By Ed Mugisha
Head of Under Writing
Kampala Property Associates
Many investors have watched short-term rental (STR) / airbnb investing from the sidelines. They’ve heard the success stories and know there are high returns to be made, but often come back to some form of the following questions:-Is it worth the risks?-Is it worth the hassle to set up and operate an STR?-How much more money would I actually make?I’ve put together a simple decision-making grid using a few categories to help you understand if short-term rentals are a good strategy for you and your investing goals. I’ll elaborate on each of these categories for you to understand whether or not you meet the criteria. If you and your property check the box on four or more categories, I would suggest that you strongly consider converting your long-term rental into an STR/ airbnb
1. Laws and Regulations: To even get started on the short-term rental path, you need to check this box. If it’s illegal to operate your property as a short-term rental, I wouldn’t advise that you try! Hindrances could be your land lord if you are planning to sub rent or neighbouring home owners in exclusive neighbourhoods!
2. Risk Tolerance: When investors are considering short-term rentals, they mostly think about two primary risks: -Potential damage to the property-Financial instability
3. Net Operating Income: In almost all cases, a rental will make more income per month if converted to a short-term model. That being said, income alone isn’t a helpful performance indicator because there are several additional expenses associated with a short-term rental compared to a traditional rental. The owner now pays all expenses that are usually passed on to a long-term tenant. In your operating expenses, you must account for: -Taxes-Insurance -Maintenance -Supplies/inventory -Power/electricity/gas -Features unique to your property (pool..)-Management fees (if you don’t plan to manage yourself)
4. Cash Flow: Are you looking to make more cash flow from your rental investments? With rising interest rates and the rapid appreciation we have seen over the last few years, cash flow isn’t as easy to come by as it has been in the Past Your current property might be breaking even. While this is a great long-term play with the projection of increased rents and appreciation, it’s not impacting your life today. Your property may only cash flow a minuscule amount, say, a couple hundred dollars a month, which covers maintenance costs for the year. Your property cash flows well, but you may want to change your lifestyle or increase your capital soon. If cash flow is one of your highest priorities, STRs need to be a tool in your belt.
5. Time: The following two categories, time and management, go hand in hand. Either one or both must be checked for an STR to be a good decision for you.Do you have the time to set up and manage an STR? There will be a learning curve. You must furnish the property. You must learn the ins and outs of setting up and listing an STR on platforms like Airbnb or VRBO. Short-term renting is a hospitality service, so you must promptly and thoughtfully communicate with guests. The guest calendar and cleanings must be accounted for at all times.
6. Management: If you don’t think you have the time, that doesn’t rule out STRs for you! Like any other investment property, you have the option to hire a property manager. Short-term rental managers do everything on your behalf, including:-Set up, furnish, and onboard your property -Manage online presence and pricing optimization -Interact with inquiries and any guests relations-Schedule cleaners, landscaping, and any maintenance needs-Ensure supplies and inventory are fully stocked and accounted for-Manage finances, including payments, invoices, and reports
