but requires a high level of commitment and availability. They are responsible for all aspects of the property, including marketing, booking, cleaning, and maintenance.
Individually Owned, Property Management Company Operated
This approach is a great option for homeowners that don’t have the time or interest in navigating regulations, cleaning, bookings, and customer service. For a fee, property management companies like Rove Travel make it easy for owners to benefit financially from a vacation rental while remaining hands off. Perfect for someone that would like to sit back, relax, and enjoy the benefits of short term rental income without doing anything. They handle all aspects of the rental process, including marketing, booking, cleaning, and maintenance.
Privately Owned & Operated
As the short term rental market gained traction, companies like Sonder, Mint House, and Kasa deployed large sums of capital to buy apartment buildings and convert them to short term rental units in markets that were popular for corporate housing and tourism. While this isn’t an option that would apply to an individual homeowner, this type of short term rental is popular for extended-stay business travel and digital nomads, so good to be aware of when choosing your city and target guest.
What to Know Before you Turn your Vacation Home into a Short Term Rental
Short Term Rental Restrictions and Regulations
The legal definition of a short term rental varies by state, and often even by city. For instance, New York City defines short-term rentals as “the renting of dwellings for less than 30 consecutive days,” while Florida considers you a “transient rental accommodation” for rental periods of six months or less.
The accompanying zoning, regulations, tax implications, and code enforcement also vary state-by-state. In addition to the statewide rules, most city councils and towns have their own short term rental laws and city code to preserve the local housing market and community needs. This is especially important in destinations with limited housing for permanent residents like Aspen and Steamboat, Colorado or coastal Oregon.
In Florida, a transient rental accommodation is legally required to register with the Florida Department of Revenue, collect lodging taxes, and file lodging tax returns with the state. If you’re in Collier County, your only additional requirement is to register all properties with the county. However, if you’re in Miami Beach, short term rentals are only permitted in a few designated zones and banned from all residential neighborhoods.
In New York, the New York State Dwelling Law prohibits all “Class A” multiple dwellings from offering short term rentals. This means statewide any multifamily building resident is ineligible to rent out their unit for less than 30 days. The only way to have guests in your “Class A” dwelling unit is to be present while the guests are there and have less than 2 occupancy.
New York City regulations are even more complicated, and subject to more frequent changes. For example, a new Short Term Rental Registration Law will go into effect in January 2023 in NYC requiring vacation rental hosts to register with the City. If the registration information on rental platforms like AirBnb doesn’t match the City database, they will block transactions.
No matter what city your rental property is in, you can check your local and state regulations to confirm that your property is eligible to rent, the rental lengths legally permitted, and that you’ve accounted for all registration requirements, occupancy taxes, and any additional rules you’ll need to follow.
Partnering with a team like Rove Travel can help owners navigate the constantly shifting compliance nuances. Rove Travel has a team dedicated to regulations that can help you pick the best destination that aligns with your budget, rental parameters, and goals. Once you’ve identified the right market, Rove Travel can handle the due diligence required to set your property up with all legally required registrations, down to the specific city permits needed to ensure a smooth rental ownership experience.
How to Start a Short Term Rental Business
Once you’ve identified the property and acquired all legal registrations and permits, there are a number of things to do before you can accept your first booking.
What to put in your residential property.
The amenities and design of your property can determine your nightly rate and make or break your ratings with guests. The bare essentials (a comfortable bed, free WiFi, a refrigerator, etc.) will be expected. It’s the premium amenities, the stylish furnishings, and the extra touch that will set you up for success.
Consider your guest when deciding what amenities to add. Are you in an urban destination where your guest is looking for a place to remote work for a month or longer? You’ll want to make sure you have a great workspace and even greater WiFi. Are you in a place that attracts families? A room with bunk beds will boost your bookings. Are you near a ski resort or beach? An on-site washer and dryer will ensure their ski pants are warm and beach towels are dry.
Tailoring your space to your guest needs is a great way to stand out in your city and drive reviews and bookings.
Deciding how to rent it.
If you’ve perused AirBnb or VRBO you’ve seen the selection options titled, “Type of place.” When renting out your home or condo, you have the choice to rent it as “Entire place,” “Private room,” or “Shared room.”
Entire place gives the renter the full home, grounds, and all associated amenities. Many owners will keep a locked closet or garage to store personal items, but are not present during the rental period.
Private room functions like a bed and breakfast, where the renter has their own room, but shares common spaces.
Shared room is the most social option, offering renters a place to sleep with the expectation that they will share most other areas, including bathrooms, kitchens, common areas, etc.
Other things to identify when deciding how to rent your property include the terms of your rental, such as pet-friendly, number of occupants, check-in and out times, etc.
Who is going to clean it.
An often underestimated factor of owning a short term rental is managing the cleaning between bookings. Especially with the heightened cleanliness standards following COVID-19, renters want to arrive to a pristine residence. From allowing time for the rental to sit unoccupied before and after the cleaning, to the hours it takes to property clean a rental and set the stage for the new guests, the turn over process takes time and practice.
How to develop a pricing strategy.
Picking your pricing strategy is a delicate balance between what the guest and market will accept and making a profit.
1. Determine your nightly costs: Calculate your nightly costs by adding up all your monthly expenses including your mortgage, utilities, taxes, WiFi, cleaning services, and any costs for amenities like toilet paper, coffee, etc. and divide it by 30.
2. Do market research: Take a look at other short term rentals in your area that compare pricing for rental properties that are similar in room count, amenities, etc. Make sure you look at a variety of timeframes, as prices can vary over holidays, high-seasons, and weekdays versus weekends.
3. Align on your average nightly rate: Knowing what your ‘break even’ rate would be (your nightly cost) and then seeing what the average market pricing is, pick a rate that is between the two.
4. Consider a “new listing” discount: AirBnb recommends starting your listing at a slightly lower price while you garner reviews. Their recommended percentage is 30% while you position yourself on your selected platform.
5. Account for dynamic pricing: Adjusting your pricing to match the ebbs and flows of the market will ensure you stay booked while getting the most for your property. Some platforms allow for custom pricing for certain dates, even having automation tools that can handle it for you. Increasing your average nightly rate 10-15% for seasonality, holidays, and big events in your city, can help you stay competitive.
6. Explore “length of stay” pricing: Some owners choose to decrease the nightly rate in concordance with number of nights booked. Having a longer term tenant can mean ensured bookings and less cleaning fees.
Automation, smart pricing tools, and more exist to help make this process efficient. Additionally, property management companies will manage the dynamic pricing factors as a part of their fees.
How to attract guests.
From descriptive detail sections to inviting photography, the way you position your property on highly competitive sites like AirBnb or VRBO matters. And most importantly, reviews matter. Having a beautiful, clean unit and warm, attentive customer service can help you get glowing reviews from guests. Small touches like flowers, notes of welcome, and out-of-the-box amenities can help you stand out.
The Benefits of Using a Property Management Company
Partnering with a property management company can ensure property owners get all the economic benefits of a short term rental without the headache. They navigate the regulations, registration, and even tax components of owning a rental property, as well as the booking management, cleaning, and customer service. Some, like Rove Travel, even help with the design and amenities of your property, to ensure it has everything the guests need.
Choosing Rove Travel as your property management company means 70% higher returns than the market average, best in class care for both you and your property, and flexibility to reserve your home when you want it and access Rove's premium homes at discounted rates. Rove's depth of experience, unparalleled owner support, and premium brand means getting higher income and higher peace of mind with your short term rental property. See all the benefits of working with Rove and reach out with any questions or interest in joining their portfolio of luxury homes in sought-after destinations across the country.
The short term rental market is certainly appealing as both leisure and business travel begin to pick up pace. Understanding what a short term rental is and what is required to turn your residential dwelling into a short-term rental property can help you decide if it’s the right fit for you.