Is a Short Term Rental a Real Estate Asset I should Consider?
Dustin Edwards • November 14, 2020
Long Beach is a Prime Vacation Destination, is it Right for Your Investment?
One question we get asked about on a regular basis is regarding short-term rentals. With the continued popularity of platforms such as Airbnb and VRBO and our location in Long Beach we understand why this is a consideration for many of our property owners and potential clients. While we don’t currently manage short term rental properties we understand their value to an investors real estate portfolio and wanted to share more about these investments to help you decide if it is a match for your real estate goals.
What to Consider with a Short Term Rental
- Occupancy - With a short term rental a key indicator of how much money you will be able to generate is your occupancy rate. Occupancy rate is the number of days you will have your property rented in a given month. For example if your property was occupied 15 days out of a 30 day month then you would have a 50% occupancy. Understanding occupancy is essential, especially if you are considering buying a property specifically as a short-term rental property. Calculate conservatively on a 40-50% occupancy rate and if you beat that, then you are only doing better!
- Daily Rate - Having a short term rental is like having a hotel and you will be advertising a rate per night of stay. For popular weekend destinations, like Long Beach, the weekend rates (i.e. Friday - Sunday) do tend to be higher than on the weekends. Plan for the variety of rates when you develop your model.
- Annual Gross Revenue - Your annual gross revenue is driven by calculating the number of days occupied by your rate for those days. Keep in mind that this number can look substantially larger than your mortgage commitment (it should anyway), but there are fees to acquire that revenue that you should consider as well.
- Fees - With a long term rental, generally you are only served with a property management fee. With a short term rental you could expect a property management fee (if you aren’t managing it yourself), cleaning fees (if you can’t pass on to those who stay at your place), and transactional fees from the platform (i.e. the host fee). As you evaluate the potential benefit of your short term rental consider that the host fee alone can be anywhere from 3% to14%+ depending on the platform.
Forecasting Potential Revenue for a Short Term Rental
If you are considering purchasing a property with the goal of making it a short term rental the occupancy rate and daily rate can vary dramatically based on the location, property, number of occupants possible, etc. While we certainly could help you with a close annual revenue estimate you can use a calculator by AirDNA
to help you estimate your true earnings. This is a great free tool you can use to see if based off of what you are putting down, your expected mortgage, and the associated market factors (i.e. oppancy, daily rate.etc.) will yield a positive cash flow.
When it comes to deciding if a short term rental is your next real estate investment (even if it’s your first) there are many items to consider. With our knowledge of the rental market and real estate agents available we can even help you to purchase your first short term rental asset. To help you understand your options you to call us today at (562) 888-0247 and let us know you’d just like to discuss short term rentals.
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Have you considered including utilities in your rent? Here are some of the most common utilities that help tenants see a greater value on renting your property
Your property’s roof is its first line of defense from the sun, rain, and wind. Which means it will eventually wear out. Many landlords overlook this since a roof is generally designed to last twenty or so years, and they simply forget until the signs begin to show. Below, we’ve compiled a short list of five signs it’s time to replace your roof for when doing property inspections. Tenant Complaints When your roof has become damaged, your tenants will likely be the first to notice. When tenants report water stains on the walls and ceilings, it's a sign that you should inspect your roof. In severe cases, your tenant may notice water dripping from roof leaks. This moisture, if left unchecked, can lead to the growth of mold and mildew, which can be a health concern for your tenants. Some tenants simply move out, assuming the odors or recurring respiratory issues are caused by the rental and not just the roof. This leaves you with a vacancy to manage, and if you’re unable to find the leak during this period, the following tenant may have a negative experience as well. Many landlords have found it beneficial to have property inspections regularly in order to preserve both the property’s value and the tenant’s trust. Roof’s Age Even with the highest quality materials, a roof still has a shelf life. Most roofs in Long Beach, CA, use asphalt shingles, and these generally last around twenty to twenty-five years. Once they've passed this threshold, the faults begin to show themselves. A sagging roof line is a sign that your roof is due to be replaced, as it's a serious concern. It often indicates that moisture has entered the underlying decking and caused some structural damage. From ground level, you may not be able to notice these problems. However, during an inspection of the property, an experienced inspector should be able to notice soft spots or contours on the roof. These forms of damage often get worse over time. Coordinating these inspections and preventative maintenance can be difficult for landlords with an extensive portfolio, which is why many enlist help. Shingle Damage Damaged shingles are one of the most obvious signs that your roof is deteriorating. If you ever notice cracking, curling, or patches with missing shingles, the roof is no longer providing adequate protection to your property. Although you can buy time with spot repairs, if the entire roof shows signs of damage, it’s likely time to replace the roof. Aside from protecting your property, the roof affects your property’s curb appeal. A patchy and worn-out roof can drive down the rental appeal. Prospective tenants will easily be able to spot the differences between pictures taken in the listing when compared to the property in person. This can not only hurt your chances of filling a vacancy, but it can also hurt your reputation as a landlord. Granules in Gutters After heavy rainfall, it's a good idea to inspect your rain gutters. If you or your property manager notice large amounts of black or gray granules, it means your roof shingles are breaking down. These granules are critical for shedding water off the roof. Once the granules fall off the shingle, the shingle begins to degrade faster under the sun and elements. If you’re not sure how old your roof may be, Loss of granules can be a strong indicator that your roof is nearing the end of its lifespan. Regular gutter cleaning and roof inspections can help catch these problems early before they become expensive repairs . Increase in Utility Bills Your tenants complaining about their utility bills increasing or poor temperature control in the rental may not realize the roof is to blame. A failing roof can result in subpar insulation and ventilation. This can lead to higher heating and cooling bills for your tenant. This can be frustrating for your tenants while putting more strain on the HVAC system. This puts more wear and tear on your HVAC system. Being aware of the warning signs and being proactive can protect your rental property, maintain tenant satisfaction , and avoid emergency repairs. If you need help inspecting your roof or you need help managing your Beach City rental property, we invite you to call us today at (562) 888-0247 or complete our Owner Application online .
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