Buying a Short Term Rental - Common Mistakes

Starting a short-term rental can be a lucrative venture, but it's important to avoid common mistakes that many brand new hosts make - especially before pulling the trigger and making the big purchase.

Making an emotional investment

DO NOT make a rushed, emotional decision when it comes to purcashing real property. Many future Airbnb investors decide that they want to own a vacation home after having a great trip in a certain spot. Unluckily, decisions like these (based on emotions) might cause serious troubles in the future.

A well thought out decision of buying vacation rental properties should be based on a valid real estate market anaylsis.

Not sticking to a budget

When working with rental properties, especially short term rental properties, covering the monthly mortgage payments is only one of the costs associated with doing business. As a property investor, you should always try to plan ahead for every possible expense you may have. Various repairs and renovations are likely required in order to bring the property up to competitive standards with others in the vincinity. In addition to that, you should also include other expenses such as restocking goods and other monthly services provided in your property.

Moreover, many new investors forget to include the cost of furniture and other embellishments to make their investment property stand out compared to the others. You may not think about it right now, but furnishing vacation home rentals may cost a pretty penny. Therefore, it may be worth considering purchasing a property intented as a vacation rental already furnished and one that requires minimal repairs.

Create a budget and try to stick to it as much as possible. In order to do this, you can assess whether or not a repair / renovation / furnishing change is worth the money in the long run OR is going to have a positive return on investment.

Underestimating the effort of managing vacation home rentals

Finding the best place to buy a vacation rental property and buying it is only half of the job. As a short-term rental host, your time is valuable. Cleaning and maintaining the rental all by yourself can take up a lot of your time, and it's usually not possble to scale your business. Instead, hire a local, reliable cleaner and property manager to take care of the cleaning, laundry, and property management for you.

When Airbnb investors plan on making money with vacation home rentals, they should be prepared to treat it like a business. Having a great marketing plan and making sure that all of the moving parts are working properly will help ensure that you have a fuller occupancy rate. Having your Airbnb occupancy rate high is proof that you are doing everything right.

You also need to be prepared to be constantly online in order to provide fast and accurate responses to your tenants and their questions. OR this could be a great position to hire for as you scale your business. Having a great response rate consequently should reward you with positive Airbnb reviews. The latter is supposed to help increase your Airbnb bookings.

Buying an investment property without checking laws and regulations

You should know that not every seller will tell you the truth (or maybe they don't event know the truth) when selling investment properties. You should always check the rules and regulations of a certain city or state before investing in it.

For example, Maple Grove, MN is a great location close to the cities, shopping, events and more. It's a great place to have a rental property in Minnesota. However, in 2022, Maple Grove is no longer issuing rental licenses to any single family residence unless the owner is grandfathered in (meaning that they can honor current leases). Now if you had purchased a property in the city of Maple Grove with the only intention of being able to rent it out... you absolutely cannot do that and you could be fined for doing so.

Another example could be with an association limiting rental properties. Let's say you would like to purchase a condo in Minneapolis, MN near The US Bank Stadium - perfect for events and such right? Well let's just say that the association either doesn't allow rentals, has a required occupancy for properties before it can be a rental (min of a year living there), or has a maximum rental capacity which it has already reached. If you purchased a condo either ignoring all of those scenarios or without doing your research, you could be sh*t out of luck when trying to rent out the property short term.

Conclusion

Finding a property for the purpose of renting it short term is a great way of both making money in real estate and investing your liquid cash into an appreciating asset. Nevertheless, it is not as easy as it looks. There can be so many mistakes when investing in properties, especially when doing so emotionally and with lack of experience. It is extremely important to consult with a real estate professional before pulling the trigger to ensure you have a better idea of what you're getting into.