Short term rental is an investment tool which combines a high income potential, low risk and affordable prices. If before broker advised its clients to invest in a retail premises or other commercial real estate, today a short-term rental strategy has become a trend.
Long-term and short-term rental: difference
The problem with the income properties that are rented for long term, is that it too expensive, or has high risks. If you take the most common segment “up to €500,000”, the investors choose between:
1. Residential properties with 2-4% income per annum;
2. Commercial premises that generate 6-7% per year, but are characterized by significant risks.
Investors tend to choose the most profitable second option.
The point of the method
The principle of short-term rental is that you buy housing in central part of big city and rent it daily for tourists. Thanks to management strategies profitability of such properties can be raised up to 5% without increasing risks.
From year to year, short-term rental is becoming more popular. 23% of all Paris apartments are offered for rent. In Westminster (London) - 57% of the apartments.
Additional advantages
In addition to the direct rental income you can expect for the capitalization of the object itself. It will amount to 2-5% per year, if apartment is located in the area where the real estate market develops and grows.
As for rent out flats are chosen apartments in the heart of the city, in case of need, they are quick and easy to sell, you do not have to make discount for urgency.
And the last advantage is a reasonable price. In Prague or Budapest you can buy a suitable apartment for €100,000. If you don’t have all the amount, you can get a mortgage by 2-5% per annum.
Select the object
Small objects, 1 and 2 bedroom apartments or studio apartments are the best for the rent. Small-sized housing is cheaper and you can find the short-term tenants easier. The occupancy is 90% in the season and 70% on average during the year.
Design repairs will increase the rent by 25%. But in any case, the apartment should be all you need for a comfortable life — household appliances, furniture etc.
Choosing a specific city and country for investment, consider only the regions with stable real estate markets and growing population. The city needs to be attractive for tourists and businessmen. Tourists and business people visiting the city on a business trips, exhibitions, workshops and other events are the guaranty of a constant demand for your apartment.
The area of the city should also be choosed according to the proximity to attractions, schools, the offices of major international companies, hospitals, business centers with festivals, meetings, exhibitions.
As the apartment for short-rent are competing with hotels, in some cities (Berlin, Barcelona, Amsterdam) the issuing of licenses for daily rent was stopped. Fines are considerable — in Munich, for example, the violator impose a fine of up to €50,000.
The benefits of cooperation with the management company
Short term rental is rather exhausting thing. If you don't want to deal with constant finding of tenants, cleaning the apartment and other small household matters, find the responsible company. Typically, these services cost 20-25% on rent. Thus you will be completely free from management.
Text – Alena Eliseeva, ee24
Photocredit Depositphotos.com