There are many different factors involved when it comes to short term real estate investing. One key thing to consider before making any major decisions is to know your end goal. As Stephen Covey says in his book 7 Habits of Highly Effective People – “Begin with the end in mind.”
Short-term rentals are generally considered to be an excellent investment opportunity because they can offer investors a steady cash flow while also providing them with the chance of capital appreciation if you own the property. You can also lease properties (houses and condos) from owners or apartment units from property management companies. Leasing is great for part-time real estate investors who might not have enough money to invest in traditional properties that require high down payments of 20 to 25 percent.
Cash, Appreciation, or Both?
If your goal is centered around cash flow and property asset appreciation understand that your asset accumulation (the number of properties you can buy in a given time) will be slowed due to the upfront capital requirements. And even though you can accumulate more properties using the leasing strategy understand that you’ll miss out on equity gains. So, if you want quick cash flow don’t look to buy the properties you intend to use for your short-term rentals. And if you want property appreciation own the asset.
Neither strategy is better or worse than the other. It’s a personal decision you’ll have to make given your current situation and future goals. Also, understand that your investment goals don’t have to be binary. You can use the leasing option to get your cash flow generation going then use that cash flow to purchase property that you’ll own.
