Do Short-Term Rentals Make Sense for Property Managers?

A guest post by Ashley Halligan, Analyst, Property Management Software Guide

Short-term rentals, of all natures, have become a hot commodity – and a controversial one at that. Short-term rentals can include vacation rentals and temporary housing, often sought by vacationers, business travelers, or people who have recently relocated while seeking long-term living arrangements. Either way, it’s become an ongoing topic of debate and an attractive investment opportunity for property owners and managers. In comparison to traditional rentals, short-term rentals can charge significantly higher rates given their nightly and weekly availabilities. Some property owners have earned as much as 25% of their mortgage in a single night. And during special events or peak rental periods in a given area, potential rental rates can be very attractive to property owners. Because of the income short-term rentals can procure, the opportunity for profit potential may be exponential – but there are several considerations that should be kept in mind.

First and foremost, it’s essential to keep the added costs of maintaining a short-term rental in mind. These rentals can be subject to Hotel Occupancy Taxes in certain cities, while other cities require specific licensures and inspections not required of traditional, long-term rentals. Penalties for not abiding by short-term rental laws in your city may result in hefty fines. There can also be increased insurance costs. Additionally, the cost of regular upkeep and maintenance, including utilities, should be calculated. In order to continually attract tenants, your property must be kept in prime condition, both functionally and cosmetically. From a marketing perspective, this could include offering unique amenities like sporting equipment or movie libraries, all of which are additional expenses. On the flip side, the regular maintenance of these properties has been credited with helping to increase neighboring property values.

Legal issues are another important consideration given the ongoing public debate and subsequent restrictions arising in many cities. Some city officials and neighborhood associations oppose short-term rentals for many reasons including a fear of transient tenants potentially bringing chaos and crime to communities, noise and parking complaints and a failure to fall under the same standards required of local hotels. Because ordinances, zoning limitations and overall restrictions are popping up all over the country, it’s necessary to be aware of the possibility of your property being restricted by new laws. New York City, for instance, has recently banned all rentals under 30 days. Though San Francisco has a written law of the same nature, it’s instead levied a 15-16% transient occupancy tax that reaps millions of dollars in revenue for the city.

Aside from the considerations that should be kept in mind, there seems to be a well of favorable reasons to contemplate short-term rentals. Short-term property managers prefer these rental types for many reasons, and for reasons other than the revenue potential. Property owners who have a sentiment for a home they’re renting on a short-term basis claim it allows for a more feasible preservation of a home, allowing regular entry and ongoing maintenance and beautification that isn’t typical of long-term rentals. Other claims suggest that short-term rentals promote tourism in communities, particularly communities who may not have optimal hotel capacity during peak visiting periods. And lastly, there’s hefty tax breaks that are sometimes associated with the maintenance costs of operating a short-term rental. Advertising and maintenance costs as well as high-ticket improvements can also be tax deductions.

With all these things in mind, it’s important to calculate both the pros and cons associated with short-term rentals before diving into the deep water surrounding them. See the full guidehere.