Is a Short Term Rental a Real Estate Asset I should Consider?

• 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.

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.