This news might not be quite hot off the press, but it’s more true than ever: the short term rental industry is booming.
Data in the US, UK, Europe, and Asia has reported continuous growth in the short term rental market, and this growth is projected to increase.
If you’re hoping to start a short term rental business of your own, the figures are certainly behind you. That being said – how do you begin?
With finances, security, STR license, and marketing to think about – there’s no blueprint on how to build a short term rental business from the ground up.
If it’s your first time starting any kind of business – as is the case for many property managers when they first enter the industry – you might not have a clear picture of what your everyday reality (and future) will look like just yet.
Enter: our comprehensive guide to starting a short term rental business.
In this article, you’ll learn about:
- Creating a short term rental business plan
- Short term rental tips for property managers
- Licensing and regulations
- Steps for setting up a short term rental business
- How to run a short term rental business and optimize for profits
Whatever stage you’re at with business planning, from the dream stage – to the exciting time when your license is already acquired, being on top of the information is always going to put you in a better position.
So, soak in some insider knowledge that’s about not only making it happen, but will also help with maximizing profitability, minimizing stress, and protecting your investment for the long haul.
Should you start a short term rentals business?
In the last two decades, the short term rental industry has grown significantly across the world – even in the face of a global pandemic and tightening restrictions on holiday lets.
Looking at the way short term renting has changed and adapted, the industry has proven itself to be a dynamic, profitable, and resilient one.
In other words, it’s a good time to get in the business.
So what is a short term rental?
A short term rental – aka vacation rental or holiday let – is a property leased on a short term basis. Typically, short term here means days or weeks rather than months, and never years.
Short term rentals are typically set up to host guests for holidays, business trips, and other temporary stopovers – functioning similarly to hotels.
You might associate short term rentals with platforms like Airbnb, Vrbro, and Booking.com.
They’re typically easy to book (usually online) and advertize, and they can be managed with the assistance of third-party companies, or in a more hands-on fashion (think: meeting guests at the door and maybe pointing out some nearby dining spots to go and visit).
Read more on what short term rentals are in this article.
Why consider starting a short term rental business?
Arguably, there’s never been a better time to start a short term rental business.
More solutions are in place than ever to support one – from the prevalence of online booking platforms, to the development of third-party companies designed to streamline short term rental management.
And as demand for holiday rentals continues to increase, the average income they produce remains high.
Aside from these fairly objective positives – running a short term rental may also provide unique benefits to individuals based on what they value.
If you fancy meeting people from around the world, and having a property that’s available for personal use when you want it – short term rentals can offer all of the above, and much more.
Short term rental businesses are flexible
Although short term rentals can come with restrictions, depending on where in the world you’re setting up your business, they still provide a lot more flexibility than long term rentals.
A property manager in London, for example, might have to apply for planning permission before setting up a short term rental property.
However, once it’s set up – they’re free to use that property for personal reasons (for example, hosting family and friends for a weekend).
Platforms like Airbnb allow hosts to block off days or weeks of their calendar in advance, hiding these dates from guests and reserving the property for use at a later date.
You can also manage short term rentals remotely and welcome holidayers while taking your own holidays.
With added protections and guest vetting services from Superhog, they can also do this with added peace of mind.
Is a short term rental business profitable?
With the increasing demand for short term rentals and their high income potential, a short term rental business can look like a pretty appealing venture at the outset.
But what about upfront costs – and management costs?
As compared to long term rentals, short term rentals do come with added upfront costs for furnishings and amenities, as well as regular cleaning costs. Just look how much Airbnb property managers charge.
You’ll certainly want to consider these when you’re in the planning stage – and well before you set up your business.
But short term rentals boast a high nightly income on average, well above what can be expected from mid term and long term rentals. Here’s an in-depth overview of STR profitability.
Part of the reason for this is that they benefit from dynamic pricing. Airbnb’s Smart Pricing allows hosts to set up automatic price changes that respond to demand – all in a few clicks.
Profitability is largely going to depend on your short term rental business model – so make sure you put time and effort into your business plan, or enlist help from a professional.
All things considered, short term rentals tend to be more profitable than long-term rentals. We talk about why that is in a bit more detail here.
Namely, the high income potential of holiday lets is a big reason why these businesses continue to be so lucrative.
Creating a short term rental business plan
You’ve heard that this is the kind of business that can tick all the boxes: high income potential, little time investment, tax perks, and more. You’re probably hoping that the business you’re about to start will have everything in place to ensure an efficient booking process, well-behaved guests, regular bookings, low risks… But what’s the best way to go about it?
Here’s how to do short term rentals – the right way.
Starting a short term rental business isn’t as simple as putting up a listing online. It’s about managing a property like a full-scale business – because it is one.
That’s why, for property owners just beginning their journey, a vacation rental business plan is essential.
Start by thinking about your budget and your lifestyle.
How many hours do you want to spend on management per week?
If you’re looking to be more hands-off, then some additional management services will need to be included in your budget.
On the other hand, if you’re a professional cleaner and would rather take your mop and broom and handle those regular cleans between leases, then you can strike cleaning fees off the budget.
Just be prepared to give up plenty of your time.
Choosing a location and conducting market research
A sound business plan needs to be researched, so make sure to get to know the market.
We all know how important the ‘L’ word is in real estate, which is why it’s essential to pick an area with enough demand to sustain your business.
National and regional tourism boards often release statistics that will give you a solid idea of visitor numbers and popular times of year in a particular area.
Is the area you’re looking at popular year-round, or does demand fluctuate seasonally? You’ll need to adapt your short term rental strategy accordingly.
Consider popular tourist destinations as well as more up-and-coming areas – how might demand change over time? Are there significant events planned in the area that might affect it?
A sound vacation rental business model considers the present and the future – because you’re playing the long game.
Following one of the basic rules of economics, the best destinations for starting a vacation rental business will have both high demand for holiday lets and a low supply.
Here are some of the best cities for short term rental businesses in 2024:
- Orlando, Florida, USA
- Boston, Massachusetts, USA
- San Diego, California, USA
- Brighton, UK
- Crete, Greece
- Berlin, Germany
- Bali, Indonesia
- Bangkok, Thailand
Short term rental restrictions are becoming tighter in major cities – like New York and Barcelona.
It’s therefore worth considering whether restrictions might be imposed in your chosen area in the near future.
Once you’ve landed on a location, consider competitors in your area – how are they pricing their properties? What amenities do they provide?
If you’re in an area with plenty of properties on the market, try to understand what factors might give a holiday rental an edge over others in the local vicinity. Higher upfront costs might mean more profits in the long run – so investing in that new coffee machine might be the way to go.
To self-manage, or to outsource?
If the industry is new to you, or only parts of management appeal to you, you might be wondering how to start a vacation rental business without any help.
You definitely don’t have to do it alone. As a host, you can decide between managing the property yourself or partnering with a property management company.
And here’s a third option: you can also use more of a hybrid model.
Maybe you love speaking with guests, but you’re less interested in the paperwork.
Or maybe you want to take extra safety measures by vetting guests – but you don’t exactly fancy yourself the private eye type. For both of these situations, you can hire an assistant, a property manager or even a financial advisor to handle the parts of running the property that you’d rather not do yourself.
You can also use online services, like those offered by Superhog, to outsource some of these tasks efficiently.
According to a Greater London Authority report in 2020, “a significant proportion of listings in London were managed by commercial entities as opposed to individuals.”
Completely self-managing can be more profitable, since you save on management fees. It also allows for more hands-on control over your property – and closer relationships with guests.
On the other hand, extra help in the form of a property manager or added services can help maximize occupancy for your property, which can add up to more profits in the long run.
Setting up your business: important steps to follow
There are plenty of factors to consider before you get the ball rolling on your short term rental business, from advertising to amenities. At first, it can feel overwhelming – especially when missing an important step can have significant consequences in the long run (for example: after a bad experience with a problem tenant, realising you never applied for that property damages insurance you now desperately need).
To keep track of it all, a short-term rental startup checklist is crucial. See below:
- Get to know local regulations (and make sure you comply)
In the face of housing shortages, and overtourism issues affecting major cities – regulations on short term rentals are tightening around the world. Take a look at our guide to global short term rental regulations if you want to learn more.
Some cities are more short term rental friendly, while others (like New York City) impose stringent restrictions. Depending on where you are, your local short term rental regulations may affect:
- The number of days guests can stay for at one time
- Whether or not you need to be a resident at the property
- Licenses you need to apply for before you begin
- Whether the property needs to be furnished
- How many days a year the property needs to be let
- The tax you pay
- Whether you need to apply for planning permissions
This is certainly not an exhaustive list. Make sure to brush up on your local regulations – as they might be different from those used in a neighbouring country or city. Some cities, including San Diego and Henderson, NV, have made it easier for property managers to stay on top of regulations – with dedicated resources available online for short term rental compliance.
Short term rental properties in Denver, in the US, have strict rules. One of them is that the property must be the property manager’s primary residence.
Looking at the UK market instead? You’ll need an STR license, which you can read more about in this article.
Consider what taxes you’ll need to pay on your short term rental, too. As is the case for other rules and regulations, tax depends on where your rental property is.
It can also be affected by the way it’s run. For example, in the UK – a furnished holiday let (FHL) is taxed differently to other short term rentals.
However, FHLs must follow strict regulations on occupancy and must be fully furnished. Read more on this in our overview of the legal requirements in the UK.
Start vacation rental business research early, as you’ll want to give yourself plenty of time to factor regulations into your budget. Plus, applications and paperwork can take a long time to be returned to you. You don’t want to risk operating without the proper licenses or permissions when you’re welcoming in your first guests.
- Furnish the property and invest in amenities
Short term rentals typically provide the necessary furnishings a guest will need for their stay – from bedding to dining chairs. But amenities can vary from property to property. So, what exactly do you need to buy before you make your property listing live?
Short term lets predominantly cater to tourists and other travelers. At a minimum, short term lets provide guests with the amenities they need to get by (a necessary requirement for an FHL in the UK). But Airbnb’s tagline – ‘live like a local’ – is a big nod to the fact that short term lets often provide much more than the basics. Tea and coffee, a spa bath, or even a bottle of wine and some cheese in the fridge might be part of the package in an Airbnb, depending on its price point. Take a look at our list of 30 must-have amenities for an Airbnb for some inspiration.
- Select the right platform to list your rental
Listing your property on a trusted, well-developed, and popular platform not only helps you reach potential guests – it can also provide you with the support you need for running your business. Here’s a closer look at some of the leading options:
- Airbnb: Synonymous with holiday renting, Airbnb offers a large user base, a range of dynamic pricing tools, insurance, and user-friendly features for both hosts and guests.
- Vrbo: Originally catering to vacation rentals, Vrbo is excellent for larger properties and family-oriented listings.
- Booking.com: Popular internationally, Booking.com is a good option if you want to attract guests from all over the world.
So, which is best? Arguably, Airbnb provides the most comprehensive features for hosts – from insurance to an efficient online booking process and dispute management. Its continued popularity means your property is likely to be seen by many potential guests, and the trust it has earned with people around the world rubs off on your business, too.
Don’t feel you need to stick to one platform, either. It may be worth listing a property on multiple to maximize exposure and occupancy.
- STR insurance
Unlike traditional homeowners’ insurance, short term rental insurance is designed to cover the unique risks associated with renting out your property.
For example, it may include compensation for accidental damages caused by guests, and even lost rental income if repairs are necessary.
To start: Airbnb’s Aircover is included for free when guests advertize their listings. Additionally, Superhog’s insurance can cover what Aircover doesn’t.
Read our comprehensive guide to short term rental insurance for all the details.
Guests introduce variables that may not be covered under regular homeowners’ policies, such as accidental damage or theft.
With the right policy, you can protect your property, minimize risks, and ensure peace of mind.
- Optimize your rental for success
Once your property is live, the real work begins: making it stand out, optimizing occupancy, and ensuring a steady stream of positive reviews. Here’s how to how to run a vacation rental and make an impression:
- Staging and photography: High-quality photos and thoughtful property staging can make all the difference. Use professional photos to capture the best features of your space and ensure that your listing is visually appealing. Airbnb offers photography services to hosts, too.
- Set competitive prices: Price intelligently, and adjust for demand, seasonality, and competitors. Tools like Airbnb’s Smart Pricing or third-party pricing tools can help automate this process.
- Keep amenities updated: Consider keeping your amenities up-to-date as a part of your property’s maintenance. New, modern, functional features can add a special touch and keep your property aligned with changing guest needs.
- Analyze and adapt your business strategy
Once your short term rental is up and running, continuously monitor its performance. If you want to know how to run your vacation rental like a business – think in business terms.
Return on investment (ROI), competition, and even branding are all worth thinking about if you want to set your listing apart.
Platforms like Airbnb provide metrics on occupancy, revenue, and guest reviews, and these insights are essential for fine-tuning your strategy.
- Track occupancy rates and revenue: Keeping an eye on occupancy rates and income generated per booking period will help you to understand peak times, allowing you to optimize pricing accordingly.
- Adapt to guest feedback: Take guest reviews seriously and implement improvements based on feedback. You’ll not only improve guest satisfaction but also boost ratings and visibility.
The short term rental industry is a dynamic one, which can be both exciting and rewarding for property managers. If you love meeting new people from around the world, running an Airbnb can be a dream job. If you fancy yourself an entrepreneur, an interior decorator, or just want to make some extra income from your holiday home – a short term rental business can do it all, and much more.
