Whether it is Airbnb, VRBO, or weekly rental management companies, the privately owned short-term rental market has vastly expanded over the last few years. For clarity, in North Carolina a short-term rental is a lease that is less than 90 days, not just weekly as many people think. As we all remember, when we went on vacation 10 to 15 years ago, we decided which hotel we wanted to stay in at the beach or we reached out to a vacation rental company to rent a home. Today, the variety of options available to visitors to our town has increased exponentially. Short-term rentals were usually only found at the beaches and now they are across town in a variety of locations. This type of investment can often lead to higher profit margins than long-term rentals, but it’s necessary to do your own research and analysis before purchasing. If you are thinking of investing in a short-term rental, there are a few key components you should keep in mind.
1. Analyze the Revenue Stream. The first step in examining a rental property is of course the revenue that it is generating. You will often see those numbers advertised that the previous owners made $50,000 on a rental property, but keep in mind those are often gross rents, before expenses and taxes, so they didn't put that entire amount of money in their pocket. Some of the more common expenses will be the management company or Airbnb/VRBO charges, cleaning/turnover fees, general maintenance, insurance, HOA fees, hospitality taxes, and property taxes.
2. Factor in Consistency. Once you have a grasp of the gross rents and expenses, you now need to know the consistency of those items. Our market saw higher than normal gross rents during the Covid timeframe as most schools across the state and nation were remote. This allowed Raleigh and Charlotte families to teach their kids at home or come to the beach for an extended period of time. Therefore, gross rents for those years may be 30-40% higher than a typical year, so don't base your purchase decision on rents that may no longer be realistic.
3. Determine Management. When it comes to managing your rental, you have a variety of options. You can hire a short-term rental management company for turnkey services. You can manage the bookings and revenues yourself through a few of the online booking companies and be hands-on for all cleaning and maintenance. Another more recently popular option has allowed many remote owners to manage the bookings and cash flow and then hire a local company to handle onsite work of cleaning, linens, and resetting the property between guests. All of these options should be weighed against your availability and comfort level as well as cost you’re willing to pay.
If you are thinking of entering the short-term rental market or expanding your current portfolio, I am happy to connect with you and discuss your overall goals and make sure that you weigh all of the pros and cons to ensure that it is the right investment option for you. If you currently own one and want to discuss how to maximize your cash flows or if you are thinking of selling, let's talk about how to present the correct information to put the most money in your pocket.
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Staff Reports - Dec 8, 2023
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