The housing market, especially rentals, with the rise of tourism and weekend destinations, has been booming in recent years. The demand for renting houses for hosting parties, vacations, and business purposes far outweighed the supply a few years ago and are still not fulfilled. While rental services like Airbnb, Expedia, and others are trying their best to accommodate every request, it’s still far from the goal.
Henceforth, investing in real estate is becoming the next big thing. While that may sound intriguing, as real estate is a costly affair, you need to invest millions of dollars to own a property. Instead, welcome short-term rental investing. Without needing to commit millions on a property and thousands on decoration, you can co-own properties at a much lower price with other investors to fulfill your thirst for investing in real estate without going through all the hassles.
To succeed in short-term rental investing, you must consider a few things though. Here they are.
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Target Higher Annual ROI
You can only expect a higher annual return on investment with the rise of demands for short-term rentals than most other investment options. Expecting at least a 20% annual return in cash flow, tax depreciation, and other factors is quite generous. Consider going with the short-term rental investment companies that promise to give you a higher annual ROI for your commitment to them. As it should be a passive income for you, the expectation for something higher than 30% may not be fulfilled.
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Investment Threshold
You should never consider short-term rental investment if the minimum investment threshold is outrageously high. As you aren’t investing directly in real estate, anything more than $25-30000 should be disregarded. If your STR investment company requires you to invest a minimum of $500K for a 4% share in the profit, it’s not worth it. Consider companies that are in the market for the masses and are able to make profits through their customer volume. Typically, the more properties a company has in its portfolio, the more investors they attract with less amount of money.
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Focus on Minimum Responsibilities
You’re not the sole property owner, you’re the investor. The responsibilities of developing the properties, selling, maintaining, tax filing, and so forth are to be handled by the short term rental investment companies. If any company expects you to handle maintenance on their behalf, brush them aside. Focus on minimizing your responsibilities as much as possible. Although you’re an investor, short term rentals should be regarded only as a passive investment.
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Consider Double-Digit Annual Cash Flow
After a cooldown period, while the STR companies build or buy the property that you invest in, you should expect cash returns on your investment. The annual ROI that we discussed before also includes cash flow as a parameter. Only consider companies that can generate a 10-15% annual cash flow from their properties to invest on. Anything below 10% isn’t adequate and can’t be sustained in the long run as the companies need to invest their capital in maintenance and growing their portfolio.
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Repetitive Investment Opportunities
The investment opportunities shouldn’t be limited by money or repetitions. Once the property has been sold after a few cycles, you’re expected to get your investment back with profits. While that’s a great thing, you must have the privilege to invest with them again. While it may seem obvious, a few companies ditch their past investors in the expectation to bring in higher investments. Consider only choosing the short term rental investment companies who promise to bring you back after your initial investment.
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Updated Technologies
The properties that are prepared by your STR company should have updated technologies like WiFi, AC, and security features built into them. As the demand for these implementations is rising among rental customers, not having them decreases the rents and ultimately proves to be a formula of demise for the properties. Being an investor in the properties, consider choosing companies that maintain these policies throughout their portfolio.
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Competitive Rates
Despite the demand, there is no shortage of competitors in the market in the short term rental industry. If you only go for companies with higher rates, you may miss out on the volume of customers that a competitive rate may bring in. Consider analyzing the market rates and comparing them with the properties our STR company holds in its portfolio. However, a lesser than adequate rate should also not interest you.
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Top-Notch Maintenance
Check the feedback of the customers on already existing properties to understand how considerable your short term rental investment company is regarding maintenance. If you happen to see a lot of negative reviews on the platforms related to the properties, disregard them as an investment opportunity. As reviews are the new word of mouth, consider checking trusted reviews on several different platforms to determine your way in.
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Reporting
Keeping yourself updated on your investment is a critical aspect of committing your capital. While it may take a few months to realize the first returns, having transparent dashboards that allow you to access your investment data anytime anywhere is essential. Typically, the reports are updated quarterly. Moreover, if you’ve invested in several properties, tracking each one with a single portal is much more convenient.
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Legal Protection
You’re only an investor. While you may have your name on the property documentation, you shouldn’t be troubled with legal issues anywhere along the line. Talk to the short term rental investment companies about how the legal issues are handled before considering investing with them. It’s better if they have an umbrella liability policy in place to protect you.
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Multiple Platforms
For best returns, enlisting properties in multiple platforms is necessary. Check if your preferred investment company lists its properties on major rental platforms like Airbnb, Expedia, VRBO, and others. Also, check reviews and the demand for each property to analyze the investment opportunities.
The Bottom Line
Hopefully, you’ve understood the 11 success factors for choosing the right short term rental investing company. Only target higher annual ROI, increased cash flow, and legal protection. Moreover, check for the minimum investment threshold, repetitive opportunities, and reviews. Only invest with companies that offer a transparent report and multi-platform support.
