Short Term Rental Success: Article #1- Analyzing a Property for It’s Potential Short Term Rental Profit – 

In our MN Real Estate and Management- Short-Term Rental 101 series, we’re delving into the crucial initial steps for analyzing a property’s potential for success in the short-term rental market. With years of experience developing and managing properties, we’ve gained valuable insights into what distinguishes a lucrative rental from one that falls short. While there are numerous factors at play, we’ve found that the property’s setup and development often outweigh the modesty or elegance of a property.

Our first consideration revolves around understanding our primary demographic: multi-generational families seeking lakeside getaways to create lasting memories. This accounts for at least 95% of the traffic in the area. While there are exceptions, the overwhelming majority of our guests fall into this category. Consequently, properties catering to larger families tend to outperform smaller ones both in terms of rental rates and occupancy rates. We certainly get the groups of Men and Women, the sports groups, fishing etc. That remains, that the vast majority of groups of family or friends coming up to enjoy the lakes and so many locals sometimes take for granted. Often, we have one family driving up from the cities and two our three others flying in from all over the country.

When assessing a property, we evaluate its potential as either a one-, two-, or three-family vacation rental. This assessment extends beyond mere square footage and bedroom count; bed configuration plays a pivotal role. For instance, optimizing sleeping arrangements to accommodate larger groups can significantly enhance a property’s appeal. For example if you have a three bedroom home and you put three queens in it, you can accommodate six. However if you take the largest bedroom and put to twin over queen bunks it in, now you can accommodate ten; which is the maximum allowed in Crow Wing County for the license.

In our market, nightly rates typically range from $150 to $300 per family, depending on various factors such as the quality and size of the lake, amenities, proximity to the beach, the layout of the home, and seasonal demand. There are some places that demand a higher rate based on an exceptional location or other specific factors, but over all this is a range that should be used when looking at most properties.  During the peak season (typically from May 20th to September 10th), our aim is to secure 80 to 90 days of occupancy. We have properties that easily hit those occupancy goals year after year and others that we must work and struggle to hit them. We had multiple properties hit 200 days last year. There are very specific and quantifiable reasons for that occupancy level.  

In the offseason demand is certainly lower, strategic planning and flexible rental prices can help. The bottom line is we are shooting for 50 to 60 days. I always point out to owners this is basically filling up the weekends. The last two years September and October have dramatically outperformed historical goals. In fact, we had one less booking in September last year than we did in August! However, I don’t think those levels of performance should be used when attempting to predict a ballpark performance on a new property. Properties equipped with sought-after amenities and located in desirable areas may still attract guests during quieter months, but again there are specific factors that make our most popular rentals successful in the off season. That is part of the reason for our mid-term rental pool strategy where we give owners the option to fil their property up for 1 to 6 months at a time on the offseason. This works for some owners. We had property hit over 200 days last year. Some properties do very well year round, but again understanding those factors is key and weather can play a major role November through April.

Out of the 30 properties we currently manage we currently only have three that sleepover 13. I have learned through the years that a 10 person VRBO is certainly more valuable than two five person VRBO’s. Of course, factors like the quality of the beach, the game room, the location, and the development of amenities ideal for certain groups can help. However, the bottom line is volume and location are the two biggest factors that really drive the return on investment when it comes to a rental property.

Despite the potential for substantial returns, entering the vacation rental market requires careful consideration and diligent research. We’ve encountered instances where buyers, lured by promises of easy profits, overlook critical factors such as regulatory compliance and market viability. Over the last two months I have sold properties that were purchased through other Brokers over the last three years as vacation rentals, lost money, and decided to sell. In both situations I would never have advised the owners to purchase that specific property. As part of our commitment to industry education, we encourage real estate professionals to include clauses in purchase agreements allowing for due diligence regarding short-term rental feasibility. In some areas it is not allowed, in others the property has to be ADA compliant, in others the number of rentals is greatly limited etc.

Whether you’re a prospective buyer or a fellow real estate professional, we’re here to offer guidance and share our expertise. Don’t hesitate to reach out with any questions or concerns. MN Real Estate and Management is always willing to analyze a property even if you are working purchasing through another brokerage. Sometimes we will manage it if it is a good fit, other times we are just more than happy to give insight and advice.

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