Celebrating 3 Years! 6 Benefits of Owning a Short Term Rental

Every year in early October, I reflect back on the start of this journey. It’s one of the times in my life where I’ve felt VERY alive, so I remember many of the details. Last year I shared my craziest stories and my favorite things about my STR experience so far. The good news is that I don’t have any crazy stories from this past year to share! Less humor for you; less chaos for me!

This year, I’m focusing on sharing the benefits of owning a short term rental. I still get questions from people about the “weirdness” or “danger” of hosting guests in my house, or about the workload, or simply why in the world I would want to do this.

However, every year, there are more people who like the concept, understand the model, see the value, and are actually jumping in to do it. So, what are the benefits?

Revenue - Cutting right to the chase, earning money is the main reason someone decides to set up a short-term rental. Renting out extra space in homes to people dates back to the time of ancient Rome. This is when the concept of landlords was documented for the first time. You have an asset, you have extra space, why not earn some extra money by renting it? Fast forward to the Great Recession of 2008 and the founding of Airbnb and the term “Sharing Economy” was coined. It too, has been around forever, but has only gained in popularity from late 90s with companies like Ebay and Craiglist. The sharing economy is here to stay and it permeates many areas of our lives.

So, how much revenue can you expect to make? Considerations:
1. How many rooms will you have available?
2. Where are you located - near a university, in a city, near a lake, or out in the boonies? All can work, but where you’re located drastically affects revenue.
3. Do you want to create a low-budget option, a premium experience, or something in the middle?
4. How flexbile do you want to be? This applies both to your cancellation policy and also to your nights per stay threshold.
5. How much risk do you want to take? Some hosts turn off “instant book”. They want to check out guest’s profiles, communicate with them, and see their reviews, before they accept a booking. However, Airbnb promotes listings with “Instant book” on, so you’ll get less visibility.
6. And of course, how well do you take care of your space, communicate with your guests, listen to your guests, and deliver more than expected? If you do these things, you’re more likely to get 5-star reviews, and more likely to attract guests and be able to command a higher price.

There are other things that affect your revenue once you’re in the game - keeping your expenses low, hiring good and affordable cleaners, making sure your listing is marketed well, and figuring out how to set pricing accurately and adventageously, but the 6 considerations above are the prime things to consider before jumping in.

PRO NOTE: To get a reasonably accurate estimation of your potential revenue, sign up for a free trial of Airdna. Enter your property address and details, and it will give you an estimated total revenue, price per night, and occupancy %.

2. Tax Advantages - If you’re already a homeowner, you know that there are great tax advantages to owning a home. It just gets better if you run your Airbnb as a business. You have a lot of flexbility with how you show revenue and expenses of your short term rental. You’ll deduct your housing expenses from your revenue - as many as you want (note, I deduct half since I live in half my house). This includes things like cable and yard maintenance. I also choose to reinvest my revenue into the home, so I’ve made home improvements each year. Some things are just for the vacation rental part of the space, but some things are for the whole property. These make my house more marketable now AND in the long term. These improvements also reduce my income, and improve my tax position. Bam!

3. Constant Home Improvements - Let’s talk about those home improvements. Have you ever gone to sell a house and wished you had kept it up as nicely as you’re preparing it for sale? When you own a short term rental, you keep your house kept up as you own it. I have a guest book that asks several questions, but the final one is “What can I do to make Hillside Manor better?” I get a lot of great suggestions.

Here are just some home improvements I’ve made from this past year:

Replaced the front screendoor with a much nicer version (full expense)
Added ceiling fans to each bedroom (full expense)
Cut down the bamboo from my yard (half of the expense)
Cut down more invasive species from my front yard and replanted (half of the expenses) - See the head photo - the guys who planted my wildflower garden!
Changed out all the locks with more effective and safer locks. (half of expenses)
Changed out the thermostats to be SMART thermostats, so I can control heating costs. Next up is making the lights smart for the same reason (half of expenses)

4. Two-Way Feedback - I mention it above, but more detail on this. Reviews are the most important aspect of running a successful short term rental. And, you must get mostly 5-star reviews to stay competitive.

I decided early on to include a guest book upstairs where people could share a few other things - where they come from (all 50 states now), why they chose Hillside Manor over other listings (learn what is appealing in my marketing), and how I can improve the space (if they know I’m open to feedback to make it better, they’re more likely to still leave a 5-star review even if they found an issue). It’s worked really well.

Going back to the concept of selling a home…when you put it on the market, you don’t know what people are going to say about it, what they’re going to like, or not like. When you run a short-term rental, you get a preview of what people think and say through the review process. Then, you adjust to improve.

5. Flexibility - If the occupancy and revenue are high enough, you can choose to close the vacation rental. Maybe you want a break, you want to go on vacation and not worry about cleaners or anything going wrong, you’re doing home improvements, or you want to host an event yourself, you can simply block a night or a week. Another great option - if you want to host a friend or family in trouble - you have the space set up and are perfectly positioned to do so.

Then, one of the concerns I hear from folks who are scared to start hosting is what happens if my city puts in restrictions against short term rentals someday. Well, one, because I live in a portion of the house, mine is considered an STR with the owner on the property. Those will have less restrictions. But, even if you don’t live in your vacation rental, often cities allow a Bed & Breakfast model even if they don’t allow STRs, and of course, there is always the mid-term or long term rental model. There are just so many options.

6. The People - I tell people who are interested in starting a vacation rental that they either better really love engaging with people, or they better budget for someone to run their property for them. This is 100% a hospitality business. Whether you have a model where you “share” your space with guests and therefore meet them, or a stand alone model, where you don’t meet them, you’re still going to be engaging with people A LOT. I have a mixed model. I let guests know I’m happy to meet them if I’m home, or happy to stay out of their way. I meet about 40% of my guests. Here are some of the great things that have come from the people I engage with:

The guests who stayed because they were here to see an author signing by Louise Penny. I didn’t know that author. They said I must read Still Life. Penny has become one of my favorite authors. I’ve read 14 of her books.
The electricians who stayed about 40% of the month this past March, April, and May. They were from Chicago. Their wives were great cooks and made enough food that they wanted to share. I enjoyed several meals with them.
The Morris family who stays for every football game for the last three years. I love rooting for Tyler to score touchdowns along with them. It’s because of them that I became a U of M football fan, and now a football fan! Bonus: Tyler’s uncles also clean my air conditioning filters when they’re here!
There are countles people I’ve had a glass of wine or a beer with when they’ve invited me up. There are many adorable children I’ve met and played with. And, with several guests, I share gardening tips back and forth. They admire my flowers and share photos of theirs along with tips.

DO YOU NEED HELP GETTING YOUR SHORT TERM RENTAL STARTED?

I’m happy to help you figure out your strategy, answer all your questions on what to include and where to buy your materials, and help you set up your Airbnb and VRBO listings so they are effective from the get-go. I charge $500 + letting Airbnb know I referred you to their platform. I can take up to 2 clients per month.

Reach out if you like help getting started!