Michael Monteiro

A guest post by Ashley Halligan, Analyst, Property Management Software Guide

Short-term rentals, of all natures, have become a hot commodity – and a controversial one at that. Short-term rentals can include vacation rentals and temporary housing, often sought by vacationers, business travelers, or people who have recently relocated while seeking long-term living arrangements. Either way, it’s become an ongoing topic of debate and an attractive investment opportunity for property owners and managers. In comparison to traditional rentals, short-term rentals can charge significantly higher rates given their nightly and weekly availabilities. Some property owners have earned as much as 25% of their mortgage in a single night. And during special events or peak rental periods in a given area, potential rental rates can be very attractive to property owners. Because of the income short-term rentals can procure, the opportunity for profit potential may be exponential – but there are several considerations that should be kept in mind.

First and foremost, it’s essential to keep the added costs of maintaining a short-term rental in mind. These rentals can be subject to Hotel Occupancy Taxes in certain cities, while other cities require specific licensures and inspections not required of traditional, long-term rentals. Penalties for not abiding by short-term rental laws in your city may result in hefty fines. There can also be increased insurance costs. Additionally, the cost of regular upkeep and maintenance, including utilities, should be calculated. In order to continually attract tenants, your property must be kept in prime condition, both functionally and cosmetically. From a marketing perspective, this could include offering unique amenities like sporting equipment or movie libraries, all of which are additional expenses. On the flip side, the regular maintenance of these properties has been credited with helping to increase neighboring property values.

Legal issues are another important consideration given the ongoing public debate and subsequent restrictions arising in many cities. Some city officials and neighborhood associations oppose short-term rentals for many reasons including a fear of transient tenants potentially bringing chaos and crime to communities, noise and parking complaints and a failure to fall under the same standards required of local hotels. Because ordinances, zoning limitations and overall restrictions are popping up all over the country, it’s necessary to be aware of the possibility of your property being restricted by new laws. New York City, for instance, has recently banned all rentals under 30 days. Though San Francisco has a written law of the same nature, it’s instead levied a 15-16% transient occupancy tax that reaps millions of dollars in revenue for the city.

Aside from the considerations that should be kept in mind, there seems to be a well of favorable reasons to contemplate short-term rentals. Short-term property managers prefer these rental types for many reasons, and for reasons other than the revenue potential. Property owners who have a sentiment for a home they’re renting on a short-term basis claim it allows for a more feasible preservation of a home, allowing regular entry and ongoing maintenance and beautification that isn’t typical of long-term rentals. Other claims suggest that short-term rentals promote tourism in communities, particularly communities who may not have optimal hotel capacity during peak visiting periods. And lastly, there’s hefty tax breaks that are sometimes associated with the maintenance costs of operating a short-term rental. Advertising and maintenance costs as well as high-ticket improvements can also be tax deductions.

With all these things in mind, it’s important to calculate both the pros and cons associated with short-term rentals before diving into the deep water surrounding them. See the full guidehere.

By Ben Holubecki, STML Realty Group, Glen Ellyn, IL

One area that really took a hit during the economic downturn over the past few years was the ability to lease property to employees being hired and transferred. Nobody was hiring, and it seemed that very few companies were taking on the expense of transferring their employees to other markets. Although the job market continues to stagnate, overall it does appear that in many markets companies are beginning to add staff, and once again we are seeing an influx of transferring employees and executives.

Renting a property to an incoming transferee presents a few issues that need to be considered that don’t necessarily apply to local tenants.

1. Timeframes are much more rigid.

When an employee needs to transfer, they need to move. They typically have a start date for work set already. They have received instructions from their HR department to secure housing and are under pressure to get things coordinated as soon as possible. These tenants have a matter of days or weeks to completely relocate their lives. They don’t have the ability to move back a move-in due to utility problems or issues with a previous tenant move-out. When dealing with a transferee, it is important make sure that everyone commits to specific dates and that the property is 100% ready for occupancy on the lease start date.

2. You may not be able to assess creditworthiness.

For international transferees, it is very difficult and sometimes impossible to retrieve a credit report. In many cases all that we have to make a decision on is a letter from the employer and the estimated income details provided by the applicant. This makes it increasingly important to verify every single piece of information that is provided, which includes contacting the employer to verify job offer details and income. If the company is making the investment to relocate an employee, they will do whatever they can to verify the information and expedite the process. If the information is difficult or impossible to verify, this should act as an immediate red flag.

3. If the tenant is working with their own agent, you may never get a chance to meet the tenant or review the lease terms with them.

While this does otherwise happen occasionally when other agents are involved, it is the norm when dealing with transferees. These tenants are very often only in town for a day or two at a time to look at properties and get corporate affairs in order. By the time that they decide that they want to rent our property, they have left town to return home. Much or all of the communication is done via solely the other agent involved. While this is not a huge deal in most cases, it has to be taken into account, as we will likely have no chance to begin real dialogue with the tenant until the time of occupancy. It is also possible that the exact terms of the lease have not been clearly conveyed to the tenant with the detail that you are comfortable. It is a good idea to bring a copy of the lease to the move-in in order to review any important items within the lease that you would like to clarify, as we know that many tenants do not review their lease completely prior to move-in.

4. Tenants may be unaware of utility guidelines and setup procedures.

Our experience is that the employees that companies are willing to transfer are generally pretty successful and many of them are property owners in their current location, not renters. Many of them have not rented for many years and this is a fairly unfamiliar process. They are not familiar with the local utility companies or the process for setting up their accounts. It is particularly important to provide these details as early and as clearly as possible to avoid any delay in switching utilities, and any chance of an accidental disconnection of service. Provide as much detail as possible, no matter how obvious or excessive it seems.

5. Don’t assume tenants understand local weather conditions.

I write from experience on this item. You absolutely can’t assume that someone coming from another location (especially internationally) understands the local weather. One of the worst maintenance situations we ever experienced was a townhome near Chicago that we rented to an executive from Italy. This tenant planned a trip home to Italy during December. The temperature had not fallen below 50 degrees in Chicago when he left and he had never experienced a winter in the U.S., so he did what he would normally do when vacationing back in Italy—he turned the heat off completely. Within a week, the temperature had fallen below zero, the pipes broke, and the nightmare ensued. He had never experienced that type of temperature change before. From that point on, I’ve made it a point to explain the details of the local weather to anyone relocating from a different type of climate.

The fact that executive rentals are now being scooped up by transferring execs is a great sign for our industry, as our higher end rentals are filling more quickly with high quality, longer-term tenants. However, every relocation deal presents its own set of challenges and issues that need to be addressed to ensure that we are providing top-level service to our tenants and clients.

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

Property management is all the buzz these days, as it is becoming the saving grace of the real estate industry. Across the country, real estate agents and realtors who are unable to maintain consistent listings and sales have turned to property management as a steady income stream until the market “picks up” again. This increase in competition for property management accounts by quasi real estate agents/managers has lead many who want to build their property management portfolio to take on any and all assets.

Many new to the industry agree to manage dilapidated properties from slumlords at management rates sometimes as low as three or four percent, and welcome the unrealistic rental rate demands from new investors trying to cash flow on properties that never will. However, by far the most common mistake made by these new entries into the business is taking on accounts that are located just too far away from their own area of operation or expertise.

We have all seen the marketing signs before– “Countywide,” “Citywide,” or “We service all areas.” Now, please understand that many well-structured property management companies large and small can accurately market this way, as they have the means, systems, and staff available to handle distant accounts across larger serviceable areas, and do so in a professional manner. That’s not always the case for single parties handling a few accounts here and there. Saying “no” to a potential account, or offering to refer that client to a reciprocating property management company for a referral fee, seems to be a hard thing to do in a struggling real estate market.

In my experience, the successful property managers know their limits, and would rather deliver exceptional service than risk blemishing their reputation on a property they should have referred. Nothing will destroy the will of a new property manager faster than having to drive clear across town numerous times a week to show a property that maybe difficult to rent. The more trips the manager makes across town to the property, the more evident the profitability of the account comes into question, and things like drive time to-and-from, gas expenses, and vehicle wear-and-tear start to take a toll. In the end, the owner is usually unsatisfied with the results and the property manager is just glad to see the property go. Unfortunately, real estate property management is based on relationships, and saying “no” maybe the best way to go when dealing with a property outside your area of operation or expertise. Besides, there’s nothing wrong with getting a referral check and keeping your clients.