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Short term rentals – or Airbnb properties – have become quite the dynamo in the real estate investing world. Many people are drawn to the idea of purchasing a property in a beautiful location that they can use a couple of times a year, then make a profit on the rest of the time they’re not occupying it.

But is it really as easy as picking a destination you like to visit? If you’re looking for a property that makes you money in addition to some personal enjoyment, it’s not as simple as you might think. 

With many saturated rental markets and a lot of buyer competition, it’s easy to make a misstep when it comes to buying a short term rental.

If you want a successful investment property (and no buyer’s remorse), read on for the steps to take to buy a short term rental, how to make it a winning property, and the answers to many commonly asked questions.

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In This Article:

Steps to Buying a Short Term Rental
Keys to Success in the Airbnb Market
Is Buying a Short-Term Rental Worth It?
What to Know Before Buying a Short Term Rental
How to Invest in Airbnb Short Term Rentals
How Do Short Term Rentals Make Money?
How Much Money Do You Need to Start an Airbnb?
Is Airbnb a Good Side Hustle?

Steps to Buying a Short Term Rental

1.Research Potential Locations

Some short term rentals (STRs) are more profitable than others. Profitability relies heavily on the location, seasonality of that location, and the demand to vacation in that area.

Make a list of your favorite markets and compare these data points so you can find the market that optimizes your profitability within your budget:

You will also need to research what the local short term rental and Airbnb laws and rules are. Some locations are more STR-friendly than others and this can be a major source of headache for property owners.

You don’t want to be continually fighting your local government to operate! Or worse, fear being shut down in the future.

2. Find a Lender

Next, you’ll need to find a lender and loan product that fits your situation and budget. This will be what ultimately determines if your STR will be profitable and it’s highly dependent on the individual’s situation (i.e. credit score, debt-to-income ratio, down payment amount, cash reserves, etc.)

If you find an absolute gem in a great location but your monthly mortgage isn’t covered, it doesn’t matter how great the property is. You will not end up making any money.

Don’t forget to check out reviews on lenders! There are many online lenders that specialize in loans that are popular with STRs like an investment/rental loan or even a DSCR loan.

However, there are many of these lenders that bait and switch borrowers, aren’t able to close on time and cost the borrower their earnest money, or cause borrowers to miss out on great properties. Make sure you do your research and look for reviews!

3. Hire a Real Estate Agent

Having a local real estate professional in your corner is essential to finding a profitable property. Unless you are experienced in real estate and already greatly knowledgeable on the area, chances are there are things you may be missing when it comes to that location.

If you are an out of state investor, you will absolutely want someone to be your “boots on the ground” to find you your perfect property.

Just like with lenders, make sure you’re checking reviews and meet with them before signing any buyer agency agreement.

4. Gather More Data

Once you have a location in mind and know what your loan will roughly cost you every month, go back to gathering data. You want to be able to determine the potential profitability of each property you consider. 

For every property you’ll need to determine your potential revenue. There are many online tools that help with this (try AirDNA or Mashvisor), as well as provide other insight like occupancy rates and data on seasonality of the location.

Determine your potential annual revenue for each property you are considering, then subtract the total mortgage payments for the year, as well as all property expenses, fees, insurance and taxes. This will show you if you have a profitable property or not.

5. Start Looking for Properties!

Now for the fun part, start looking for properties and running the numbers to see if they’re profitable.

Keys to Success in the Airbnb Market

With a huge number of Airbnb and other short term rental properties on the market, you need to stand out from your competition. Look for properties that offer guests a unique experience like a stunning view or close proximity to an attraction, downtown, or whatever is the main draw of vacationers in that area.

Many experts also agree your prices must be competitive, your customer service must be top notch, and your decor should enhance the space and be visually appealing. Many short term rental owners lack in one of these areas and it results in fewer bookings of their property.

Is Buying a Short-Term Rental Worth It?

This question is a personal one, as “worth it” can mean different things to different people. If your short term rental serves as a property you can enjoy in the winter months to escape the cold, while your summer bookings pay for all of your expenses for the year, then you may think it is “worth it” even if you’re not profitable.

However, to most short term rental purchasers, they want to make a profit. Short term rentals tend to be quite profitable, typically providing a higher return than long term rentals. However, there are a lot of variables to consider like location, property management and maintenance, and upfront costs.

These variables will impact profitability and it’s important to not only know your goals for this property (more personal use/less profit, more profit/less personal enjoyment, etc.) as well as if the financials will pay off for you in accordance to that goal.

What to Know Before Buying a Short Term Rental

If you’re new to the short term rental game, it can seem very overwhelming. There is a lot of information (and a lot of opinions) out there! Here’s a quick list of everything you’ll want to consider before buying a short term rental:

How to Invest in Airbnb Short Term Rentals

The most common way to invest in Airbnb short term rentals is to simply purchase a property in a popular vacation destination, and then rent it out for short periods of time.

However, as this investment strategy has become more popular, there are a couple of other options to get into the short term rental game beyond making that large purchase on your own.

You can also invest in Airbnb syndications. A real estate syndication is where many investors pool their money together to purchase a property, this is often organized by investment firms that specialize in this type of investing.

This fractional ownership would result in your sharing in a fraction of the profits. Though you would likely have little to no control over how the property is run or managed, and you would not get any personal use out of the property.

You may also want to consider partnering with a friend or family member on the purchase of a short term rental. This is similar to the idea of a syndication, but you and your partner would have all of the control over your property and its management.

How Do Short Term Rentals Make Money?

Short term rentals make money by other people paying to stay at that property. To be profitable, the revenue coming in from that property needs to exceed all monthly property expenses, fees, HOA dues, and, of course, the mortgage payment. 

Many investors self-manage properties to reduce their property expenses. There are many online tools to make this a simple task, even if you don’t live in the area.

How Much Money Do You Need to Start an Airbnb?

According to ProjectionHub, the average cost to start an Airbnb business is $6,000 in addition to the purchase of the property. The true cost of an Airbnb will depend heavily on the location it is in, as well as the size of the property and if you will need to purchase all new furniture. 

Most lenders require at least a 10% down payment (more typically 15-25%), so you will want to begin your Airbnb purchase journey by looking at properties in your desired location, the average purchase prices, and determining what your down payment will end up being.

Is Airbnb a Good Side Hustle?

Airbnb is a great side hustle! If you have the capital (money) to invest, this is a great way to make your money work for you. Additionally, having a property manager manage your property will make it a completely passive income stream.

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