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Short-Term Rentals: Risks and Rewards

The short-term rental market is one of the hottest areas in real estate and property management. With sites like Airbnb heading the charge, listings have increased 44% since 2009.

That percentage is expected to increase as more and more property owners take advantage of this ingenious and very profitable way to put their homes to work for them. However, as with any other great idea, there are risks that go along with the rewards. Here are a few things to take into consideration if you are thinking of renting out your home on a short-term basis.


Added Income - Rates for short-term rentals can be significantly higher than those of traditional rentals. In some cases renters are able to generate as much as 25% of their monthly mortgage payments in one night. Depending on where your home is located in comparison to major tourist attractions or popular venues, in your area, as hotels fill up visitors can consider your rental as a viable option.

Another profitable option is the corporate market. By promoting your rental to large corporations in your area, you can offer guest what hotels can’t, a place to stay that has all the comforts of home.

Tax Deductions - Short-term rental owners can take advantage of many types of tax breaks. Since their home is a business, they may be able to deduct operating, advertising and other expenses. The biggest tax break, however, is for renters who rent their property for less than 14 days a year. These individuals don’t have to pay any tax on the rental income. This option is helpful, however, if you plan to rent your home as a business, you won’t be able to take advantage of this tax break and will be further ahead renting your property as much as possible. Talk to a tax advisor to see what your options are.

Community Advantages - It is estimated that short-term rentals promote tourism in a community. Most owners advertising their short-term rental will publicize the unique events and attractions of the community, along with the features of the property. Short-term rentals also provide extra capacity to accommodate tourists in areas that have few hotel options, especially during peak periods.


Operating Costs - Short-term rentals have several different costs that traditional long-term rentals don’t have. These costs include everything from supplying the toilet paper to replacing furniture and appliances. When deciding whether or not to join the short-term rental industry, you should carefully consider the operating costs.

Competition - This can be a very important thing to consider. With the recent explosion in new short-term property rentals popping up all over the country, competition is picking up. However, the industry is still relatively new, meaning that competition isn’t out of control and there’s still room for more.

It is very important to carefully research the competition in your area before you consider offering your home as a short-term rental, or more importantly, purchasing a rental property for this specific reason. If you do find competition in your area, figure out how you can offer guests a better experience.

Rental Restrictions - Another major risk to short-term rental owners are rental restrictions. These restrictions are proving to be a challenge to the fast-growing short-term rental market. You should carefully research the restrictions and regulations, in your area, that apply to you.

For example, the California Health and Safety Code has regulations on things like hand towels, swimming pools, restrooms, playgrounds, fire retardant furniture.

Risks to the Community - A very important practice is to carefully screen your potential guests. However, even with the most thorough screening, there is still the risk that someone with less than honest or desirable intentions will slip through the cracks. The short-term rental industry has recently received some negative media on this very issue.

There have been cases of crime, noise violations and even ransacked properties, but like anything else this isn’t a problem that is limited to the industry, but an infrequent problem that can result with any rental agreement. Just be thorough and diligent in your screening procedures and most often than not you will be fine.

Short-term rentals can produce a profitable income for your property, but make sure you carefully weigh the risks and rewards, while doing careful research to see if it is an option for you.

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