Short-term rental investing can be a very lucrative venture, but its critical to ensure you have the right information going in or you could be in for some rough waters. For those who purchased short-term rentals in the right areas at the right time, their equity and cash flows have been astronomical over the past several years. But those that entered the wrong market at the wrong time have paid dearly, and are already starting to exit their positions at a loss to their original purchase price.
Short-term rental investing has become a more and more popular asset class with investors from small mom-and-pop to large institutions . With cap rates above 10% and cash-on-cash of 30%+ for the right properties, those that used to focus on long-term rentals are wanting a piece of the action. The result has been a deluge of inventory supply, fierce competition for bookings, and investors looking for ever-creative ways to enhance their STR's marketability. People have started self-managing to save on management commission, but are realizing it's more than a full-time job as guests and properties need constant attention and being on-call 24/7 is the stark reality of self-management.
In relationships, they say Timing is Everything. In real estate, they say Location, Location, Location. In short-term rental real estate investing, you have to be perfect on BOTH timing AND location. If you purchased in the Smoky Mountains pre-COVID, you looked like a genius; but had you waited just 2 years after the prices and interest rates skyrocketed, your investment could be in the red.
In the current climate, it's absolutely critical to be optimized across every aspect of your rental's value chain. This requires constant analysis of the market fundamentals, the macroeconomy, the STR's performance, new market analysis, and the economics of acquisition and disposition. Working with a data-driven, operationally-streamlined management company can ensure your investments are sound, and give you the perspective to know when to hold and when to sell.
Like everything else in the economy, STRs are cyclical, and understanding the full dynamics of the local market and its interaction with national and global markets can give you an edge on your next investment. Selling one market to enter into a growth market could be the difference between a negative return and a home run if you get your timing right. The current environment presents wonderful buying opportunities as more motivated and distressed sellers will begin abandoning hope that they will recover their investment. Working with an expert like Peak Season can ensure your current investment will be optimized while also presenting you with options for future opportunities.
