What is a short term rental?
And how can I make money!?!
As a preface to this newsletter, I wanted to be clear on what my goals are and what these weekly posts will entail. I am using this newsletter as a way to document my journey of learning the process of real estate investing, and basically dump all the information I have learned into this funnel. I am in no way trying to act as a “guru” or mentor. I am most likely in the same boat as a lot of you reading this, and I think that brings a lot of value. Most investing blogs and videos are all about those that have done it already and are at the top. I want this to be more relatable to the average person who wants to get started, and can follow along with my wins and losses!
What’s up everybody. In this weeks letter we’re going to talk about the basics of short term rentals and the two main ways to make money doing so. Short term renting is popular on sites like airbnb and vrbo, and are usually rented at a daily, and weekly rate.
If you aren’t familiar at all with how short term rentals work, i’ll do a quick explanation below. If you already know, feel free to skip to the next paragraph! Basically, the goal with purchasing a rental property is to make money…obviously. But there are so many different ways you can make money on one single property. There are two main strategies when investing in real estate: The first is buy and hold, and the second is the fix and flip method. This week I am going to talk about buy and hold rentals. This is when you purchase a home with the intent to hold it (and rent it) for the long term, and reap the rewards of building equity in a property. The main (but not only) ways you make money this way are through cash flow and appreciation.
Cash flow is achieved by having money left over at the end of the month from your rentals. This means that at the end of every month, after you’ve paid your mortgage, your taxes, insurance, and all other expenses on the home you will (hopefully) have a certain amount left over. For example: If your mortgage on your home is $1,000, and your taxes are $400/mo, insurance is $100/mo, and utilities are $300/mo, you have a total payment of $1,800 per month. Now let’s say the house you’re renting out is a nice 2bed 1bath near a popular destination/city. You list it on airbnb, and charge $100 per night. For the sake of this example let’s say you book the month fully, so 100% occupancy, or 30 days booked. Your gross revenue that you receive from this house for the month is $3,000. Subtract your $1,800 expenses, and you’re left with $1,200 of cash flow for the month. Thats $1,200 dollars of pure profit. Let’s say you get good at this, and start buying more and more properties, that $1,200 in profit on one property turns into $2,400, $3,600, $4,800…as you expand your portfolio. Pretty sweet huh?
Now I know some of these numbers may not be realistic in some areas of the world, and there are definitely more expenses than just mortgage, taxes, and insurance on a rental property. You have management fees, maintenance, airbnb fees, etc., but this was just meant to give you a quick and simple way to at least visualize how the process works.
The second way you make money on a buy and hold is through appreciation. I’m sure everyone understands the basics of this, which is over time the real estate market rises, and with that, your home increases in value. If you purchased your home 10 years ago for $150,000 odds are it is worth over $200,000 today. That means you’ve earned $50,000+ of equity in your home, not including your loan pay down or renovations you may have done. Depending on where you live, appreciation can be a huge driver of value and take your investing career to that next level. Investing in real estate isn’t meant to get you rich quick, but it is one of the best ways to build wealth over the years and protect yourself from the ups and downs of the market.
As you can see, real estate has many aspects to it that can help create wealth in your life. I hope you learned something from this weeks post, and if you did, feel free to share and subscribe if you’d like! Next week I will be diving into fix and flips, and show you my favorite website for finding deals in your area! Cheers, and enjoy the weekend.
