The short-term rental field has become competitive in the last few years. With millions of listings around the world, the modern traveler has more options than before.
This means investors have to up their marketing strategies and investment approach to ensure short-term rental profitability.
How can you make sure that your short-term rental investment property is poised for success even with the increasing competition? Here’s how to do that.
Make a location-smart purchasing decision
When investing in short-term rentals, all locations are not equal. AirDNA shows that finding a high-profit location may be harder than it looks.
There’s a negative correlation between gross revenue and home prices. Properties in high-demand neighborhoods sometimes bring in slim profit margins. Conversely, properties that bring you the best profits are in smaller cities.
You should seek short-term rental advice for specific areas of interest. Plus, carry out your due diligence so you focus only on the most profitable locations to invest in.
Make sure you understand the local housing regulations and laws before you buy the short-term rental property. In recent years, some municipalities have limited or banned short-term rentals while many homeowner associations (HOAs) are against them.
Take advantage of tax deductions
Part of increasing the short-term rental profitability lies in the ability to reduce overhead costs and leveraging a few critical tax credits and deductions.
Some tax benefits you may be eligible for as an investor in the short-term rental industry are:
- Pass-through tax deduction—Deducts up to 20 percent of the qualifying business income and 20 percent of qualified Real Estate Investment Trust (REIT) dividends. You can qualify for this deduction as a partnership, S corporation, or a sole proprietorship.
- The 14-day rule—It does not require you to pay income taxes on your rental if the property is occupied less than 14 days annually. You must use the property for yourself a minimum of 14 days per year or 10 percent of the days renters are in it.
- Business expenses—Deduction of daily expenses that go with your rental efforts. These include cleaning fees, insurance premiums, and supply expenses. You must be in the rental business for a profit, and expenses should be a necessary cost of doing business.
- Travel deductions—You can deduct expenses such as mileage for traveling to your rental properties for business. However, you must maintain a record of your mileage and cannot deduct travel expenses concerning improving the property.
These are just a couple of some deductions and write-offs you may be eligible for as an investor in a short-term rental. Be sure to seek expert advice from your short-term rental investment advisor or accountant to learn more about claiming them.
Encourage repeat business
While they are short-term guests, you can get their business for the long term, improving your returns. A few ways of doing this include offering a stellar experience and being more responsive to their requests.
However, you can be a bit more creative as well to increase the profitability of a short-term rental investment opportunity. Some of the best tactics include:
- Providing friend discounts — Giving your guests referral rewards and discount codes encourages them to send their colleagues, friends, and family to your property. While it’s not the conventional “repeat” business, it brings more business from a previous tenant.
- Target the business traveler — Business travel means people require regular lodging, which can turn into a lucrative long-term opportunity. Consider targeting the business traveler in the listing description. Plus, provide amenities that are suitable for the business community, such as blackout curtains for jetlagged naps and fast Wi-Fi connectivity for late night or early morning work. Consider purchasing properties that are close to areas that are frequented by business travelers such as airports and conference centers.
- Update guests on new property additions — Send a message out to your past renters and keep them apprised of fresh additions within your property and around the neighborhoods. Something such as adding a new hot tub, a new shopping complex next door, or a big conference in town may strike the right chord.
Holiday and season’s greeting cards are also a good way to stay in touch with your past guests. People are traveling over the holidays and an e-card can keep your property in their mind as they look for places to book.
Adjust your pricing often
In short-term rental markets, the rates are not set and forgotten. Choosing a permanent bargain rate might bring in guests but may not be sustainable to bring a profit.
The best thing to do is adopt a dynamic pricing strategy that considers factors such as local supply, demand, and timing. However, make sure that you frame the pricing as a long-term strategy.
For example, a rate of $400 a night sounds great, but you are not making much cash if only 10 percent of travelers are booking your property. But a price of $299 can ensure that your rental is booked solid and brings you better annual returns.
Market during the off-season
It’s easy to market your short-term rental when the location is in high demand. However, raking in profits during the off-season requires some creativity and a bit of marketing savvy to keep the bookings coming in.
A few strategies include:
- Capitalizing on big and small local events—Keep yourself informed of the local happenings, sports teams, concert venues, community calendar, and local organizations so you have a source for your marketing efforts. Tailor online listings, photos, and even the headline so travelers coming in know you are there. Plus, you might reach out to the organizers so they recommend your property to guests or even have it included in their websites or brochures.
- Offer better services—Give guests something competitors cannot, such as more amenities, lower prices, or even a better location.
The way forward
In the short-term rental game, complacency only leads to failure. If you want to ensure short-term rental profitability, stand out from the crowd, and stay competitive even in the off-season, you need to adopt a smart strategy. Thankfully, there are experts, tons of tools, and tax credits to help you achieve your dream.
The real estate world can be confusing and even daunting to some. Fortunately, The Fashionable Housewife can help you make sense of this world. Check out my blogs on real estate to find out more.