Short Term Rental Investing - What's That?
by Christopher Levarek
“Spend each day trying to be a little wiser than you were when you woke up.”
- Charlie Munger
The year is 2022, You're traveling through another dimension, a dimension not only of sight and sound but of mind. A journey into a wondrous land whose boundaries are that of imagination. That's the signpost up ahead - your next stop, short term rental investing!
Alright, so I might have copied that intro line from The Twilight Zone , a TV show from the 60’s but what is short term rental investing?
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Most domestic or international travelers should be familiar with the platforms Airbnb and VRBO which allow people owning property to rent their rooms or properties by the night just like a hotel. These are aptly named short term rentals or vacation rentals. Instead of staying at a hotel, you can get spend the night in a home or luxury style property for much lower costs and with many added amenities.
Short term rentals are typically known for having higher gross revenues then long term rentals, allow an owner to checkup on the property easier and come with added bonuses like being able to stay for free as an owner. So should you rush out buy your own short term rental as an investment? Let’s look at why or why not?
Benefits/Drawbacks of Short Term Rentals
As mentioned above, when comparing a short term rental to a long term rental there are some benefits and drawbacks.
Benefits :
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Able to enter the property weekly to change filters, clean, check damage if needed.
Able to visit the property to stay as the owner.
Revenues or cashflows are typically 4 times as much as long term rentals
Tax benefits are available to apply passive losses to active income (W-2) for a managing owner.
Able to manage pricing daily/weekly and guest experience if desired.
On the other side, here are some things people find as drawbacks to short term rentals
Drawbacks:
Lending restrictions or hurdles are present on short term rentals with many lenders
Maintenance costs can be higher due nightly turnover of guests.
Management is on a per night basis and requires much higher attention from owners.
Lack of control - Airbnb or VRBO can takedown your listing at anytime for any reason(ie. guest complaint).
Properties are furnished with owner furniture, again susceptible to damage.
Costly in initial setup with furnishings and renovations upon purchase.
Local county policy can have restrictions on short term rental activity
Occupancy is based on travelers like a hotel and could be considered not as dependable.
Alright, so two sides to the coin, but let’s look at a third coin, investing in short term rentals as a partner.
Short Term Rental Investing
Now, I’m not here to sell anything, nor scare you away from going out to buy your own short term rental. I personally know many people who are successfully running a vacation rental. It is entirely possible however due to many of the drawbacks above, it is not the solution for everyone to do alone.
What is available for everyone however is partnering or investing into short term rental projects to achieve more of the positives without the negatives. Just like real estate syndication or investing in commercial assets, investors can partner together to purchase a short term rental. Investors would then have fractional ownership for fulfilling a role, enjoy the increased revenue stream and even perhaps form a timeshare of sorts for property use.
In fact this is what we’ve been doing and continue to actively do with partners across the United States. In the properties we are buying with partners, we play the role of Deal Finder, Loan Financer, Asset Manager and Property Manager. Our partners typically bring Capital to fund the down payment, renovations and furnishings.
Together we own the property in a shared LLC and just like a syndication receive distribution from cashflow (rent) and eventually a sale of the property in X years. Some projects allow for free stays like a timeshare for partner owners!
Here are some example properties we’ve done with partners :
Or, checkout this STR in Costa Rica that a colleague of ours acquired in similar fashion with partner investors :
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And those are just some examples of how you invest in short term rentals together!
In Final
Partnerships with other investors is a great way to achieve bigger objectives and results together. This is how commercial assets are purchased and applies here as well.
Remember, you do not have finance, manage and control any asset all by yourself. If it doesn’t align with your lifestyle or goals to manage alone, it’s worth recognizing that working together minimizes risk and typically achieves better results.
If you are interested in partnering on an upcoming short term rental project with us, you can always visit our Opportunities page to see what we have open or simply join our Valkere Investor Club to be the first to know when we do. Happy Investing!