Is it a hotel or a vacation rental? This is a common question if you have ever vacationed with family or friends in the past decade. If you are like many travelers, you might have traded the comfort of home-keeping, 24-hour check-in, and other amenities of hotels for the convenience and affordability that comes with a vacation rental, such as access to a communal space, kitchen, and other useful accommodations.
Short-term rentals are a popular option for real estate investors due to their popularity. A short-term rental property is a great way to grow your cash flow and help you finance future real estate investments.
Investors face the greatest challenge because many local governments have passed legislation that severely limits or bans short-term rentals. Condotels, a new trend in short-term rentals, will prove to be a great opportunity for investors looking to make a profit and operate legal short-term rentals.
The Short-Term Rentals: Challenges and Opportunities
You have three options to invest in this type of property:
* Option 1: A property that you plan to use as your primary residence is purchased.
* Option 2: Your primary residence can be used as a short-term rental in order to generate income and offset your expenses. You can choose from two types of short-term rentals for your primary residence:
1. When you travel or live somewhere else, you can rent your entire house.
2. Subleasing is a way to rent out an area of your house, whether it be a room in the main house or an ADU in your garage or basement.
* Option 3: A property you only intend to rent out for short-term income generation is purchased.
Option 3 is often the most attractive to real estate investors. However, it can be difficult or impossible to achieve in most cities. Denver was the place where my real estate company is based. There was a significant crackdown on short-term rental investors. You can no longer rent your primary residence for short-term rentals.
I am the listing agent for the condotel in Denver. I believe it will change how investors view short-term rentals. It could also be a trend in other cities.
Condotels are hybrid properties made up of individual condominium units. They operate as hotels but are not subject to the same laws as residential short-term rentals.
The managing company can let units to travelers, in the same way as they would rent a hotel room. They also have access to the best of both worlds in terms of amenities, such as full kitchens and living rooms, concierge services, and access to gyms, restaurants, or retail spaces.
This type of property is in high demand among investors as well as short-term renters. I see this trend continuing. In October I listed the condotel units in Denver and sold almost all of them within two months.
Condotel investing is an excellent opportunity for investors who have enough saved for a downpayment and are looking to purchase their first property. Instead of purchasing a house in suburbia that will appreciate in value over the next decade, they will spend the same amount to buy a property that they can legally rent out to generate income right away.
This cash flow will allow them to start saving for their next investment property and continue growing their portfolio.
The Demand for Short-Term Rentals is Unstoppable
For years, the short-term rental market is gaining momentum. In 2018, Americans spent more money on Airbnb than on Hilton or the brands it owns.
Airbnb was responsible for nearly 20% of all consumer lodging spending in 2015 — around 30% growth. HomeAway, which comprises VRBO and vacationrentals.com, received 11%.
Despite the disruption caused by Covid-19, the rental market for vacation homes is still strong. For more privacy, security, and space, many travelers prefer to rent private homes rather than book hotel rooms.
According to research by data analytics firm STR, the industry of short-term rentals had experienced a 300% growth over the past five years before the pandemic. Short-term rentals are now growing faster than hotels and showing higher occupancy rates. They also have a greater chance of reaching the previous year’s revenue per room.
Tips for Choosing an Investment Property
Here are four ways to get started if you’re looking to buy a condotel as a short-term rental.
1. Pick a location that is in high demand. People often book short-term rentals in cool neighborhoods that are close to restaurants and shops. You want to find a property in a convenient location, so you are close to all the action.
2. Good HOA conditions are the most important. Before you make an investment, verify the HOA fees and terms. High HOA fees and short-term rentals will reduce your earnings. Additionally, strict rules like the ban on pets may restrict your ability to attract guests.
3. Calculate your maintenance costs. It is more expensive to maintain short-term rentals than long-term rentals. You should budget for wear and tear and consider that you will need to replace furniture and appliances each year in order to maintain your rental.
4. Check your local laws. Each city or county has its own rules and regulations regarding short-term rentals. To make sure you are following the rules, it is a good idea to check with your local government.
Condotels are the next big thing in real estate investing. These investment opportunities will help you meet consumer demand for short-term rentals, and increase your real estate portfolio.