Since the arrival of short term rental websites like Airbnb, VRBO from HomeAway, there has been a lot of speculation as to whether or not renting out your investment property on a short stay basis would provide a better return than a long-term lease.
And the answer is… It depends!
Obviously, long-term renters can provide a sense of security in that you know you’ll be receiving the same amount of money each month in order to cover your mortgage, property management and other expenses. And in a perfect world, after all these expenses are paid, you’ll see a modest profit each month.
However, short-term rentals can command a higher nightly rate and has proven to be a more lucrative strategy “in some cases.” Some estimates show short term renting can provide returns up to 30% higher than traditional month to month rentals or long term leasing.
So… “depends on what?,” you may be asking.
First off, the term “Location. Location. Location.” has never been more applicable, as this strategy definitely relies heavily on the property’s location and its proximity to attractions such as galleries, museums, theater, nightlife, and of course dining and shopping.
Fortunately, here in the Phoenix area there is no shortage of attractions, not to mention numerous golf courses, sporting events and mountains which provide tourists the opportunity for hiking, biking, climbing and other outdoor activities.
According to VisitPhoenix.com, the city of Phoenix hosted nearly 18.2 million visitors in 2016, including more than 1.4 million international visitors. So we can safely say that the Phoenix area is a very popular destination place for visitors from all over the world.
The second thing, which many newbies tend to overlook, is that running a short term rental business is not the same as leasing out your home and providing a minimal level of service. a.k.a. urgent repairs.
Listing your property on Airbnb takes you from a traditional Real Estate Rental Business and puts you into the “Hospitality Business.”
In short, you are no longer simply leasing out 4 walls and a roof. And the role you play is more akin to that of a concierge or a tour guide.
In addition to providing a completely furnished home, casita, condo or townhouse, you’ll also be providing amenities such as Wifi, TV and Cable, plates, dishes, cooking utensils, complimentary bottled water, as well as provide directions to nearby landmarks and answer questions about the weather and so on.
You get the point!
If you’re willing to embrace the fact that running a short term rental business is a lot less hands off than managing a traditional rental property, the rewards can be tremendous as well as lucrative.
A huge plus for those interested in pursuing this type of business model in Arizona is a relatively new state law which says that municipalities are no longer allowed to ban or restrict short term rentals in any way.
However, the law does “not” apply to properties that belong to an HOA and states that government agencies can not interfere with the HOA rules homeowners agree to when purchasing their properties. So obviously if you’re planning to purchase a short term rental property, be sure the HOA rules allow for short term rentals.
The tax collection process was also a bit daunting to many hosts. So Governor Ducey and Airbnb came up with a plan to simplify that part of the process as well. And Airbnb now processes the tax as part of the individual rental transactions. In short, the tax hassle has been eliminated for hosts and the tax revenue is paid to the state in a timely manner.
Stay tuned for part 2 of this article series where I’ll be discussing how our Smart Map Comping System can help you to locate ready to rent properties in desirable Phoenix area neighborhoods and determine whether or not they would be profitable as Airbnb, VRBO and HomeAway short term rentals.
If you have any questions, or you need help analyzing a particular property, please don’t hesitate to contact me.