Daniela Andreevska, Author at Semya-Moya

How to Find and Buy a Money-Making Rental Property

Daniela Andreevska — Sun, 22 May 2022 19:41:34 +0000

Real estate investing is no doubt one of the best ways to make money in 2020. However, just buying a property and renting it out does not guarantee that you will be able to make money with real estate. The key to success is buying an investment property with the potential for a high return in one of the top locations for real estate investments. But how do you find and buy such money-making rental properties? It’s easy – just follow the 7 steps outlined below, and you’ll be on your way to making money with real estate in 2020.

Step #1: Invest in a Top Location for Rental Properties

If you’ve spent any time in the real estate business, you must have heard a million times that location location location are the three most important factors in any real estate deal. As much as this sounds like a cliché, it is the absolute truth. Not all housing markets are created equal when it comes to investing in a rental property. Depending on your preferred rental strategy – long-term (traditional) or short-term (Airbnb) rental properties – you need to find one of the best places to buy an investment property.

If you want to become a traditional landlord, you should look for markets with strong economic performance, positive population growth, and a high proportion of renters vs. homeowners. Moreover, the best places for investing in a long-term rental property are usually those with a moderate price to rent ratio as they offer a balance between rental demand and return on investment. According to data from Mashvisor, a real estate data analytics company, some of the most profitable locations for this rental strategy in 2020 will be:

Pittsburgh, PA with average cash on cash return of 3.4%
Cathedral City, CA with average cash on cash return of 3.2%
Detroit, MI with average cash on cash return of 2.9%
Baltimore, MD with average cash on cash return of 2.9%
Cincinnati, OH with average cash on cash return of 2.5%

Alternatively, if you aspire to be an Airbnb host and make money from vacation rental homes, you need to search for a place which attracts a lot of tourists and business travelers and where non-owner occupied short-term rentals are legal and unrestricted. Based on Mashvisor’s Airbnb data analysis, the best places for buying an Airbnb investment property in 2020 include:

Huntington, VT with average cash on cash return of 8.3%
Tuscaloosa, AL with average cash on cash return of 7.7%
Gatlinburg, TN with average cash on cash return of 7.5%
Hutchinson, KS with average cash on cash return of 7.1%
Springfield, MS with average cash on cash return of 7.0%

When choosing the ideal location for buying your rental property, don’t limit yourself to the local housing market, especially if you live in an overpriced city like New York, San Francisco, or Boston. It is crucially important to find a location within your budget. As a newcomer to real estate, the last thing you want is to default on your mortgage payments. Furthermore, out of state real estate investing is a viable and frequently very profitable option even for beginner real estate investors. Another thing to keep in mind is to not look at major cities only just because of the large number of renters and tourists there. Most of the time, such markets are not only overvalued but also oversaturated with rental properties and as a result offer low occupancy rates and sub-optimal return. Indeed, some of the best places for investing in Airbnb rentals in the past few years have been small markets such as Joshua Tree, CA and Gatlinburg, TN.

Step #2: Study Your Selected Market in Detail

Once you have chosen a location for your rental property purchase – whether close to home or out of state – it’s time to conduct diligent real estate market analysis. You should check out different real estate websites, talk to established local investors, and make use of real estate investment tools to learn as much as possible about the rental market. This will help you estimate what occupancy rate, rental income, and return on investment to expect. Moreover, it will help you find out the most profitable property type for your preferred rental strategy and the optimal number of bedrooms.

Conducting comparative market analysis (CMA) is an indispensable part of this process. This is a method used by agents as well as investors for establishing the current market value of properties similar to the ones that you are considering buying. For this purpose, you will need to identify a few real estate comparables which sold in the past couple of months to know what the fair market value is. Making sure that you don’t overpay for your rental property is one of the most important factors for increasing profitability and making money from real estate.

Step #3: Use Different Sources for Your Property Search

The next step in the process of finding and buying a profitable rental property is the property search. You should use both online sources (MLS and off market listings websites) and other traditional methods (agents, networking, "For Sale" signs, etc.) to identify investment properties for sale within your price range. You should also consider foreclosures, short sales, and bank-owned homes as these sell for a fraction of their fair market value. Buying cheap real estate in a decent condition is one of the most straightforward ways to push up your return. To find such properties, check out the websites of major national and small local banks, county offices, auction announcements in the local newspapers, and websites for online auctions. However, keep in mind that you will probably need to pay all in cash if you decide to invest in a foreclosed home.

Regardless of what property type you decide to go for, checking out various sources is important. Each source will offer a unique variety of properties.

Step #4: Analyze Carefully a Few Properties

After you have been able to identify a few properties which meet your initial criteria, you need to perform investment property analysis on them. Using rental comps from the area, you should estimate the expected rental income as well as the occupancy rate for your preferred rental strategy. This will help you assure a positive cash flow and a high return on investment. As a beginner real estate investor, don’t make the common mistake of settling for a breaking-even or even negative cash flow property hoping that your luck with turn soon. The only way to make money in real estate is to buy a property which promises positive cash flow right away.

In terms of return, some of the most important metrics which you should look at include the capitalization rate (cap rate) and cash on cash return (CoC return). Remember that a good cap rate is within the range of 8-12%. Meanwhile, the good cash on cash return depends on your financing method – cash or mortgage – and other factors.

Step #5: Put Your Finances in Order

Before you are ready to buy your investment property, you need to choose the best financing method for your particular situation. Rarely investors are able to pay fully in cash, so the majority of them resort to conventional mortgages. Keep in mind that you will need to put a minimum down payment of 20% when buying a rental property. Moreover, it is highly recommended to get pre-approved for a mortgage before you start putting offers on homes for sale. This will make you look like a serious and reliable buyer in the eyes of sellers and give you advantage, which is particularly important in hot seller’s markets.

You can explore other financing options such as FHA loans, private money lenders, and hard money loans too. Whatever form of financing you choose, make sure that it is affordable based on your savings and income.

Step #6: Hire a Real Estate Agent

Many first-time investors assume that they can handle a real estate deal on their own. The truth of the matter is that working with a real estate agent gives investors some important benefits. First of all, agents have access to MLS listings, so they will help you expand your property search. In addition, they are master negotiators and will assure that you get the best possible price for your rental property. Not to mention the fact that they will help you with all the legalities of buying a real estate property which you might be unfamiliar with.

Step #7: Use Professional Property Management

Once you have bought your investment property and fixed it up if needed, it’s time to start renting it out. Being a landlord or an Airbnb host might turn out to be much harder than you’ve ever imagined. You should not despair. Many investors resort to hiring a property manager to deal with all the tasks of owning an income property. Despite the monthly fees, professional rental property managers are able to increase your return by optimizing the rental process. Moreover, they facilitate out of state real estate investing and turn rental properties into a source of passive income.

If you want to make 2020 a profitable one, it’s time to buy a rental property. Now you know where to start and what to do in order to land a money-making investment property.

A Guide to Increasing the Occupancy Rate of Your Airbnb Rental Property

Daniela Andreevska — Thu, 21 Oct 2021 08:36:27 +0000

Since the emergence and rapid growth of Airbnb.com and other home sharing platforms, short-term rental properties have become the ultimate real estate investing strategy in many markets. This type of property investment usually generates a significantly higher return than traditional ones. However, just buying a property and listing it on a platform does not guarantee making money. To make money, you have to actively work towards maximizing the occupancy of your vacation rental as one of the most important determinants of profitability. The more time your Airbnb rental stays occupied, the higher your income will be.

To help new Airbnb hosts get started on the right foot in this highly competitive industry, we’ve put together a guide with the 10 best tips for increasing the occupancy rate of your short term rental:

Tip #1: Buy a House in a Top Location

The first step to a profitable investment property — regardless of the rental strategy — is choosing a place with a high demand. The most profitable locations for Airbnb rentals are cities with many tourist attractions and business opportunities which attract millions of leisure and business travelers throughout the year. Thus, you should conduct real estate market analysis focused on Airbnb data to identify places which are popular destinations for Airbnb guests as occupancy rate there are naturally high.

Tip #2: Choose the Optimal Property Type

The most popular property type for short-term rentals varies from one location to another and from one guest niche to another. For example, a studio or a small apartment in the downtown area is best if you want to attract Airbnb guests who travel to busy cities for business purposes. A beach house is a better option in popular resorts on the seaside. Thus, you should deepen your Airbnb rental market analysis to find out what type of properties attract the most short-term guests in your selected market. This will help you push up the occupancy rate.

Tip #3: Furnish Your Airbnb Rental Appropriately

Unlike traditional rentals, an Airbnb property has to be fully furnished. This doesn’t mean that you should waste unnecessary money on luxurious furniture as that’s not your own home and as your property will experience significant wear and tear considering the high turnover. Instead, you should focus on durable furniture items with a neutral design.

Don’t buy something which will quickly go out of style and look ridiculous in a couple of years. Go for simple, traditional styles. Supplying your short term rental with all necessary furniture pieces as well as new and clean bed sheets, bathroom and kitchen towels, and other must-haves will help you attract more guests.

Tip #4: Give Your Property a Local Taste

Many people decide to stay at a short term rental instead of a hotel to get a flavor of the local traditions, culture, and lifestyle, in addition to the homey atmosphere and the lower price, of course. That’s why it is recommended to add a few traditional, local decorative pieces. Having the ability to be introduced to and experience the local culture will tip the decision of many tourists in favor of your Airbnb rental rather than your competitors in the local market.

Tip #5: List Your Property on the Best Platform

Listing your short term rental on a home sharing platform is much easier and more efficient than marketing it yourself. Moreover, if you buy a vacation rental, you are not limited to Airbnb only. There are numerous other online platforms where you can list your rental to get exposure to millions of global travelers.

Some of the top ones — in addition to Airbnb — include HomeAway and VRBO. You should have a look at several options, read through their terms and conditions carefully, and choose the best one for your particular case. Listing on a top vacation rental platform with millions of users will help you get maximum exposure and more bookings.

Tip #6: Take Professional-Quality Photos

Marketing your Airbnb rental doesn’t finish with listing it online. You have to optimize your listing in order to get more guests. One of the most important features of a premium listing is the photos. While you don’t have to necessarily hire a professional photographer, you need to spend enough time and efforts to make sure that the pictures of your rental home are of top quality and look professional.

Choose the right light and angle. Make sure to take photos of the most attractive features of your property, for example a veranda, a swimming pool, or a flower garden. Include also a picture of the local culture elements which we discussed above so that you can market not only a home but also an experience. The most popular vacation rental listings feature top-notch photographs.

Tip #7: Work on Your Property Description

Another way to optimize your listing is to write an attractive description of your property. Take this opportunity to highlight what makes your rental stand out from the competition. Focus on the experience that you are offering and not just the property. Use descriptive language which confirms what the photos are showing. Most importantly, stay truthful and honest and don’t exaggerate the qualities of your listing. Even if you trick guests into booking your rental the first time, they will punish you later by writing negative reviews. And negative reviews are a proven way to kill your Airbnb occupancy rate.

Tip #8: Communicate with Guests Effectively

Many guests would like to ask the Airbnb host a few questions before booking his/her property. You should be available at all (reasonable) times to answers these questions. Tourists will appreciate your devotion and commitment before they’ve even booked, and this will tilt their decision in your favor. In addition, you need to be available by phone, chat, and/or email throughout the stay of your guests to address any issues. Your availability will be rewarded with positive reviews, which are a must for a high occupancy.

Tip #9: Work for Positive Reviews

As we mentioned above, having positive reviews from previous guests is key to attracting new ones. Vacation rental platform users are much more likely to book a listing which has been verified and approved by others.

The best way to get these positive reviews is to make sure that everything’s fine with your Airbnb rental, that the listing description matches your property, that you have a welcoming gift or treat for guests, and that you are available and willing to answer questions and fix problems immediately. Moreover, if everything seems to have gone well with your guests’ stay, you can follow up with them in a couple of weeks to thank them for choosing your home and to ask them to review your listing. Satisfied guests will be more than happy to share their experience with others.

Tip #10: Become a Superhost

If you decide to list your short-term rental on Airbnb, aim to become a Superhost. This status gives you many advantages such as being featured in listing searches and emails in addition to a Superhost badge being added to your profile and listings. However, gaining the Superhost status is not that easy as you have to have a minimum of 10 stays or 100 nights in the past year, less than 1% cancellation rate, a 90% response rate, and above a 4.8% rating. You see how all the factors discussed above come together? On the positive side, Superhosts are much more trusted by guests and more likely to be selected. This is one of the most certain ways to increase your occupancy rate.

The home sharing industry has become extremely competitive with millions of hosts across the globe. However, if you follow our 10 tips above and put efforts in improving the experiences of your current guests, you will find attracting new guests much easier.

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