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 Massachusetts
Rules are set by each city and town, and they differ a great deal. Boston limits short-term rentals to owner-occupied homes, and Cambridge has similar owner-occupancy rules. Investor-owned short-term rentals are far more common in vacation markets such as Cape Cod, Martha’s Vineyard, Nantucket and the Berkshires. Many towns require registration, and the state taxes short-term stays. Check the local bylaw 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.