Ask McEnearney: When Looking for an Investment Property to be Used as a Short-Term Rental

This week’s Q&A column is sponsored and written by Susan Hume of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Susan at 202-280-5735 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.

Question: What should I consider when looking for an investment property to be used as a short-term rental, like an Airbnb?

Answer: With Amazon moving in down the road, the economics of short-term investment properties versus long-term rentals are looking very attractive. In addition to the influx of business travelers, Old Town is already experiencing an upswing in tourists thanks to its proximity to the area’s major attractions, and to being named the #1 best value travel destination by Money magazine.

All this makes Old Town an ideal location for a short-term rental business. For instance, an investment property in Old Town may rent for $3,000 per month, while you can generate more than double that by renting it out on Airbnb, VRBO, HomeAway or another online travel agent. While the math is enticing there’s a lot to consider in order to be successful.

Establishing a short-term rental is much more complicated than renting a property for a year or more. In identifying an investment property for a short-term rental, its location needs to offer what business travelers or tourists want. Because these guests frequently don’t have a car, they will prioritize a rental that has walking access to restaurants and shops as well as public transport options.

Homes that are not in a city center are unlikely to attract many guests. Guests also place a premium on having a patio or balcony to relax outdoors. Hosts don’t have to spend a fortune on furnishings, but they should be practical, tasteful and comfortable (especially the beds) and the home must have good wi-fi.

Guests are attracted to updated kitchens and baths, but also to Old Town’s historic charm. For this reason, Old Town’s traditional townhomes have special appeal to out-of-town visitors.

Although there’s a short-term market for all types of housing, rentals that are geared towards the business traveler, couples and small families — one or two bedrooms — are likely to rent more easily than larger homes that accommodate parties of five or more. While smaller properties will command a smaller nightly rent, you are likely to have a higher occupancy rate and earn more income to cover any mortgage and carrying costs (insurance, property taxes, maintenance).

Other costs unique to a short-term rental need to be factored into your business plan, such as utilities, cleaning costs (above and beyond what is charged to the guest) and supplies. Your business calculus should also consider whether you intend to hold the property for the long or short term, and the expected rate of appreciation.

While Airbnb and related services make the reservation system relatively easy, achieving and maintaining five star reviews is not. A good and reliable cleaning crew is absolutely essential. You are likely to pay a premium for the cleaners to be available at irregular intervals — sometimes twice a week or perhaps only twice a month.

Keep in mind that you’ll need to ensure that the garbage is put out and the landscaping is kept up, tasks that long-term renters usually take care of. If you want to avoid the day-to-day management, there are many professional property managers who can do the job.

Another major difference between short and long-term rentals is the legal restrictions imposed by homeowner/condo associations and the city government. It’s more and more common for property owner associations not to allow rentals that are less than six months, for instance. So your search should focus on properties that will not be encumbered by such restrictions. Besides property association rules, each municipality may have its own regulations. Alexandria city government outlines its regulations on its website.

To optimize your occupancy and revenue, photos and guest reviews are everything. In this respect, you may consider buying an established short-term rental. While you’re likely to pay a premium over the property price, it can be very attractive since you’re buying all the furnishings, reviews and future bookings.

Otherwise, expect it to take at least a year to fully establish your business. But if you find the right property in Old Town and manage it well, you can count on it being a good investment.

Susan owns and manages a short-term rental in Old Town and is aware of upcoming turn-key opportunities. Please contact her if you would like guidance on identifying a suitable investment property: [email protected], shumehomes.com; 202-280-5735.

If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.

McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria