Short-term Rental Properties are different from Long-Term Rental Properties and the smart investor will have a plan.
As a realtor, I field a lot of calls and interest from people who are interested in investing in a Short Term Rental (STR) property in the popular vacation home area of the Poconos. Some of these inquires come from real estate investors who own residential apartments or homes for rent and they are exploring the higher potential earnings that a popular STR property can bring. Investing in a short-term rental unit is very different than investing in a long-term rental because fundamentally having a short-term rental business is more like having a motel than having an apartment building. Having a vacation home rental is the equivalent to a small hospitality business and it is not a passive investment.
Developing a STR business requires a much more active and engaged role with your guest and more attention to guest relations. This is especially important at the beginning of your business development when the STR is starting to build reputation and gain its footing against local competitors. I often direct clients to take a look at the short-lived CNBC show called Cash Pad in which JoJo and Jordan take properties, add their magic and bring them into revenue generation. Their advice is to build a STR business on 3 key metrics: Rates, Occupancy and Reviews. Everything they invest and everything they do is designed to impact these numbers and these gages are interrelated. As an example, in the very beginning of your STR business, you might need to start with a lower rate to boost occupancy as you do not have any reviews. As guests tell of a great experience (reviews), you could start to inch rates up without impacting your occupancy.
Another good primer in running a Vacation Home STR comes from HGTV and their show Vacation House Rules. The host Scott is a general contractor and rehabs vacation homes in Canada and has 5 rules he applies to each conversion:
Vacation House Rule #1: Do Your Research – Know what brings people to your area, identify your target customer and what will be a big draw.
Vacation House Rule #2: Design It – Plan for a place that will be memorable
Vacation House Rule #3: Get Noticed – Add features or amenities that make your place one of a kind
Vacation House #4: Roll up Your Sleeves. Contractors are great, but do some of the work yourself
Vacation House Rule #5: Be Your Guest. – Put yourself in your guest’s shoes and walk through the house, its accessories and ask yourself, does it deliver on what you promise.
What both these TV shows have in common is that success in the short-term rental business comes from creating memorable experiences that become the basis for reviews and recommendations, which then boosts your property and your hospitality business over your competitors. A successful STR will have 1-2 groups per week and each group needs to be marketed to before and after the visit. There are services and even software that can help you with guest relations, property management and marketing but this comes after you get your business started.
Getting your STR business started requires you develop a brand, a target demographic and an investment in getting that started. Having a property listed on VRBO isn’t a guarantee of success, just like opening a restaurant or hotel doesn’t mean you’ll get guests. If your STR is adjacent to tennis courts, perhaps you have a tennis theme in home decor and in amenities at your property. If you are lakeside, then you will benefit from having a key kayaks, paddle boats or canoes on the property. If the centerpiece of your community is a golf course, then your home decor and target audience is best focused on golfers. Before investing in the STR business, you should really develop a business plan to get you started in the right direction and jump start your start-up.