Let’s face it, no one is out there running short-term rentals for the fun of it. It can be a really fun job – it’s definitely not boring – but that does not mean you want to do it for free. The goal of owning and running short-term rentals on platforms like Airbnb, VRBO, Furnished Finder, etc. is to MAKE MONEY!! Here’s some good news – you can make great money investing in short-term rentals. But, as with any other type of investment or business, there are factors you must consider before jumping in.

---

QUICK NOTE! Once you are ready to set up your Airbnb Host profile, please reach out. I can provide you with a referral link that you can use. I will get some money for the referral and, best of all, you will also get some money from Airbnb for using a referral code. Win-win-win. 🙂

---

The purpose of this blog is to examine the various financial advantages that come with owning short-term rentals. From increased rental income to tax benefits and portfolio diversification, we will explore the many ways you can profit from investing in this market. Whether you’re new to the industry or looking to improve your current approach, this guide aims to offer valuable insights and practical advice.

Are you ready to explore the world of short-term rentals in depth? Let’s discover how this venture could be a great addition to your investment portfolio.

1. Higher Rental Income Potential

Short-term rentals offer a profitable opportunity to owners because they have the potential to consistently generate higher rental income compared to traditional long-term rentals. People travel for a long list of reasons and need a place that is furnished and stocked to stay in for a short amount of time. They are willing to pay more on a nightly rate for that convenience than they would for the house they live in full time. As the owner of a short-term rental, this means that you can profit more from the STR as long as you have the minimum number of stays you need each month to outpace a LTR.

Here’s an example: We have a property with monthly expenses of $1500.00 just to keep everything up and running. We started out charging $149.00 per night to guests. Basic math shows that we need a minimum of 10 nights per month to meet that threshold. This month, we are currently at 19 nights which puts us at a total of $2,831 for the month. $2,831 minus $1,500 equals $1,331 in profit. As a long term rental, our expenses would be more like $1,200 and we could probably get $1,800 in rent. That leaves us with $600 in profit per month. These numbers fluctuate of course (we often have months with higher occupancy rates) – and my example is with the most basic numbers. However, as a long term rental we would be locked in at a max of $7,200 in profit for the year because things are the same every month. Last year with the STR I am using as an example, we made close to $22,000 after all expenses. Is a short-term rental more hassle? Of course! But that extra income is worth the hassle – for us.

Flexible Pricing Models Maximize Cash Flow

One significant advantage is the flexibility in pricing. Short-term rental hosts can implement dynamic pricing strategies, adjusting rates based on demand, special events, or seasons. For instance:

• Raising prices during holidays or local festivals
• Lowering rates during off-peak periods to maintain occupancy
• Running promotions to fill empty nights
• Offering discounts for longer stays

This adaptability helps in maximizing cash flow and ensuring that properties remain competitive in fluctuating markets.

Prime Locations and High-Demand Seasons

The location of a property plays a crucial role in its rental income potential. Properties situated in prime locations—such as near tourist attractions, business districts, or scenic spots—naturally draw more interest. Leveraging high-demand seasons like summer vacation periods or ski seasons can enhance rental income substantially.

If you know much about my story, you know that I am also a fan of the small town short-term rental – because that’s where we started. And, it is where many of my clients start. Getting an STR in a prime location can provide you with more potential guests but there will also be more competition. The key to success is to find the right balance between demand and availability – and provide a wonderful experience for guests.

2. Flexibility for Owners

One of the standout benefits of short-term rentals is the flexibility they offer to owners. Unlike long-term leases, where your property is occupied for extended periods, short-term rentals allow you to enjoy the property personally whenever it’s not booked by guests. This means you can have your cake and eat it too—earning rental income while still having a vacation home at your disposal. (Or, being able to visit the home where you raised your babies between guests. I may know someone who does that.)

Short-term rentals strike an ideal balance between personal use and income generation. Imagine being able to block out dates for your own vacations during off-peak periods, or hosting family gatherings without a hitch. This blend of personal enjoyment and financial gain is something that traditional long-term rentals can’t easily provide.

It’s like having a dual-purpose asset: part-time vacation retreat, part-time income generator. By leveraging high-demand seasons for rental income and low-demand periods for personal use, you maximize both worlds efficiently.

This flexibility also opens up possibilities for spontaneous getaways or strategic planning around local events and festivals. Essentially, short-term rentals offer a unique opportunity to blend lifestyle with investment, making it a win-win scenario.

Keep in mind, the amount of time you use the property for personal use versus as a rental can impact your taxes.

A helpful book I read on the nuances related to taxes for short-term rentals is Every Airbnb Host’s Tax Guide by Stephen Fishman.

3. Mitigating Market Risk

One significant advantage of short-term rentals is their ability to adapt to changes in market demand and supply dynamics. Unlike long-term rentals, where rents are fixed for extended periods, short-term rental hosts can adjust prices based on market conditions, optimizing income potential. This flexibility allows hosts to mitigate market risks more effectively.

Monitor Market Trends and Guest Preferences

Monitoring market trends and guest preferences is crucial for making informed pricing decisions. Data analysis tools and competitor research can provide valuable insights into when to adjust rates. For instance, platforms like AirDNA offer comprehensive data analytics that help hosts understand local market performance and set competitive prices.

Implement Strategies to Manage Market Risk

To navigate different economic climates while maintaining profitability, consider these strategies:

• Diversify Property Listings: List your property across multiple platforms such as Airbnb, VRBO, and Furnished Finder. This broadens your audience reach and reduces dependency on a single source.
• Target Niche Traveler Segments: Cater to specific groups like business travelers, families, pet owners, or traveling nurses. Tailoring your offerings can attract a more dedicated customer base.
• Leverage Seasonal Demand: Adjust pricing during high-demand seasons or local events to maximize revenue.

These approaches not only help in mitigating market risk but also ensure a steady flow of bookings throughout the year. However, it’s important to remember that effective risk management requires a comprehensive understanding of the market and continuous adaptation.

4. Tax Advantages and Deductions

Investing in short-term rentals isn’t just about the immediate cash flow; it’s also about the long-term financial benefits that come with tax advantages. Property owners can tap into a variety of deductions, significantly reducing their taxable income.

Key Deductions:

• Mortgage Interest Deduction: If you’re financing your property, the interest paid on your mortgage is deductible. This can be a substantial saving, especially in the initial years when interest payments are higher.
• Property Tax Deduction: Property taxes are another expense that can be deducted from your taxable income, easing the annual tax burden.
• Maintenance Expense Deduction: Routine maintenance and repairs to keep your property in top shape are deductible. Whether it’s a fresh coat of paint or fixing a leaky faucet, these costs can add up and provide significant tax relief.
• Depreciation Deduction: Depreciation allows you to deduct the cost of the property over its useful life. This non-cash deduction can greatly enhance your bottom line by reducing taxable income without affecting cash flow.

Keeping meticulous financial records is essential. Detailed documentation ensures you capture all eligible deductions and stay compliant with local tax laws. Working with a knowledgeable tax professional can make this process seamless, maximizing your deductions and minimizing stress.

I have a STR Profit and Loss Google Sheet Template available for hosts who want to start keeping detailed records – and keep up with the profitability of their properties. You can purchase the template here.

I you are thinking about diving into the world of short-term rentals, understanding these tax benefits is crucial. The book I mentioned earlier in this post by Fishman goes over each of the topics mentioned here in detail.

***We are not tax or investment professionals here. We are short-term rental owners and hosts. It is important to talk to both tax and investment professionals if you have questions about how buying a short-term rental will impact you in those areas.***

5. Diversification of Investment Portfolio

Investing in short-term rentals can be a game-changer when it comes to diversifying your investment portfolio. They offer a unique way to spread out risk and enhance stability, providing a potential cushion against market volatility.

Why Short-Term Rentals?

• Low Correlation with Traditional Investments: Unlike stocks and bonds, the performance of short-term rentals isn’t directly tied to financial markets. This means that even during stock market downturns, your rental income can remain robust.
• Non-Market-Dependent Returns: The returns on short-term rentals are often driven by tourism trends, local events, and seasonal travel, rather than broader economic conditions. This creates an opportunity for consistent cash flow independent of market fluctuations.

Benefits of Diversifying with Short-Term Rentals

1. Risk Reduction: By incorporating short-term rentals into your portfolio, you reduce exposure to any single asset class or market. It’s like having multiple safety nets.
2. Income Stability: During times when other investments might falter, the demand for vacation properties can still thrive, especially if located in popular destinations.

Imagine owning a charming house in a tourist hotspot that people flock to year-round. Not only do you enjoy higher rental income during peak seasons, but you also have a stable income stream that doesn’t rely on stock market performance. This dynamic makes short-term rentals an attractive addition to any diversified investment strategy.

As you consider investing in a short-term rental, think about your wealth-building goals. Do the benefits of short-term rentals align with them? If so, taking the next steps will be crucial:

1. Conduct Market Research: Understand the demand and competition in your desired location.
2. Calculate Potential Returns: Analyze possible income versus expenses.
3. Explore Financing Options: Look into different mortgage or loan options tailored for investment properties.
4. Think Outside the Box: There are a number of options for setting up a short-term rental that do not involve buying a new property. Check out our guide for ideas!
5. Reach Out to Us: At Stay Success, we help people at all stages of their journey with hosting. If you have questions or need help, please get in touch.

Ready to dive deeper into the world of short-term rentals? Check out these resources from Stay Success for more detailed guidance:

• Services – Get professional assistance in navigating the short-term rental industry effectively.
• Blog – Access valuable insights and tips from industry experts to enhance your understanding of the market.
• Navigating the World of DIY Airbnb Hosting: Is It Right for You? – Explore whether DIY Airbnb hosting aligns with your goals and preferences.

Happy investing (and hosting)!