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Portfolio Growth, Property Management

A Guide To Managing Short Term Rentals

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Deciding whether or not to let your space out as a short term rental on a platform like Airbnb, or whether you should look for long term tenants can be a hard choice. 

On the one hand, you can expect higher rent rates with short-term rentals – however, they are often seasonal, and on top of that, the management of short-term rentals comes with a little more involvement from the landlord. People expect excellent service and quality experiences when it comes to Airbnb’s – they are on holiday after all – and one bad review can see your occupancy rates drop dramatically.

So, before you dive in and create your accounts on Airbnb, VRBO, or Homeaway, you need to ask yourself a few questions.

  1. Do you have time/ are you able to offer exceptional service? 
    • Do you live near your rental? Are you contactable?
  2. Is your property in a desirous holiday location? Eg. Downtown or near a popular tourist hotspot.
  3. Is your property right for the job? It needs to be furnished, well maintained, and clean.
  4. Can you afford higher vacancy rates?

Once you’ve decided that your property and investment style are right for the job you need to consider both the advantages and disadvantages of running an Airbnb.

Renting out a room

The Advantages of Short Term Rentals Compared to Long Term Rentals

Make More Money

In the US, the average rate in 2019 for a private room in a house ranged from, $70 (Houston) – $90 (Miami) a night. That works out as $490 – $630 a week, or $1960 – $2520 a month, for just 1 room in a house. A whole property would be much more valuable.

This being said, whilst people are willing to pay more, they also expect more for their money. They expect an increased level of service, obviously, you need to supply it furnished and it needs to be very well maintained.

All of this adds a large increase to the setup and running costs of a short term rental (which is the reason you can and need to charge more).

Flexibility  

Often people rent out a second home. In this scenario, you might want to maintain a week or two in the properties calendar for you and the family to visit on your own holiday. 

The rest of the year though, there’s no point leaving it vacant – not only because vacant properties often deteriorate without attention, but they can become targets for thieves. It makes sense then to let it out as a short term rental. This will allow you and your family (with planning) to use the property as well, and it can start paying for itself as supposed to be a financial burden.

Tax Benefits

The final bonus is that with a short-term rental you get many of the same key tax benefits that come with owning a rental property. Depending on how active you are in the running of your properties you may be able to deduct up to $25,000 in expenses.

Read more about deductible expenses for landlords and how you can track them efficiently here: Tax Deductible Expenses for Landlords

A Few Disadvantages Compared to The Long Term

Higher Vacancy Rates

One of the major disadvantages, something that makes some properties entirely unsuitable to be short term rentals, is the increased vacancy rates that come with rentals. As we mentioned before depending on the location of the property it might only get a full calendar in the appropriate seasons.

For example, if you owned a lodge near a ski resort this is going to be full during the winter months, but may not fill up for the rest of the year. These higher vacancy rates can be costly.

Higher Running Costs

The cost of running a short term rental or Airbnb has to include increased maintenance costs, cleaning costs after every visitor, as well as taking into account the extra time and effort that you as the landlord will need to put in. Which leads us neatly onto the next major disadvantage.

More Time and Effort 

Because of the nature of Airbnbs, it requires more time and effort to do well than running a traditional long term rental. Energy needs to be put in to make sure that guests have a great time, that they leave excellent reviews and that their experience, not just the property itself, is exceptional.

Because of this customer-centric focus of short-term rentals, not everyone is suited to the management of these properties and many people outsource to management companies which further cuts into their profits.

managing short term rentals

7 Tips for Managing Your Short Term Rental

1. Great Service, Great Reviews, High Occupancy

The first rule of holiday rentals – especially using a service like Airbnb is that a short term rental lives and dies on the reviews it gets. Bad reviews will see your vacancy rates climb and the amount that you can charge decline.

Simple touches like local recommendations for things to do, local events, or the best restaurants will help your guests have a great time. A small welcome gift is another thing that many hosts also include.

2. Know Your Tax Laws

Being a landlord comes with some beneficial tax regulations. However, if you don’t know what they are, you could end up leaving thousands of dollars on the table. 

You can rent out all or part of your home or apartment for up to 14 days per year and all the rental income you receive is tax-free, no matter how much you earn. In fact, your rental income is tax-free if, during the year:

  • you rent out your home for 14 days or less, and
  • the home is used personally for more than 14 days, or more than 10% of the total days it is rented to others at a fair rental price. 

However, if you do rent it out for more than 14 days of the year you will need to file a supplemental profit and loss income form.

You can read more about filing your rental income in the IRS Publication 527

Read: Tax Deductible Expenses for Landlords

3. Be a Budget Boss

You have utilities to pay for, cleaning expenses, higher and more frequent maintenance costs, and don’t forget the cut that the listing platform is going to take. 

Budgeting becomes incredibly important when running any rental. Every expense needs to be accounted for.

Imagine you have to explain every single expense to a business partner – suddenly that $300 you spent on cushions seems like an embarrassing investment. Whilst you want to offer your guests a high level of experience you should balance that carefully with your income to achieve a positive cashflow property.

4. Keep the Property Well Maintained

This point is fairly self-explanatory. But let’s run through a scenario anyway – it’ll be fun (promise). 

“You are going on holiday. It’s exciting, it’s the first time you’ve managed to get away from the office with the family for years. Plus, the Airbnb you’ve booked looks amazing in the pictures.

You drive a few hours, kids chattering in the back of the car nonsensically. 

Finally, after being led astray by Google Maps several times, you arrive. There is a lockbox in with the keys. You open her up, step inside, and a feeling of depression hits you like a buffalo. Your family walks up behind you. And the excited chatter that lasted all that drive quietens to an ominous silence. 

The insalubrious nature of this Airbnb has, there is no doubt, ruined your vacation. Your depression lifts, and anger takes its turn straddling your chest. You decide you are going to do everything you can to make sure this never happens to another excited holidaymaker. It is now your mission, your singular purpose, to take down the Airbnb catfisher.”

For dramatic effect, this is perhaps an extreme example, but I think I made my point. Keep the property nice or suffer the wrath of displeased guests.

5. Charge Competitive Rates

Setting your rental price is always a challenge – whether it’s for a long term or short term rental. A lot of things can determine the rental price, amenities, location, square footage, and more. 

To determine what you should be charging may take a little trial and error, and you may also have to adjust the rental price depending on the season. 

To determine your short-term rental prices you will want to do some comprehensive market research. Look at what comparable properties in similar locations are charging on platforms like those listed above and use those rentals as a guideline.

6. Be Energy Efficient

For a short term rental, you as the landlord are going to be paying the utility bills, even when no one is staying. Investing then, in energy-efficient solutions for the property will keep your utility bills down and help improve your cashflow.

7. Use a Property Management Software

You can outsource the management of your short term rental to a professional company. This is great for people that want 100% passive income. However, it does come at a high cost. There are several payment structures that you might choose from. 

  • Fixed income, where the management company will pay you a set amount each month no matter how much income is generated. 
  • Flat rate, where the management company will charge you a flat fee each month no matter how much the rental is rented out. 
  • Commission, where they charge a percentage of the income. This sounds good as the expense is directly linked to the income generated. However, property management companies have been found to charge as much as 30%. 

The alternative then is to do it all yourself. Thankfully this has never been easier than t is now with software like Landlord Studio.

Bonus: Photography matters!

When it comes to reducing your vacancy periods getting great photography is vital. It’s worth using a good camera or even hiring a professional photographer.

Here are just three stats that prove just how important great photography is to online property listings:

  1. 60% of people are more likely to click on a local search if it has an image.
  2. Web pages with images get 94% more views.
  3. Renters spend 60% of their time when searching for properties looking at the images.

Make sure you have great photography to best showcase your property’s unique selling points and you will dramatically decrease vacancy rates.

Setting the right rent

Use Landlord Studio to Manage Income and Expenses for Your Short Term Rental

We have hundreds of users who manage their short term rentals on Landlord Studio. Landlord Studio allows them to save time managing their rentals, and keep track of the complicated income and expense streams that come with short term rentals. 

This saves them a huge amount of time when it comes to filing taxes at the end of the year, as well as offering succinct and clear financial overviews of their rental portfolio.

There are 2 methods Landlord Studio users use to keep track of income and expenses associated with their short term (Airbnb) rentals.

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Step 1: Start by setting up your property – Then Add your lease.

Learn: How to add a Property, & How to Add a Lease.

Step 2: When adding the lease to your property select the date range of your guests and make sure to select under rent frequency the option for “One-time (Airbnb)”.

Step 3: You can now add the lease details as well as cleaning expenses payable by tenant etc and any other Airbnb related expense to this guest.

Step 4: Once the guest has paid, log the payment in the app, and select the payment period as complete.

  • Repeat this process for each of your guests.
  • This method allows you to track your guests, and pair income and expenses on a guest by guest basis.

We recognize that going through this process for every guest can be time-consuming, especially if you have lots of very short-term guests.

So, some of our users choose to use method 2 instead. This allows for less careful organization, however, it is quicker and easier and still allows you to keep track of income and expenses on a property by property basis.

Step 1: Start by adding your property to the system.

Step 2: When adding your lease either leave the end date of the lease empty or set it as a date far in the future. You can come back and change the lease end date any time you need to.

Step 3: Make sure you select “One-time (Airbnb)” for the rent frequency.

Step 4: Set the rent amount to $0.00.

Step 5: Log your expenses as you normally would.

Step 6: Create a new payment category.

Settings < General < Categories < Add a new payment category which you can call “Airbnb” or “Short Term Rental”.

Step 7: Log your first payment. Mark the payment period as complete and the lease will now show the property as green, no rent owing.

Every time you have a new guest log a new payment, selecting the payment category you created. You can make any important notes about the guests in the payment notes section.

Note: Alternatively, you can leave the payment as incomplete and this will continuously show the property as having rent owing. It depends on personal preference.

Final Notes

Short term rentals aren’t the right choice for everyone or every property. However, when done right short term rentals can be incredibly lucrative as well as coming with the additional benefits of meeting some fascinating holidaymakers from all over the world.

Do you manage short term rentals? Let us know your tips and tricks in the comments section below.

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Ben Luxon

"Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."

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