Short-term rental investing in Los Angeles

Short Term Rentals, or vacation rentals as they are also called, are a quite lucrative real estate investing strategy in Los Angeles. This real estate investing strategy has come into the mainstream “bandwagon” in a big way. This strategy has flourished since the onset of Short Term Rental platforms like AirBnB, VRBO, ect.

A short term rental is defined as anything under 30 days, but in practice, these are usually less than 7 days, often 5 or less days. The clientele are almost always vacationers and often, families. These types of rentals go for the highest nightly rate of any other rental strategy.  A properly run short term rental can easily generate 2x the revenue of a long term rental and often times, even more, depending on the market.

Markets vary widely on short term rentals- in heavily trafficked vacation markets (Palm Springs for example) short term rental real estate investments perform very well- they will be booked year round, and generate up to 3x regular rents. But, in a non-vacation market, and/or an area where travelers are not looking to stay (C grade or worse areas of metropolitan areas) – a short term rental will generate next to nothing.  Also, even a short term rental in a good market- if it is, for whatever reason, not as good as the competition – will probably lose money.

Advantages of Short term rentals

*Short term rentals have by far the highest rent of any rental model; modestly priced houses ($400,000-$700,000) can easily gross over $100,000.00 a year in good markets.

*Non-Permanent Tenants mean, house is always:

• In good shape, and good order; no need to worry about hoarders or a bad long term tenant trashing the place;
• Able to be vacant in the event you want to sell it or use it yourself, or use it for any other purpose;
• Creativity, artistry, hospitality, are all rewarded. This means that, if you are very good at decorating, landscaping, or otherwise using creative skills to curate a unique experience for guests- then you will excel in short term rentals. Things like themed rooms, unique art, furniture, and decor–-if you are willing to put the time and effort in for these things- will enable you to excel beyond your competition.  Tenants in mid term rentals and long term rentals do not care about these details as much, and thus, if you are able to really get those details down- your efforts will be highly rewarded in Long Term or Mid Term models.
• More or less predictable performance, in many markets. Especially in vacation markets, seasonal guest flow is fairly consistent, and thus, revenue can be fairly easily projected/predicted (as long as the guest reviews remain good and the listing remains competitively priced and positioned vis a vis competition) Mid term rentals can have significant gaps in tenancies; short term rentals usually do not have this problem.

 

Disadvantages of Short-term rentals

• Short term rentals are management intensive. Guests turn over fast- house cleaners need to be coordinated to clean after one guest leaves in the morning, before another gets there in the afternoon. Houses need to constantly be re-stocked with supplies, and if anything is missing, you may very well get a phone call from the guest, expecting you to provide it– and provide it fast. You might need a property management company (not cheap) if you don’t have very reliable boots on the ground (and you don’t leave your phone on 24/7)
• Short term rentals are highly regulated, and it is only getting worse. Many cities/towns have caps on short term rentals or other kinds of moratoriums (Napa, 29 Palms). Others have certain zones where STR’s are allowed, and ban them anywhere outside of those zones (La Quinta, Lake Tahoe are examples of this). Others have outright bans on them (Almost all beach communities in Ventura County(!)) Some places have onerous/lengthy permitting processes (Mariposa County/Yosemite Arch Rock Entrance) – and some places simply love the tax dollars, and have absolutely no requirements whatsoever (Madera County/Yosemite South Entrance). You must research very carefully the laws of any market where you are contemplating a short term rental investment.
• Location is paramount when looking at short term rental investing in Los Angeles. STR’s are more location-sensitive than any other types of rentals. An STR in a bad market will be a dismal failure/loss of money. Location must be carefully researched when considering a short term rental. Data is available through sites like AirDNA and Awning, but the data is based on incomplete info, and needs to be taken with a grain of salt.

 

Tips for Short-term rental investing

–Tip#1: Get as much information as you can, from credible sources on the subject. The No Vacancy Podcast is a great one, and there are many other podcasts and websites dedicated to short term rental ideas and optimization. Read them and utilize them. If you are running STR’s, you have now, in a sense, entered the hospitality business. Being good at it might not require a degree in hospitality, but it does require some education on the subject.

–Tip#2: Make your place pet friendly. One of the most searched for terms on the Airbnb platforms is “pet friendly”. Yes, pets can be annoying. But if you embrace it and prepare for it (for example, have a yard with pet-friendly easy turf [not cheap], a dog run, etc.) you will get more bookings.

–Tip#3: Make your place kid friendly.

This is another sought after characteristic, which isn’t really that hard to do. Try chalkboard paint on one of the bedroom walls, an art table, and a chest full of games/toys. The couple bucks it costs to do that will be more than made up for by big family bookings (extra people means extra guest fees). [Pic from one of our mid term rentals]

–Tip#4: Have something special that other people don’t/can’t have. Making your place awesome on the inside is great, and thinking of every detail is great, but the reality is- anyone can do that. Many of course do not, but many do, and the competition is only getting stiffer. This is why its highly recommended to have something that other people simply can’t duplicate. These include:

*A view;

*A pool, hot tub, or firepit; [pic from one of our short term rentals]

*2 houses on one lot (which can be separately rented);

*Large acreage.

In most cases of STR investment, I would only recommend buying a property that fits one or more of the above criteria, to make sure the property will always have a leg up on the competition.

An entire book can be written about short term rentals (and quite a few have been written- and you should read them!)

But, if you don’t want to- we at Bigtown have read some, and can help navigate you through all the ins and outs, both logistically and legally, of short term rental properties in Los Angeles as well as surrounding areas. We have data from properties we have acquired and managed, as well as cutting edge tools such as AirDNA, Mashvisor, Awning, and other sites, which scrub rental data from the short term rental platforms, which we can make available for the benefit of clients.  There are also many other resources we make available for our clients, such as checklists of items we have learned over the years which are important for outfitting and managing Short Term Rentals. This include, regulations, guidance on other technology platforms, management and pricing to make things simple and automated.

For more information on Short-term rental investing in Los Angeles contact Big Town Real Estate today.