Make Money with Your Vacation Home-Short Term Rental Investing
Are you at the point in your life where you might want to diversify your investments? Would you enjoy owning a piece of real estate that pays for itself and a potentially sizable profit while appreciating in value? If you answered yes, you might be a good candidate for owning a short term rental home (STR).
My wife and I are newer into the recreational cabin / cottage investment side of things and are now firm believers in such an investment. The idea is buying something you personally would like to use and enjoy like a vacation home and turning it into a short term rental during the times you aren’t using it. In this blog, I will go over some of the basics to consider and maybe help you decide if it might work for you! As always, it is best to consult directly with us to review all the variables that come into play.
How Do I Get Started?
Start by talking to a lender and your financial planner. They know your finances best and can give you advice if this is a smart move for you! I would not suggest your first STR investment to be one you have to make a profit on right away to make it affordable. It would be wise that you can afford this property even if you didn’t rent it out immediately.
Where Should I Buy?
Once you find out if you can afford such an investment, have a family meeting deciding where you like to invest. A key factor would be checking with local township rulings on STRs. Each township, lake, village, has their own set of rules for these. Do you pick something close you can drive to on the weekends or do you pick something you have to fly to? Your real estate professional (us) can help do this homework to make sure your plan will work at the desired location.
Investment only or use as a personal vacation spot?
I have seen both of these scenarios unfold and both work. Do you want to rent your place full time and not use it personally or do you want to rent it 75% of the time and use it 25%? Some people buy STR properties and don’t plan on using them, but enjoy the higher nightly rates they can charge vs. a monthly long term rental. Some are most interested in using the vacation rental and supplementing their investment with a few renters a month. Are you looking for the highest return possible or are you happy owning a vacation spot you can use anytime with no or very little expense to you? These are questions you must ask when looking into buying an STR. There are several options on how to manage this.
Marketing Your Short Term Rental
This is actually the easy part! Airbnb and VRBO are the 2 big players in the game. Their goal is to generate millions of users and have a database of homes to showcase. These companies have ever evolving software, apps, and data that makes it very easy for both the renter or rental owner to manage their STR. I recommend using professional photos to make it stand out on these platforms just like we would use for a home on the MLS. A great description of your place will help too, but the traffic is generated for you on each of these platforms! They each have their own fee they charge per reservation, but in my experience, it is worth every penny for the convenience and reach on these platforms!
Install Smart Devices for Safety and Security
Security and safety at your STR are very important. You want to protect your investment and the guests that are using it. Here are a few smart devices to consider using for to help with security around your STR.
- Security cameras you can access remotely for the safety of the guests and your investment. The goal isn’t to watch the guests cook their meal on the deck, but who is leaving and entering the building. Security cameras are also useful for monitoring when the STR is not in use as well in case of trespassers or other unwanted guests. They can help answer questions like, how many cars are in the driveway? Who and how many are walking into the property at odd hours? Remember, security cameras have to be outside and only facing common areas for parking and the perimeter of the building.
- Smart WIFI deadbolts for access to the STR. With this system, each guest gets a unique code for their stay that expires at checkout. The app of the smart lock tells you when they lock and unlock the doors and if they accidentally left a door unlocked after checkout. Another reason I recommend smart WIFI locks is to allow access to a plumber or cleaning crew remotely without having to worry about keys.
- A smart thermostat is also another great way to remotely check the status of your STR. Save money by only adjusting to the desired heat or A/C on the morning of the arriving guest and night they leave. Let guests know you can help adjust the temp remotely if they wish.
Create a Communication Plan and Guide Book
Just about anything that runs smoothly in life you can look back on and see there was great communication and an action plan to help set expectations with all parties. The online reservation apps like Airbnb and VRBO do a great job helping you create rules, directions, and communicate real time with the guests. Deciding how to handle communication is personal preference. You can either be the point of contact for your guest or you can add a 3rd party to help you manage and work with guests. It can be rewarding for both the owner and guests when it is direct communication, but it can also be a pain when there is a problem at 10pm and you, the owner, get the call. You get to choose. Currently, we are handling all the communication on ours, but I can see where over time it might be nice to have it handled by someone else. But it is also nice to understand how it all works and goes as an owner starting out. I do believe the guest also likes knowing the owners are directly handling everything or anything dire.
Managing Maintenance and Cleaning
I would advise you find a local handyman and work out an hourly rate and maybe an emergency weekend rate for the unforeseen issue THAT WILL arise. Don’t be surprised when the deadbolt battery dies, the plumbing starts to leak, or there are excessive black ants in the cabin (yes, these scenarios all happened to us in our first 6 months!) Instead have a plan and a back up plan. Cleaning is also an important part of maintaining your STR. Airbnb and VRBO both allow you to charge a cleaning fee on top of your nightly rate. I have seen cleaning fees range from $75-350 depending on the size of the rental. Airbnb and VRBO collect the fee for you, and you can decide if you are going to personally clean the place or hire out the help. We are currently cleaning our own place and tracking the time it takes and getting it dialed in so we can teach someone else and pass that portion of maintenance on when we are ready. If you are in an area where you can get snow, don’t forget guests will expect clear parking and sidewalks, so you’ll want a plan to manage that too.
Make Sure Your Covered for Liability and Taxes
Two of the most important people you’ll want to talk to before creating an STR is your insurance agent and a CPA. Consult with your homeowners insurance agency and let them know your plans of renting it out and maybe pick up an additional policy for liability purposes. I also suggest you talk to your CPA and check into the in’s and out’s of rental income and taxes.
This is a brief overview of owning a short term rental, vacation rental, Airbnb, or VRBO and help you decide if you would be interested in investigating it further. Feel free to call me direct 616-292-6215. I can answer as many questions as possible to see if this might be a fit for you!
