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Investor Insights Blog|Turning Your Investment Property into a Short-Term Rental

Real Estate

Turning Your Investment Property into a Short-Term Rental

short-term rental property

The following was written by guest blogger James P. Schlimmer of IRA Title Pro, an Equity Trust affiliate.

James Schlimmer
James P. Schlimmer

As we enter precarious, uncertain times, more and more people are starting to worry about the future. Whether it’s an unpredictable economy, turbulent 401(k)s, or a possible recession on the horizon, the time is now to examine your decisions with money, particularly investments that net profits. When it comes to traditional financial assets, people usually think stocks, bonds, mutual funds, or exchange-traded funds (ETFs) as the usual investment options – until now.

Short-term rentals as a diversification strategy

Certain stocks and bonds are influenced by the times and certain trends, but one option that isn’t dictated by outside factors is real estate. While the major shift to eCommerce and shopping from home continues to increase, no matter what technological advancements occur or which latest industry sees a boom, people will ALWAYS need places to live or stay.

Most people think of rental properties as strictly long-term with tenants and six-month to yearlong lease contracts. And while a steady renter may sound appealing, whether it’s lower nightly rates or smaller tax deductions, long-term rental properties report on average lower profit margins.

The investment strategy and understanding IRA parameters

When it comes to investing in real estate, it may be beneficial to purchase using your self-directed IRA. Holding real estate in your IRA offers appealing incentives, like keeping more of what you earn from your property investment, and with an investment made through a self-directed IRA, your profits could be tax-free or even tax deferred.

Another notable benefit is the diversification of your investment portfolio. Utilizing a self-directed IRA to invest in a short-term rental property, such as an AirbnbCo property, allows you to gain exposure to another sector that most retirement accounts have limited to no presence in.

Also, the performance of an investment in real estate is not directly linked to stock market performance, so you never have to worry about arbitrary influences.

It’s also crucial to understand the rules for using your IRA to invest in a short-term rental property as there are certain exclusions.

First and foremost, your real estate property must be used as purely an investment, which means you can’t use it as a vacation home, a place for your kids to live, a second home, or an office for your business.

These rules apply to you and to the people the IRS deems “disqualified.” Disqualified people include your spouse, your parents, grandparents, great-grandparents, your children and their spouses, grandchildren, and great-grandchildren as well as fiduciaries of your IRA. Visit the IRS website for more details.

[Related: Investing in Short-Term Rentals with Your Self-Directed Account]

Steps to turning your property into a short-term rental

You’ve done the calculations, you’ve listed your home for vacancy on your preferred platform, and now you’re ready to get your property rented; let’s take a look at how to prepare:

Step 1: Clean

Nobody wants to stay in a dirty place, so grab a broom, a vacuum, a mop, and some cleaning supplies. Clean your counters, give that floor a little sparkle, and put in a plug-in for a welcoming fragrance. Your guests are coming to get away, and they want to feel comfortable. You want to rack up positive reviews, and the best way to do so is to make sure your home is spick and span and a place you’d really want to stay.

Step 2: Fix it up

Safety hazards and other unsightly spots are sure to turn off guests, so make sure there are no potential areas where somebody could get hurt, and while you’re at it, make sure your kitchen cabinets aren’t falling off the hinges. That chair with the loose, wobbly leg? Let’s make sure nobody is going to take a spill. The leaking ceiling with a slow drip? Probably want to get that taken care of.

Step 3: Safeguard valuables

Make sure you’re not a victim of theft and either lock up precious items or move them to a different location. Homeowners’ insurance may not always cover stolen items, so it’s imperative to make sure you take the extra precautions to secure your valuables. Lock up an old closet with a key or purchase a safe; just make sure you’re prepared.

Step 4: Prepare for guests

This step will certainly have an impact on the quality of your guests’ stay. Stocking the bathroom with toiletries and fresh towels, fitting the bedroom with clean sheets, making sure they have a pot or pan to cook, a TV to watch, and decent Wi-Fi are just a few basics to consider. Ask yourself, what would you want in a place where you were staying? You’ll probably want to throw in some garbage bags as well.

It’s always nice to leave instructions for guests; let them know of any favorite restaurants or places to go. A guide on how to set up your Wi-Fi and other entertainment devices can also go a long way to help you guests during the transition.

Step 5: Get insurance

It’s always important to make sure you’re covered, especially when you have a major investment like a property. You never know what could go wrong, so having sufficient coverage can not only help you in case of a potential disaster, but it can also protect you from possible legal liabilities.

[Related: Have the Wrong Rental Property Insurance? Here’s What Could Go Wrong]

Start earning with a short-term rental property

Whether you’re looking for extra spending cash each month or for a solution to save for the future during unpredictable times, more and more people are turning their properties into short-term rentals and yielding significant profits.

Stop waiting to turn your property into a short-term rental: find out how much extra money you could put in your pocket today by using our Short-Term Rental Estimator.

Calculate Now

 

About James P. Schlimmer

James P. Schlimmer is the CEO of Equity Real Estate Services and the President of IRA Title Pro. Renowned as a pioneer in the real estate industry, Schlimmer has been paving the way for innovation in a field that has been stagnant and overly complicated for far too long. For nearly a decade, Schlimmer has worked diligently, assisting buyers and sellers by revolutionizing the closing process with a more modern, seamless approach.

About IRA Title Pro

IRA Title Pro is a real estate closing company specializing in IRA-funded transactions, providing a quick and seamless process compared to traditional closing companies that may not have the experience needed for a streamlined IRA real estate closing.

 

IRA Title Pro is powered by Investors United Title, who is an affiliate of Equity Trust Company through common ownership. Neither company is an agent of one another. Equity Trust Company is a directed custodian and makes no recommendations or representations as to IRA Title Pro and any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Clients are in no way obligated to purchase services from IRA Title Pro and are free to purchase such services from any title company as they deem appropriate. No customer may rely on any statement made by Equity Trust or any of its officers, directors, employees, or agents for any decisions regarding the use of the service offered by IRA Title Pro. Whenever making a decision related to your account, please consult with your tax, financial, or legal professional.


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