The Biggest Mistake You Can Make When Investing in Short Term Rentals

Getting Started

The biggest mistake occurs during the purchasing process of the short-term rental. There’s a huge misconception that all properties will work using the short-term rental methodology by posting the rental on Airbnb. Instead, what you should be thinking about first, is will the rental comps work for the property as a long-term rental or at least break even first. If the property will break even, then you have another use for the property and not be solely dependent on the property as a short-term rental. Typically, if the property will also work as a long-term rental, then you have nothing to fear if you’re able to optimize the property using Airbnb.

Mindset Around Investing in Short-Term Rentals

A conservative mindset is your friend when it comes to investing in short-term rentals. There is currently so much hype around the concept that it’s easy to get distracted and feel like you can’t lose. Let your numbers be your guide by analyzing the cashflow and equity paydown of the property. Use the enemy method to analyze the properties around yours and how much they are making from Airbnb. When it comes to the enemy method, make sure you are taking notes over the quantitative and qualitative measurements to find where your property will fit best.

Purchasing in a Recession

Short-term rentals are likely to fluctuate in a recession as the money people have to spend on vacations lessens. Properties that are true short-term rentals, as in beachfront properties on the ocean, will see lesser impacts do to the nature of the value they bring. However, people who have a property in a city that isn’t centrally located or near Downtown and have found success to this point will see the impact first. So having a plan in place where your numbers work for multiple approaches will allow you to pivot if necessary. Even if you turn your short-term rental into a mid-term rental (30+ days), you will find that your approach will become more recession resistant. This is due to people staying for months at a time for work, so they are making money instead of just spending money. Consider the different approaches and your backup strategies so that you have a no-lose situation.

Published by Andrew Street

Real-Estate Investor and Creator of BNB Monthly

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