I am sure by now you have heard of the many nightly rental websites that allow property owners to advertise their homes, apartments, and even extra rooms for rent on a nightly basis. There have of course been some controversies over this new industry as it takes revenue away from the hotel industry and thus decreases the amount of taxes that local cities receive from the transient tax. One way or another, you have likely heard of this industry by now. Have you taken the time to analyze this as a viable investment opportunity, though? When you start running the numbers and seeing what others are doing, then it starts looking very attractive.
If you take your typical rental that rents for $1200-1500 per month and convert it to a nightly rental, you should see about double the gross income. You will have some additional costs of course, and if you have the right property in the right location, that can easily increase to 4 times the long term rental income. This all sounds nice, but of course you are naturally wondering about the additional costs associated with nightly rentals and the added time it takes to manage these properties.
The largest cost is the initial design and furnishing of the unit. You will need to fully furnish these units to make sure they are attractive. Furnishing doesn’t end with just the beds and living room furniture. You should ultimately have a fully stocked home, so a complete set of dishes, tableware, pots, pans, etc. will be needed. You will also want to pay close attention to the details - . keep in mind that you are competing with hotels that have onsite staff. So, go the extra mile and provide some travel toothpaste, toothbrushes, Q-tips, shampoo, and ultimately anything else that someone could forget to pack. You also want to make sure that all of the walls are decorated. Obviously this starts with a good paint scheme, but extends to the artwork on the walls and knickknacks on the shelves.
Many of the successful nightly rental homes incorporate some sort of theme in their design. It can be a design that highlights the local area and attractions or something much more unique. When picking out furniture it is good to remember that you want your guests to feel very comfortable and at home. So you shouldn’t go with furniture that feels “cheap”;, with that said you also don’t have to get expensive name brand furniture either. For many nightly rental investors, the step of picking out furniture or keeping an eye out for unique furniture items that they can incorporate is the most exciting part of the process.
The other cost is that you will have to have the unit cleaned and turned over after every visitor. If you go with a management company like IRC Real Estate, then you can typically take advantage of the volume discount they get from their vendors. This expense should be in the $50-$150 range depending on size and what turn over services you require. With the dramatic increase in income you are still much more profitable compared to a long term rental.
When it comes to maximizing your profits though, nothing matters more than location, location, location. With nightly rentals this isn’t just a business cliché, it truly matters. When choosing a property to use as a nightly rental you should always start by searching within close proximity to areas that travelers might go. The obvious locations are attractions like ski resorts, near airports or children’s hospitals, wine country, coastal towns, and city downtowns like Portland, Bend, & Salem for events and legislative sessions, to name a few. If you have a property in a good location with a good interior design, then you can end up with a fully booked home almost year round. Depending on the location, design quality, vacancies, and size you can expect $100-$1000+ per room per night in revenue.
Keep in mind that this type of investment property is truly a full time job. For a popular property you will have a check in, check out, and turn over to coordinate nearly every week. In addition to this most of these sites are heavily reliant on reviews by your guests and your rating on things like response time to inquiries. So you have to always have your smart phone on you 7 days a week to make sure that you are able to respond within hours.
As you can tell this kind of investment isn’t for everybody given the work it requires. This is why the investors that truly view being an investor as their profession hire property management firms like IRC Real Estate. This allows you to focus on finding and buying the properties in the right locations and possibly handling the remodel and interior design, but then turn it over to the management company. Some companies like IRC Real Estate even offer in house interior design services that will take care of that work for you.
If you are seriously considering getting into the nightly rental industry I am happy to answer any questions you may have and offer some free advice. With my involvement at the board level with organizations like the Portland Area Rental Owners Association, NW Real Estate Investors Ass