Short-Term rental income can be three to five times higher than traditional rental income. That makes sense, because as your rental terms get shorter you transform from landlord to hotelier. If you can handle housekeeping, booking, and all the extra effort (or find someone to do it for you), the rewards are rich.
Consider the sample case of a $992,000 property. With a 20% down payment, your mortgage is $763,600. At an interest rate of 4.2%, you’re paying $46,570 a year for the mortgage. Add 50% to that for taxes, utilities, insurance, and maintenance, and you’re paying $69,855 a year.
At a monthly rental rate of $5821, you’re just breaking even…paying for everything but ending up with a fully paid off house in 30 years. The median rent according to Trulia is $8200, leaving you with a $2,379 monthly profit ($28,548 annual) if you’re fully booked.
But Vail’s popularity among tourists means the average short term rental rate is $461 a night. What do you get on the short term rental income track?
The base rate is $461. Take a 3% cut to handle listing fees, plus $65 per reservation for housekeeping. Now you’re netting $397 per night. With 365 days in a year and assuming 50% occupancy, you’re pulling in $72,483. Subtract the 30% and you’re at $50,738 profit for the year. That’s almost triple what you’d get for monthly rent!
Well, your down payment was $198,400. Cash on cash, you’re getting a 25.5% annual return. Remember, too, that depreciation and mortgage interest are tax deductible, and that at the end of it all you own the property…well. You could either sell the property and cash out or enjoy an additional $50,738 per year in income. Good luck finding an index fund doing that.
Short term rental income is no joke. It’s why