Most of us have only come into contact with a one year lease contracts on a rental. But for some extra information, I’ll fill you in on what a short term rental is (STR for short).
Short term rentals are well… what they are called: short term. Specifically, they have 4 specific characteristics that make them short term.
1. No State Legislated Lease Agreement
As Florida law states (as this is the state I do business in currently), any rental that has a guest staying consistently over 6 months has to sign a proper lease agreement. Anything less than 6 months is considered a short term rental and does not need have lease agreement.
I will go into more depth about ‘what type’ of coverage (other than a signed contract) you can have on your short term rental – in a future post. Once that is shared I will link it here.
2. Fully Furnished
A guest can book a short term rental for as short as a one night stay or a long as 3 months. But no one wants to rent a STR without furniture. Duhhhh… what’s the point of a short term rental then? A short term rental needs to be furnished. That is what allows a host to charge a higher price each night; because of the convenience of the space having everything that would be needed.
3. Increased Nightly Rental Rate
Most short term rentals are around the size of a typical one bedroom, one bathroom apartment. With that being said, on an average, let say that that space (one bedroom one bathroom apt) can regularly rent for $800 a month on a year lease. That would be… $9,600/year.
At $9,600/year that equals out to $9,600/365 days = $23.30 / night.
But what if it was a short term rental? Such as Airbnb?
Yes – it does depend on where the short term rental is located. But if you do your research right, you could end up with a greater income. Let’s say, the STR nightly rate is: ~$65/night.
*Please note that $65/night is not a market average for STR’s. This is a nightly amount that I often see when the market is slow. So… this could be your worst case.*
Now… let me do the math for you…
Instead of $23.30/night for a year lease, think about $65 with a 50% occupany rate throughout the year (since you can’t guarantee occupancy 100%).
Doing the calculation: 365/50% = 182.5 nights x $65 = ~ $11,860/year.
If you compare the yearly lease income ($9,600/year) vs the STR with an increased nightly rate and only 50% occupany ($11,860), you can confirm that even with a slow market for STR and a low occupancy rate, you have the potential to make $2,260 MORE than the yearly rental income.
3. Make Extra Money
Did someone just read make extra money? Yep. You read it right. On top of making more with a STR over a whole year — you can make more on top of it.
How so you ask? Well, by adding a cleaning fee for all of your hard work each time you welcome a new guest!
Cleaning fees can range from $10 a reseravation to $150 (or more: depending on the space, size, and luxury). Let’s keep things modest, why don’t we, with a $30 cleaning fee.
Let’s say you still have this one bedroom and one bathroom apartment short terrm rental. Being modest, you just add a $30 cleaning fee to each reservation charge. If you have a 50% occupancy rate through the year, you have the potential to make an extra ~$5,500 a year (just off of cleaning!).
4. Your rental is covered with insurance (by the plaform you use)
In a regular year lease, usually you have your house ( that you are leasing out) under homeowners insurance. If anything happened to your home by the tenants, the damaged would be paid out by your insurance company or their renters insurance.
But what about short term rentals? While you will still have the home owners insurance (since this would be your space and you still own it of course), the platform that you use to market your short term rental on should have ‘Host Protection’.
A good example of a Host Protection program is with Airbnb. This short term rental platform offers every host “Host Protection“. This protection is liability insurance up to $1 million USD. They have this in their business structure because (1) it protects the hosts from third party claims of personal injury & property damange and (2) it helps develop a relationship between the host and the Airbnb platform.
Now you have some extra information on what a Short Term Rental actually is. Think about the area you rental/house is in. Get on a short term rental platform and see what other spaces are renting for each night. Maybe your space is in a good area with a good market. You never know the posibilities!
If you happen to decide to open up an Airbnb rental listing — reach out to me. I can help you with thhe set up!