A well-located short-term rental can earn more than the same property on a yearly lease. It also takes more work and depends on local rules. Here is how to think about one, and how the financing works.
Why investors buy them
- Higher income. Nightly rates in a strong location can add up to more than long-term rent.
- Better upkeep. Frequent turnovers mean frequent cleaning, and problems are spotted early.
- Flexibility. You control the calendar and the pricing, and can block time for your own use or for renovations.
- Appreciation. As with any real estate, the property itself may gain value over time, though that is never guaranteed.
Short-term rentals also have their own tax treatment. Talk to your accountant about what applies to you.
What they demand
Income is seasonal and less predictable than a lease. Someone has to handle bookings, guests, cleaning and maintenance. You can manage it yourself for a better margin, or hire a manager and give up part of the revenue for a hands-off investment.
Where they work in Washington
Rules are set by each city and county, and they differ a great deal. Seattle requires an operator license and limits each operator to two units. Investor-owned short-term rentals are far more common in vacation markets such as Lake Chelan, Leavenworth, the Washington coast and the San Juan Islands, but several of those counties cap permits or limit them by zone. The state also taxes short stays. Check the local code before you make an offer.
How we finance a short-term rental
- We qualify the property on projected short-term rental income, not on lower long-term market rent.
- Income comes from 12 months of history, or from AirDNA projections counted at roughly 70 to 80%.
- The property must be a permitted short-term rental with no zoning restriction against it.
- Purchases are financed at up to 85% loan-to-value. Condos and condotels are eligible at slightly lower leverage.
See DSCR rental loans for full terms, or call (954) 598-4564 for a free analysis of a specific property.