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5 Ways to Get the Most From Your Short-Term Rental Investment

The short-term rental marketplace is competitive. Use these five strategies to stand out and boost your profits.

[Updated: Feb 04, 2021] Sep 03, 2019 by Aly J. Yale
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The short-term rental game has gotten competitive in recent years. Airbnb alone has more than 6 million listings worldwide, and when you throw in the countless other platforms out there -- VRBO, HomeAway, TurnKey, Flipkey, and, just to name a few -- today’s travelers have options, and lots of them.

As a result, it’s becoming increasingly more important for short-term rental investors to up their game, both in marketing strategy and in investment approach.

Do you want to make sure your short-term investment properties are poised for success as the competition heats up? Here’s how to get the most out of your investments:

Be smart about where you buy

When it comes to short-term rentals, not all locations are created equal. In fact, if you look at recent data from Airbnb data firm AirDNA, it’s pretty clear: finding a high-profit spot to buy is harder than it looks.

The site’s 2018 data actually shows a negative correlation between home prices and gross revenue, with houses in high-demand areas like Portland, Seattle, and Hollywood bringing in some of the slimmest profit margins in the country. The most profitable spots? Those are in smaller cities like Gatlinburg, Tennessee (where the median Airbnb profit is over $53K per year) and Palm Springs, Florida (where investors can make upwards of $125K per property annually).

Do your due diligence and use tools like AirDNA, AllTheRooms, and Mashvisor to narrow in on the most profitable places to invest. Make sure you study up on local laws and housing regulations before investing, too. Some municipalities have banned or limited short-term rentals in recent years (many HOAs have rules against it too).

Price your listing right -- and adjust it often

In the short-term rental world, rates aren’t a set-it-and-forget-it type of thing. Choosing a permanent bargain-basement rate might bring in the travelers, but will it bring in the profits? Probably not.

Your best bet is a dynamic pricing strategy, one that takes into account timing, local supply, demand, and more. Airbnb has a built-in tool that helps you automatically adjust pricing based on demand, but if you want additional data and a more customized approach, an outside pricing tool might be best.

Here are a few of the short-term rental pricing tools that are currently out there:

Make sure you also frame your pricing in a long-term light. Sure, getting $350 a night sounds great, but if only one out of every 100 travelers books it, then you’re not making very much cash (and you have serious vacancies to boot). If you price it at $295 and book up solid, you’re making much better annual yields.

Leverage key tax deductions

Part of increasing your revenue lies in reducing your overhead costs -- and leveraging a few key tax deductions and credits can help you do that.

Here’s a look at some of the tax benefits you might be eligible for as a short-term rental investor:

Deduction / Credit Details Eligibility / Limits
Pass-through tax deduction You can deduct up to 20% of your qualifying business income, plus 20% of qualified REIT dividends. You must qualify as a sole proprietorship, partnership, or S corporation. C corporations are ineligible. The total deduction depends on your tax bracket.
The 14-day rule You don’t need to pay income taxes on rental earnings if you rent the property for no more than 14 days per year. You must rent the property for 14 days or less per year. You must also use the home for yourself at least 14 days per year or 10% of the days you rent it out.
Business expenses As with any business, you can deduct many of the day-to-day expenses you incur in your rental endeavors. This can include hosting and cleaning fees, occupancy taxes, insurance premiums, supply expenses, and other costs you incur while operating your business. You must be operating your rental business to make a profit, and any expenses must be considered an “ordinary and necessary” cost of doing business. 
Depreciation deduction You can claim depreciation deductions on both the cost of the property and any money you’ve spent to improve it.  You must own the property for which you’re claiming the depreciation, and you must be collecting income on it. Routine repairs and maintenance are not depreciable. 
Mortgage interest tax deduction This deduction allows you to write off the interest you pay across your mortgage loans. There is no limit to this deduction, as it is considered a business expense.
Restoration and betterment deductions You can write off expenses incurred when improving or restoring your property. The expenses must have gone toward fixing a pre-existing defect, enlarging or expanding the property, increasing the home’s strength or capacity, or replacing/repairing a structural part of the property.
Travel deductions You can deduct mileage and other expenses incurred when traveling to and from your rental properties to conduct business. You must keep a record of your mileage, and you can’t deduct travel expenses related to improving the property.

Table source: Internal Revenue Service.

These are just a few of the potential write-offs and deductions you might be eligible for as a short-term rental investor. Be sure to talk to your accountant or financial advisor about others and to learn more about claiming them.

Know how to market in the off-season

It’s easy to rake in profits when your beach house is in high demand, but in the off-season, it takes serious creativity and a little marketing savvy to keep those bookings rolling in.

There are three ways to do this:

  1. Be better than the competition. Offer something your competitors don’t (be it a lower price, more amenities, or a better location), and snag those few-and-far-between travelers when they crop up.
  2. Capitalize on local events -- even small ones. Stay tuned to community calendars, concert venues, performance halls, athletic teams, and local organizations, and use these to guide your marketing efforts. Tailor your listing description, photos, and even your headline to the travelers you know are coming in, and reach out to organizers of local events to recommend your space or include you in any brochures or websites they might manage.
  3. Rank high in your platform’s search. One of the best ways to ensure you get those rare, off-season bookings is to be the first listing a traveler sees. This requires a good balance of quality photos, descriptive listings, a fully built-out amenities section, and a positive feedback and rating history.

You might also reach back out to past customers with a discount or deal. If they’ve visited the area once (and you delivered a good experience), there’s a good chance they’d be willing to return again if the price is right.

Encourage repeat business

They might be short-term guests, but if you can snag their business for the long haul, your returns will be better off for it. There are the obvious ways to do this (be responsive, offer a stellar experience, etc.), but let’s face it: you can get more creative than that.

You might also try:

  • Targeting business travelers. These are guests you know will need regular lodging and likely for the long-term. Consider targeting them in your listing descriptions, and offer business-friendly amenities, like blackout curtains (for those jetlagged naps) or earplugs and super-fast Wi-Fi (for cranking out that late-night work). You might even consider investing in properties near conference centers, airports, or other areas frequented by these travelers.
  • Offer friend discounts. Give your guests discount codes or referral rewards, and encourage them to send friends and colleagues your way. It’s not “repeat” business per se, but it is additional business from a previous client (and that still means more cash in your pockets).
  • Updating guests on new developments. Did you add a hot tub? Did a new restaurant or shopping center go in next door? Is there a big conference going on down the street? Send a message to past guests and keep them apprised of the changes. You never know when something might strike a chord.

You can even go the old holiday card route and send past guests your season’s greetings when December rolls around. Tons of people travel around the holidays, and a nice card (or e-card, even) can keep you top of mind when they go to book their lodgings.

The bottom line

Complacency doesn’t cut it in the short-term rental game. If you want to stay competitive, stand out from the crowd, and keep profits up even in the off-season, then you’ll need a smart strategy and solid data to back it up. Thankfully, there are tons of tools (and tax credits) to help along the way.

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