Short-term online rental businesses such as Airbnb and VRBO have changed how people book their travel for business and leisure. More and more, travelers are attracted to the rates and accommodations of a short-term rental over those of hotels. These consumers include vacationers, business travelers, or people with a personal need to stay in short-term housing for as little as a few days to several months. Because of increased demand for unique property stays, many homeowners are converting their homes into short-term rental units.
In search of greater profits, some property owners who have traditionally rented their units to long-term tenants are opting to forego lease arrangements and rent nightly and weekly on Airbnb or VRBO. Homeowners are even renting out their primary residence during times they are away. This kind of rental business differs greatly in many aspects from the tenant and landlord arrangement. Is converting your property right for you? Consider the following factors.
1. Check the zoning laws in your area. As an owner, don’t assume you’re able to use your home however you choose to make money. Cities and towns have zoning laws. Some laws prevent you from legally using your property as a hospitality business. There are also building codes that govern businesses such as hotels and bed and breakfasts that your property might not meet. There are many questions that make legality a gray area in cities where the interpretations of the law are unclear. Questions have arisen as to whether such properties require fire sprinklers, on-site parking, and regular inspections. Also note that if you own a condo unit, many condo associations ban the use of a unit for such a purpose.
Online listing companies consider you a “host” and require you to agree to follow the laws of your area as well as pay whatever taxes, license, or registrations fees are required. Do the research for your location. Fines can be in the thousands for violations.
2. Decide whether you’re ready to be in the hospitality business. Converting your property to a short-term online rental means you’re now operating as a concierge, which will require more time and effort to be attentive to guests rather than tenants. It also requires friendly customer service and patience. Online reviews can make or break the success of an online rental. On the flip side, you’ll also need to know how to deal with unruly guests who become a nuisance to neighbors.
3. Research your competition. “Location, location, location” still applies. The closer you are to a city or local attraction, the more potential renters you’ll get. Most travelers want easy access to points of interest or business. Remote locations don’t fare as well as urban ones. More importantly, look at what local hotels are charging per night and how their amenities compare to yours. High speed internet, cable TV, fresh sheets, towels, and clean, attractive accommodations are a must. Find the median price and adjust as needed to be competitive.
4. Calculate costs and estimate profits. Obviously converting to an online rental has to make financial sense. You’ll incur initial costs to furnish and decorate units that were once long-term ones. You’ll also have costs associated with each guest turnover. With frequent turnover, you might need a cleaning service.
When booking guests, it might be more profitable to attract longer-term guests for a discount than more frequent short-term guests at a higher rate. Don’t forget to add up the extras such as soaps, shampoos, and bottled water. Assuming you’ll increase profit over the traditional long-term tenant, does the extra money cover the extra time you’re spending in upkeep and serving your guests? Keep track of the hours you spend driving to and from the property, time spent prepping for the next guest, as well as time communicating with guests.
5. Will you be able to sustain profitability year-round? Of course, if you’re renting out your primary residence while you’re away, it’s simply extra income you’re seeking. But if your property is currently a year-round leased unit with predictable income, consider the varying customer demands of each season. Will a unit fare the best during the summer, for example, and will the profit be enough to offset less popular, colder months? Let’s say you double profits compared to a traditional rental for four months out of the year, but you can’t equal traditional rental profit the rest of the year. Keep track of the math.
Converting property to a short-term online rental can definitely bring attractive profits with the right location, amenities, and service. But it will come with additional cost, time, and effort. Weigh all of the factors, particularly how much time and service you’re willing to put into the business.