Short-term rental properties are surging in popularity due to platforms like Airbnb and Vrbo. In fact, the short-term rental industry is doing so well that revenue is expected to reach $19.4 billion in 2023 and continues to rise.
Are you looking to start a short-term rental business this year? Continue reading to find out everything you need to know about short-term rentals and how you can get started making passive income from your property this year.
Benefits of Short-Term Rental Businesses
Starting a short-term rental business can be a rewarding venture with several benefits. Here are five advantages of getting into this type of business:
Income Potential
Short-term rentals, especially in popular tourist destinations or business centers, can generate substantial income.
Compared to long-term rentals, you can charge higher rates per night, enabling you to maximize profits and potentially cover your investment quickly.
Flexibility and Control
As the property owner, you have more control over the rental terms, including setting prices, choosing booking schedules, and managing property availability.
This flexibility allows you to adjust your rental strategy based on demand, market conditions, or your personal preferences.
Diversified Investment Portfolio
If you already own property, adding short-term rentals can diversify your investment portfolio. Having a mix of short-term and long-term rentals or other investments can provide a hedge against market fluctuations and help mitigate market risk.
» MORE: Diversifying with Short-Term Rental Investing
Opportunity for Personal Use
One significant advantage of short-term rentals is that you can use the property for personal purposes during vacant periods. This way, you can enjoy your property while it’s not booked without losing potential income.
Networking and Social Interaction
Running a short-term rental business can provide opportunities for networking and meeting people from diverse backgrounds.
You’ll have the chance to interact with guests and build positive relationships, which can lead to repeat bookings and positive reviews.
Drawbacks of Short-Term Rental Businesses
While starting a short-term rental business has its advantages, it also comes with several drawbacks and challenges that you should consider before diving in. Here are five potential drawbacks:
High Turnover and Vacancy Rates
Short-term rentals tend to have higher turnover rates compared to long-term rentals. Constantly managing check-ins, check-outs, and cleaning between guests can be time-consuming and potentially impact your cash flow during periods of low demand.
Property Damage and Maintenance Costs
Frequent turnover of guests can lead to increased wear and tear on your property, resulting in higher maintenance and repair costs.
It’s crucial to budget for regular maintenance and be prepared for unexpected damages caused by guests.
Seasonal Fluctuations
The short-term rental market can be highly seasonal, with demand varying throughout the year.
During off-peak seasons, it may be challenging to attract guests, leading to lower occupancy rates and reduced income.
» MORE: Tips on Renting Out Your House Successfully
Intensive Time and Effort
Managing a short-term rental business can be demanding and require significant time and effort.
Handling guest inquiries, managing bookings, coordinating cleaning and maintenance, and being available for guests can become overwhelming, especially if you’re managing multiple properties.
Negative Reviews and Reputation Management
Negative reviews from dissatisfied guests can harm your property’s reputation and lead to decreased bookings. Maintaining a positive online reputation is vital for attracting new guests and encouraging repeat business.
Steps to Start a Short-Term Rental Business in 2023
Step 1 – Check Zoning and Housing Laws
The first step you should take when trying to start a short-term rental business is to check zoning and housing restrictions in your area.
You’ll need to verify that your city or municipality is zoned for short-term rentals and that your property is legally allowed to host short-term rental tenants.
Additionally, some homeowner’s associations (HOAs) and apartment buildings restrict the ability for residents to rent their properties. Make sure to reach out to your HOA or property manager to verify that you’re allowed to engage in short-term rentals.
Step 2 – The Business Plan
Now that you’ve verified you’re legally allowed to start a short-term rental business, it’s time to create your business plan. The main parts of a business plan include:
- Executive Summary. The executive summary provides an overview of the entire business plan, summarizing the key points and highlighting the business’s goals, mission, and vision. It’s usually the first section of the plan but written last, as it captures the essence of the entire document.
- Market and Competitor Analysis. It’s important to do thorough market research before starting your short-term rental business. You’ll need to know the level of competition in your market as well as the number of sellers who have the most reviews and feedback.
- Management Team. Will it just be you running the rental business? This section is where you decide whether or not you’ll use contractors or partners as part of the operation. Any other stakeholders or people involved should be identified here.
- Products and Services. This section of the business plan is where you list the services you’re providing with your rental business. Aside from housing, some short-term rental business owners also offer amenities and other services to enhance their guest’s stay.
- Marketing Strategy. The marketing strategy section of the business plan will help you figure out how you will market your property effectively. In areas with high competition, this will be vital to differentiating yourself from competitors.
- Financial Projections. While financial projections can be highly speculative, it’s always a good idea to make rough estimates of what you think you can make with your short-term rental. Do some research online about how much hosts make on average in your area and base your projections on this data.
Although a vacation rental business model is relatively simple, it’s still important to create a business plan that you can refer back to when needed.
Step 3 – Choose a Rental Site (or Sites)
After creating your business plan, the next step is to research the short-term rental sites available in your area to list your property.
While many hosts list their properties on multiple listing sites, we recommend starting with just one at the beginning.
Here are some things to consider when choosing your rental site:
Understand What Makes Your Property Unique
Understand what makes your rental property stand out from others listed online. Consider its location, amenities, size, and target audience.
Knowing your property’s strengths will help you choose a platform that attracts the right guests.
Compare Popular Vacation Rental Platforms
A beginners best bet is to start with well-established and reputable vacation rental websites. Some of the leading platforms include Booking.com, Tripadvisor, Airbnb, and Vrbo.
Each platform has its own user base and target audience, so make sure to explore the types of properties listed and the geographical reach of each site.
» MORE: Airbnb vs. Vrbo – Pros and Cons of Vacation Rental Sites
Consider the Fees and Costs
Rental sites have different fee structures that vary based on many different factors. Make sure to consider listing fees, commission rates, and any additional charges your listing site requires.
Armed with this data, you can make a rough calculation of how much you’ll earn after deducting the fees to assess the platform’s profitability for your property.
Read Reviews and Testimonials
Look for feedback from other hosts who have listed properties on the platforms you’re considering.
This can give you insights into their experiences with customer support, payment processing, and overall satisfaction.
Step 4 – Get Your Property Rental Ready
Before you list your property online, it’s important to make sure your home is ready in case you receive a booking request right away.
We highly recommend performing a deep clean by cleaning all areas of the home, including the kitchen, bedrooms, bathrooms, and all common areas.
Additionally, short-term rental hosts will need to stock their property with essential amenities for their guests. All homes should have an ample amount of towels, toilet paper, and toiletries.
Lastly, guests will want to have Wi-Fi connectivity during their stay, so make sure you have a strong internet connection and provide the guests with the Wi-Fi password before their stay.
Guests will also appreciate streaming channels like Netflix or Hulu preloaded on the TV to keep them entertained throughout their stay.
Step 5 – List Your Rental Property Online
As we mentioned previously, start with one short-term listing website while building your rental business. You can always list your property on multiple sites once you get some experience under your belt.
First, you’ll need to make an account with your listing site and provide banking information, contact details, and other personal information so the platform can verify you as a new host.
Next, it’s time to create your listing. Make sure you have high-quality photos of your property and be as descriptive as possible. Be honest about your property and try to highlight the reasons why people should book with you.
It’s also a good idea to look at other listings in your area to help determine your rates. Consider offering weekend or holiday rates in addition to discounts for longer stays.
Step 6 – Communicate with Guests and Secure Bookings
Now that you’ve published your listing, it’s time to monitor your account and respond to inquiries as fast as possible since potential guests are likely considering multiple properties in addition to yours.
Make sure you communicate clearly with potential guests and never use rude or offensive language. Be assertive but respectful and try to get them closer to making a buying decision by strategically guiding the conversation towards making a sale.
The Bottom Line
Starting a short-term rental business doesn’t have to be a difficult process. Oftentimes, the hardest part of getting started is finding a property conducive to short-term rentals in today’s market.
Whether you’re a homeowner, renter, or just looking to start a business, short-term rental investing can be a great way to make passive income.
However, like any business, it takes patience, determination, and persistence to find success with short-term rentals.
Related: 5 Best Short-Term Rental Sites in 2023
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