When it comes to choosing a rental property investment strategy, there are two options that real estate investors can choose from: a long-term rental strategy (known as a traditional rental strategy) and a short-term rental strategy like Airbnb rentals. In this real estate investment guide, we will examine each rental property investment strategy in depth as well as other key factors to make sure your investment property is a success.
It’s important to first note that both the long-term rental strategy and short-term rental strategy are a form of long-term real estate investment strategies, which entailbuying a property for the purpose of holding it for a long period of time. This is alsoknown as buy-and-hold real estate investing. On the other hand, a short-term investment strategy is one where you intend to make money off the investment property without holding it, such as real estate wholesaling and flipping real estate.
Related:Top Six Real Estate Investment Strategies
Long-Term Rentals
Long-term rentals are purchased with the intention of finding tenants who will remain in the property for a long period of time. This traditional rental strategy is the most common rental property investment strategy where investors make money by collecting monthly rent and by selling the appreciated real estate property in the future.
Buying an investment property and renting it out following the traditional strategy can be a good way for beginner real estate investors to learn about property investing without being exposed to high levels of risk. Given the high demand for long-term rental properties of all types, all you have to do is learn how to find the best properties.
Short-Term Rentals
The short-term rental strategy is often referred to as the Airbnb rental strategy due to the vacation rental website’s popularity. The main idea behind an Airbnb rental is renting out a real estate property on a nightly basis for a period less than a month. Many vacationers and travelers prefer staying in a short-term rental over an actual hotel because it is mostly cheaper than a hotel stay and gives the traveler a better local experience.
Due to the effect on the long-term rentals market, however, many states and cities have resorted to zoning and municipal requirements that control the short-term rentals market. In some locations, it’s even illegal to rent out non-owner occupied vacation rentals.
Still, going for a short-term rental property investment strategywhere it’s legal has many benefits. The most important one being the high rental income that you could make off the property.Through an Airbnb rental strategy, landlords can typically make more than 20% of what they would make on a traditionally rented property.
Related:Airbnb vs Traditional Renting: Which Rental Strategy Yields Higher Rental Income?
Keep in mind that since Airbnb rentals are rented out on a nightly basis, occupancy rates play a huge role in building your wealth. Wondering how to find Airbnb rental properties with high occupancy rate? Keep on reading.
At this point, you have the information you need to choose a rental strategy. Once you decide, it’s time to move on to finding the right rental property.
Choosing the Optimal Rental Property
Whether you decide to follow a short-term or a long-term rental strategy, an important step before you actually buy an investment property is real estate investment analysis. Why? You want to make sure that the real estate property meets your expectations in terms of cash flow, cap rate, cash on cash return, and average occupancy rate.
Calculating these real estate metrics is possible yet time-consuming. That’s why Mashvisor provides the best tools for areal estate investment analysis and finding the best investment properties. Our unique property finder tool helps you filter out properties based on your preferred rental property investment strategy, showing the properties that have the highest cash on cash return. All you need is a free Mashvisor account to get started.
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Once you find a promising income property, ourrental property calculator provides calculations such as cap rate, cash flow and occupancy rate for traditional vs Airbnb rental strategy. These metrics can help you decide if an investment property is worth investing in. Moreover, the rental property calculator tells you the optimal rental property investment strategy that you should follow for maximized profits.
Financing Your Rental Property Investment
Once you find a rental property, you need to secure financing. And when it comes to financing a rental property investment, you can either pay in cash or secure a mortgage or other debt financing options like owner financing and hard money loans. Both methods have their respective pros and cons, but if you ask me, I would say that leveraging a real estate investment with any of the financing options available wins over cash.
Leveraging in real estate investing means using other people’s money (banks and financial institutions) to make a profit. The risk involved with buying a rental property using debt is much lower than using cash. If something goes wrong, or the rental market crashes, you risk losing much more if you have bought the property outright in cash.
Financing a rental property investment strategy with debt gives you the opportunity to buy more than one investment property at the same time, securing higher cash flow and higher cash on cash return.
What You Need to Know About Rental Property Management
Once you’ve done all the work in finding and buying a property, the next step is to manage it. Managing a long-term rental property is fairly easy to do. However, since investing in rental properties is not a passive investment, this requires some effort on your behalf. Maintaining the property comes with a yearly cost of around 5% of the rental income. If you lack the time, you can always opt for professional property management services that will take care of everything in exchange for a service fee.
Related:When Should Real Estate Investors Hire Professional Property Management?
On the other hand, managing short-term rentals is quite different. On top of the property management costs that come with every rental property, there are certain tasks that you are required to perform when owning an Airbnb rental. Since tenant turnover is higher (expect to have several tenants during the same month), keeping the rental property clean is your top priority. Thanks to Airbnb’s platform, you can charge each guest a cleaning fee.
Going for the Airbnb rental property investment strategy means that you have to be there when your guests arrive and leave, adding more responsibilities. However, you can opt for professional Airbnb management or smart solutions like asmart lock. This way you don’t have to be present when guests arrive or leave.
The Bottom Line
Succeeding with a rental property investment strategy requires attention to a lot of different aspects, from choosing the rental strategy to investment property analysis to financing and management. Now that you know all of the basics, it’s time to start looking for a property. Click here to get started.
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