A Complete Guide to Short Term Rentals

Key Takeaways:

1. Short-term rentals can generate higher income than long-term rentals, especially in high-demand locations, but require active management.

2. Conduct a thorough market analysis using Ziffy.ai to check occupancy rates, average daily rates, and seasonality before investing.

3. Plan for all financial aspects, including down payment, furnishings, operational expenses, and ongoing maintenance.

Ever looked at a vacation home and thought, “I could be making money from this?”  

You’re not alone. The world of real estate investing is changing, and short-term rentals have become a game-changer for those looking to build wealth beyond the traditional 9-to-5. 

At Ziffy, we believe financial freedom shouldn’t be just a dream you wish to achieve. We’ve watched countless investors unlock a new level of income by turning properties into thriving businesses. Unlike a long-term rental, a short-term rental offers the potential for higher earnings, more control, and a portfolio that works harder for you. 

This guide is your roadmap. We’ll show you exactly how to get started, from finding the perfect property to managing it with confidence, all with a Ziffy-centric framework to help you succeed. 

What is a Short Term Rental and Why is it Different?

A short term rental (STR) is a property rented on a nightly, weekly, or monthly basis, typically for stays of 30 days or fewer. Think of it as a hybrid between a traditional rental and a hotel. This model offers several unique advantages and challenges for real estate investors. 

The Pros:  

• Higher Earning Potential: STRs often generate significantly more monthly income than traditional long-term rentals, especially in high-demand tourist or business destinations. Through dynamic pricing, you can adjust your rates daily to capitalize on peak seasons, holidays, and local events. 
• Property Control: You have the flexibility to block off dates for personal use, which you can’t do with a long-term lease. This provides a great perk for vacationing in your own investment. 
• Less Wear and Tear (Potentially): With a professional cleaning service between each guest, an STR can often stay in better condition than a long-term rental. The constant oversight can prevent small maintenance issues from becoming major problems. 
• Tax Advantages: STRs can offer unique tax benefits. If you qualify for “material participation” (spending a certain amount of time working on the business), you may be able to deduct expenses like cleaning, utilities, and mortgage interest, potentially reducing your taxable income. 

The Cons: 

• Inconsistent Cash Flow: Unlike a long-term rental with a stable monthly income, STR income can fluctuate based on seasonality, occupancy rates, and cancellations. You must be prepared for months with lower earnings. 
• Higher Maintenance and Management: An STR is more like a small business. You’ll need to coordinate cleanings, restock supplies, manage guest communication, and handle issues 24/7, whether you do it yourself or hire a manager. 
• Local Regulations: STRs are subject to local zoning laws, licensing requirements, and homeowner association (HOA) rules. A great property can be a bad investment if it’s in a location with strict regulations or outright bans. 
• Utilities and Expenses: As the owner, you are responsible for all utilities, including electricity, water, cable, and internet. These operating expenses are higher than with a long-term rental. 

The Investor’s Playbook: Getting Started with an STR

At Ziffy, we’ve broken down the process into key steps to ensure you make a data-driven investment. 

Step 1: Conduct a Deep Market Analysis 

The foundation of a successful STR is a strong market. You need to identify a location with consistent demand. 

What to Look For:

• Occupancy Rates: This tells you how often properties are booked. Look for a market with an average occupancy rate of at least 65% to ensure consistent income. 

• Average Daily Rate (ADR): This is the average price per night. A high ADR indicates a market that can support premium pricing. 

• Revenue Per Available Room (RevPAR): This metric combines occupancy and ADR to give you a clearer picture of a market’s overall revenue potential. 

• Seasonality: Understand the local tourist seasons and how they will impact your cash flow. Be prepared for slow months.  

Step 2: Understand the Financials 

STRs have different financial requirements than traditional rentals. You must account for all costs, both upfront and ongoing. 

Initial Costs: 

• Down Payment: DSCR loans for STRs typically require a larger down payment. 

• Closing Costs: These are standard fees for things like appraisal, title insurance, and loan origination, usually 2-5% of the loan amount. 

• Furnishings and Supplies: You will need to fully furnish the property, including furniture, linens, kitchenware, and décor. This can be a significant upfront cost, so budget accordingly. 

Ongoing Operational Expenses: 

• Mortgage Payment: Principal, interest, taxes, and insurance. 

• Utilities: All utilities are your responsibility. 

• Cleaning Fees: The biggest recurring cost, typically paid after every guest stay. 

• Property Management Fees: If you hire a manager, this can be 15-30% of your gross rental income. 

• Maintenance: Expect to spend about 1% of the property’s value each year on repairs and maintenance. 

Step 3: Build Your “Power Team” 

You don’t have to do it all yourself. The most successful investors build a team to handle the operational side of the business. 

Your Team Should Include: 

• Investor-Friendly Ziffy Real Estate Agent: An expert Ziffy agent who specializes in STRs and understands the local regulations, market demand, and pricing. 

• Property Manager: (If you choose this route) They handle bookings, guest communication, marketing, maintenance, and cleaning coordination. 

• Reliable Cleaning Crew: The foundation of your business. A good cleaning crew ensures a positive guest experience and good reviews. 

• Handyman/Maintenance Person: For quick fixes and routine upkeep. 

Our network of real estate professionals can provide invaluable local knowledge. A Ziffy agent can help you quickly identify if a property is in an STR-friendly zone and guide you through the process of building your team. 

Short-Term Rental Management Strategies 

Once you own a property, you have two primary options for management. 

1. Self-Managing: 

• Pros: You get to keep all the revenue and have full control over the property. 

• Cons: It’s a significant time commitment. You are on call 24/7 to answer guest questions and deal with issues. 

2. Hiring a Professional Property Manager: 

• Pros: It’s a hands-off approach. The manager handles everything, from marketing and guest communication to maintenance and emergency calls. 

• Cons: You pay a fee (15-30% of gross revenue), which eats into your profits. You also have less direct control over the property. 

The Final Word 

Investing in short-term rentals can be a rewarding and profitable path to financial freedom. But like any good investment, it requires a data-driven strategy and the right tools.  

At Ziffy, we combine the best data analysis with the financial expertise you need to succeed. From analyzing the market to securing a DSCR loan, our platform is built to support you at every stage of your STR investment journey. 

FAQs

About the author:

Michele Lawrie, a seasoned real estate professional with licenses in New York and Florida, serves as the Real Estate Consultant at Ziffy. With over 15 years of experience and specialized certifications from the NAR (National Association of Realtors), Michele is a trusted expert for investors buying US real estate.

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