Short Term Rental As An Investment- Is it for you?

The explosive new sharing economy is alive and well in the It City! Much like the way ride sharing services like Uber and Lyft have changed local transportation, web sites like Airbnb, Home Away, and VRBO offer visitors to Nashville a unique alternative when looking for a place for a short term stay.

So, is investing in a short term rental property (STRP) a good idea for you? As with any investment, due diligence is key. The first thing you should do if you have interest in an STRP is go to codes and see if your property is eligible. You can do a quick check at http://www.nashville.gov/Codes-Administration/Construction-and-Permits/Short-Term-Rentals.aspx. Bear in mind however, this business is legislative dependent- things change-that is why ultimately you should visit the codes office to confirm. There are pending changes to the metro STRP ordinance as I write this.

Next, your success will depend on how well you run your business. First you’ll need to “kit”, or furnish and supply the unit. A proper kit for a one bedroom unit can cost around $15,000. Then you will need to market the property so you will get bookings. Airbnb will take professional photos for free, but you cannot use them on other platforms. A real estate photographer will charge around $100 for photos you can use as you please. Once you get the booking it is all about service. Let me repeat- IT IS ALL ABOUT THE SERVICE. As with other businesses within the sharing economy, reviews are the life blood of Airbnb. Are you willing to be on call for check-in issues or lost keys/entry codes from tipsy guests at 1 am?

Now let’s look at the numbers on a not so uncommon, average price of $100 per night on a 1 bedroom unit that my wife and I operate. Hotel and business taxes take between $16 and $16.50. Supplies- paper products, soap, coffee, snacks, and dry breakfast items – around $7. These expenses will be in addition to utilities, maintenance, insurance, and property taxes, etc. that I will not figure in here since they could be considered fixed costs when making comparisons between short and long term rentals. Also, if you are just considering doing a bedroom in your home, your numbers will be different. A good thing about STRPs is that the guests pay an additional cleaning fee,that in our experience, covers cleaning. On our $100 example you will net around $77. So, let’s say you knock it out of the park and book 30 days a month consistently, netting $2310/month. In my experience, that amount would need to be at least double what I could get as a long term rental to be worth the considerable extra work involved- booking, responding to inquiries, facilitating cleaning, being “on call”, etc. If it does meet that criteria, and you have the temperament for it, the STRP can offer a great return.

Good luck and feel free to contact me with any questions!

Mike Geiger

Post a Comment