The risks associated with short term rental investments can include governmental oversight, community scrutiny and the costs of the investment, management, maintenance and upkeep. And that bears mentioning.
However, the short-term rental sector thrives with growth not seen in other housing sectors, because the investment currently offers a bounty of rewards.
Obviously the primary benefit is the revenue potential. Property owners can charge significantly higher rates for nightly and weekly stays, compared to long-term rentals . The opportunity to rake in more cash flow is often keyed to the property's location, especially when it's a travel destination or attraction-based region. Beach towns, lake-side resorts, mountain vistas, even hip urban cores can make a short-term rental profitable.
Short-term rentals are the accommodations of choice for a growing number of bargain-seeking travelers who, in a single night, shell out enough to cover 25 percent of the property's monthly mortgage. In some instances, there's an opportunity to charge even more during high demand periods, during special events, holidays, and seasonal peaks.
Tax write-offs for short-term rentals can add to the financial benefits.
If a property is rented for less than 15 days out of the year the owner does not have to report the rental revenue as income to the Internal Revenue Service (IRS). However, that also means the owner can't make deductions for any costs associated with the property - upgrades, furnishings, maintenance or other over head costs.
If the property is rented for more than 15 days out of the year, the owner can take a business use deduction on a host of operating, upkeep and maintenance costs as well as the cost of large-ticket purchases such as hot tubs, replacing the HVAC, remodeling work and a host of other costs.
Short-term rental property owners should always consult with a licensed tax professional to determine the full list and value of deductions.
Calculated wisely, tax deductions can be a great asset to property owners.
Property owners also enjoy a certain sentimental appeal about caring for a property that's been in the family or the neighborhood. Regular turnover allows owners to keep a closer eye on the property and to maintain it on a regular basis, avoiding some of the wear-and-tear complaints that arise from long-term rentals.
Sue Long, a founding member of the Austin Rental Alliance, prefers renting her property on a short-term basis because it's a house she saved from destruction - a home neighboring the home where her father was born.
"I do it for the love of the house that I saved from being demolished. This house sat on a lot next door to the house where my father was born in 1914. We have such a cool neighborhood and I want people from out of town to have that experience. I don't want someone in there for a whole year who won't respect it or take care of it the way I do," Long said.
Long says short-term renters are far less harsh on a property. For example, if a long-term renter doesn't change air filters or perform regular maintenance, they can create the need for costly repairs.
Other owners say short-term rentals benefit the community.
Short-term rental owners must regularly upgrade, maintain and beautify their properties in order to compete and attract guests. That often keeps them in better shape than surrounding properties. Upgrading and maintaining a property helps boosts its value and homes in the neighborhood enjoy a trickle-down effect.
While the heightened value of the short-term rental helps raise the property values in the neighborhood, it can also encourage in all property owners a healthy, competitive "Keeping Up With the Jones" attitude about property care, creating a snowball effect on rising property values.
Short-term rentals can be long on rewards, but it's important to research all the risks, weigh risks and rewards evenly, and make a decision based on knowledge and understanding before making an investment.