With the rise of sites like Airbnb, short term rentals have become an increasingly popular investment option for property investors. By renting out properties on a nightly or weekly basis, investors can often achieve higher rental yields compared to traditional long term leases. However, there are also risks to consider before investing heavily into the short term rental market.
Short term rentals can achieve higher yields but more volatile income
Compared to traditional long term rentals, short term rentals like Airbnb can often generate much higher per night rates due to demand from travelers. This allows investors to enjoy higher rental yields. However, income is also less stable as demand fluctuates much more in the short term. Investors must have sufficient financial buffer and ability to manage volatile cash flows.
Managing and marketing short term rentals takes more effort
Short term rental properties require much higher guest turnover and hence significantly more effort in cleaning, marketing, pricing and managing bookings. Investors must factor in the cost of hiring professional property managers or be prepared to handle operations themselves.
Local regulations for short term rentals are tightening
In recent years, many popular travel destinations have introduced stricter regulations around short term rentals to protect long term housing supply. Investors looking to invest in cities must research local short term rental policies carefully as regulations continue to evolve.
Focus on high quality properties in top neighborhoods
Not all properties are well suited for the short term rental model. Investors should focus on buying or renting high quality properties in desirable, high traffic neighborhoods that appeal to travelers. Apartments or condos with hotel-style amenities tend to achieve premium pricing and occupancy over normal residential homes.
Short term rentals complement a balanced portfolio
While short term rentals can be highly profitable, they require specialist expertise to operate and carry higher business risks. Most experts recommend limiting short term rental exposure to a small part of an investor’s overall real estate portfolio for balance. Investors should also compare short term rental returns to other asset classes rather than just long term rentals.
In summary, short term rentals like Airbnb can provide attractive yields but require greater effort to operate and carry higher risks related to volatile income and evolving regulations. Investors should evaluate their expertise, existing portfolio balance and local market conditions when deciding exposure levels.