In response to the steady emergence of weekly and nightly short-term rental properties in the market, a number of items have been changed in the purchase contract. In fact, some people are changing their business to a VRBO to meet this demand.
If you weren’t already aware, a VRBO stands for Vacation Rental by Owner and is advertised on a website for renters seeking short-term lodging. Here, they’ll offer maybe $60 a day to stay in your basement, extra bedroom, or some other third-party room.
The demand for this sort of stay is strongest among people who are vacationing or traveling, but who are looking for a cheaper, more convenient alternative.
On the surface, purchasing a rental property of this type seems like a highly lucrative opportunity with little work involved, but there are some things to consider:
First, when you look at a VRBO property, you’re making it subject to future rentals. In your real estate purchase contract, you’ll find what I’m talking about in section 4 and section 6. This poses a problem if, based on your monthly budget, you intend to set one rental rate, but the renter has already booked your property in advance at a much lower rate. If that were to happen, you might be unable to pay the mortgage that particular month.
Another thing to consider is that a growing number of homeowners associations are putting measures in place to block weekly or nightly rentals; many HOAs spell out in their covenant that any rental contracts must be in force between six to 12 months. It falls squarely on your shoulders to know the specifics of your HOA’s covenant and what your limitations are.
Equally as important as the first two considerations, you must be safe with regard to who you’re allowing to take up temporary residence in your property. There tends to be less due diligence involved with short-term renters, so exercise caution and conduct the necessary inspections. This includes a radon test, a “meth test,” and just a general examination of the property.
I have firsthand experience dealing with the aftermath left behind by meth users in a short-term rental unit. Removing any and all contaminants could cost anywhere from $2,000 to $6,000; if you’re lucky, it can be done for less than $2,000, but nonetheless, this underscores the importance of doing proper evaluations.
These factors all play a pivotal role in helping you decide if investing in a short-term rental is a wise move in both the short-term and long-term. If you have any questions, feel free to reach out to me. I hope to talk to you soon!