Thinking about investing in a short-term rental property out of state? There are plenty of good reasons to consider it. Maybe you just got back from a vacation and realized the owners of your rental place are making good money. Or perhaps you’ve been weighing the pros and cons of long-term vs. short-term rentals. You might even be thinking about buying a future retirement home before prices skyrocket.
When it comes to short-term rentals and Airbnb, people often think of popular vacation spots. While those are great, don’t overlook the demand for short-term stays closer to home. If there are hotels nearby, it means there’s a market for short-term rentals.
So, why look out of state? Diversifying your investments is one reason. If you already own a home and have a job tied to your local economy, an out-of-state property can offer diversification. Economically, it can make sense too. If housing prices are high and the short-term rental market is only average in your area, you might find better opportunities elsewhere. You can pick markets that meet your criteria, whether you’re looking for appreciation, cash flow, or a future vacation spot.
From a financial perspective, you’ll want a market with strong rental demand, low property demand, and good growth prospects. Balancing these factors can be tricky, but it’s essential to find what works best for you. Your motivations might not be purely financial; maybe you want a vacation spot with your belongings already there.
Start by listing markets you’re interested in and crunching the numbers to see if they’re a good fit financially. Accurately estimating expenses is crucial, and these can vary widely depending on the market and property type. For example, a 600 sqft condo will have different costs compared to a 4,000 sqft house.
Here are the main expense categories to consider. Unlike expenses, projecting revenue for a short-term rental is harder. While you can get insurance quotes and calculate property taxes, revenue estimates are less straightforward. Each vacation rental is unique, even in a community with similar properties. You can get close by estimating based on other factors.
A good rule of thumb is that a successful Airbnb should make three times the long-term rental rate. You can find rent estimates on Zillow or Rentometer. If your estimates are way off, you might need to revisit your calculations. Short-term revenue boils down to this equation: Revenue = Average Daily Rate (ADR) x Occupancy. To estimate these, check out your competition’s calendars and rates on Airbnb or use tools like Airdna and Mashvisor.
In the end, you’ll need to make an educated guess about your target revenue. Ideally, you’ll have enough room to be conservative with your revenue estimates and still cover all expenses.
Now, let’s talk about managing your property from out of state. Responding to inquiries is easy with a smartphone. Cleaning is trickier but manageable. You can find local cleaners through Facebook groups or Angie’s List. It’s important to have a primary cleaner and a backup, and you can communicate schedules via text, calendar invites, or scheduling software.
For maintenance, have contacts for various tasks like plumbing, HVAC, and electrical work. Knowing 24/7 emergency services in your area is also crucial.
Deciding whether to self-manage or hire a professional depends on how much time you want to invest. Managing it yourself means more work and a learning curve, but hiring a property management company comes with fees that can eat into your ROI.
There are several nationwide vacation property management companies. While they might not offer the personal touch of smaller managers, they often make up for it with efficiency. Vacasa is one popular option.
Legal considerations are another reason you might look out of state. Check the regulations in any potential market before investing. Local real estate professionals can provide valuable insights into the legal and political climate.
When calculating the numbers for a vacation rental purchase, remember it takes more than a great location to succeed. Before you can start taking reservations, you’ll need to prepare thoroughly.
Buying a short-term rental property is a big decision and shouldn’t be rushed. With proper preparation and realistic goals, you’ll be well on your way to success.