To AirBnB or Not to AirBnb?

Everyone loves a good vacay. But, of course, everyone's idea of the perfect getaway is bound to be different. With such a kaleidoscope of amazing places and retreats around the globe, there's always something to add fuel to your trip vision board. Booking a break can be fun in its own right, too. You'll sift through bucket list vacation ideas that include trekking in Spanish sierras and sunbathing on the Florida coast. You'll encounter deluxe villas in Malibu next to quirky treehouses in the Appalachian Mountains. And you can dream big, with exotic escapes to Bali, romantic trips to Venice, adventures in the Alps, and vacation homes in another hemisphere…

…so what does that mean for those of us who are considering investing in real estate?  We all know that the current market is at a record high.  Some are of the opinion that it’s not the right time to take the leap, but hear me out: The 35% rise in annual revenue earned by short term rentals since the start of the pandemic has outpaced even the housing market, and rising home prices provide an opportunity for capital appreciation in addition to cash flow earnings.

How’s that for opportunity?

The ongoing Covid-19 Pandemic has changed the way people live and travel.  Many pandemic restrictions have begun to be lifted, and the GDP is expected to see strong growth in 2022-a recipe for a great investment in to the vacation rental world.

Lodgify recently ranked Raleigh/Durham in the top ten STR markets for 2022.  A relatively high cap rate, combined with an affordable cost of entry compared to more “destination” markets and less seasonality of travel puts our area as a strong contender for an investor looking to reduce their risk.  In fact, peak season doubled in 2021 because so many workers were fully remote, creating a “never-ending” summer.

Feeling nervous about the idea of owning a rental across town or even across the state?  You still have options.  Perhaps you own a lot with enough space to construct an Accessory Dwelling Unit.  Some cleverly market these as a “Granny Flat”.  Tiny houses were the fastest growing category in the STR market in 2021, up 27%.  The cost of prebuilt tiny homes is between $30,000 and $80,000, based on the complexity of the home. If you are ordering a mobile tiny house, you must also factor in delivery fees. Some companies include this in the base price.  One way to save money is building your own tiny house. This not only cuts down expenses, but also provides more customization options. There are different ways to build a house, based on your level of experience. Many tiny house owners purchase a prebuilt exterior kit. With these kits, you do not have to worry about building the walls, floor or ceiling and can focus on the interior. You can also purchase kit homes, which include blueprints, a list of supplies and customized trailer to hold your tiny home. Building your own home costs on average between $10,000 and $30,000.Too tiny of a lot for even the tiniest house?  You still have options.  Property owners with a smaller lot might consider the basement as an option, probably the most common way to utilize your property to create secondary income.  

Fun Fact: The average tiny home measures just 100-400 square feet, although they can be as small as 80 square feet or as big as 700.

Feeling intrigued and ready to explore your options? Typically, if you’re financing an investment property, you’re looking at a down payment of 20%.  If you live in the Raleigh area, and your potential short term rental is in that market, then that holds true.  However, if you’re looking to purchase a vacation rental, the game changes.  When purchasing a vacation home, your down payment can be as low as 10%.  Then, you need to occupy the home 10% of the year, and in theory, could rent it out for the remaining time.  Suddenly what was an up front 6 figure investment becomes a real possibility for many homeowners in our market!  Once you’ve determined your budget for any potential investment, speaking with a tax professional is a great idea to give you insight into how to minimize your tax liability.  Then, be sure to discuss your potential cash flow position with a licensed real estate agent PRIOR to submitting an offer.

Questions on how to start your short-term rental investment journey?  Reach out to Alyson Gulassa of the Kima Real Estate Group at alyson@peterkima.com