If you’re thinking about buying a short-term rental, your gut feeling about a property is important but not as important as running the numbers to shed light on whether or not a property will give you the financial return you’re looking for.
So as you consider properties, keep these 5 things in mind:
1) Cash flow analysis: The expected monthly rental income minus all expenses, including mortgage payments, property taxes, insurance, maintenance and cleaning costs, and Airbnb fees.
2) Occupancy rate: The percentage of occupancy in your property at a given time. The expected occupancy rate for a property will affect its cash flow.
3) Location analysis: The local market, competition, and seasonality will impact rental rates. Compare properties to ensure yours is likely to generate enough income to cover costs.
4) Capitalization rate (CAP rate): A measure of the property’s expected rate of return. Find it by dividing the net operating income by the purchase price or current market value.
5) Tax implications: Consider the tax implications of owning a rental property, including the impact on your personal income tax and the potential benefits of depreciating the property.
The truth is not all short-term rentals are created equal. Before you jump in, make sure you consider these things that can help you own profitable rental properties.
Do you have any other questions about short-term rental investing? Drop them below or send us a DM.
