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When you’re diversifying your investment portfolio, there are plenty of investment types to choose from. Short-term rental properties are popular among investors, since they offer the opportunity to cash in on popular vacation destinations and generate passive income. One company, Roofstock, has recently opened up their platform to short-term rental investing. This Roofstock review will help you determine whether this opportunity is right for you.
What are short-term rentals?
Short-term rentals are also known as vacation rentals. They’re typically rented for less than 31 days to the same tenant. Because tenants typically only stay for a few days at a time, short-term rentals often generate more gross rental income than long-term rentals. Plus, you’ll be able to use the property yourself, if you choose.
Examples of short-term rentals include vacation homes that are listed full time, like Airbnb or VRBO rentals, second homes that are rented out part of the time, or spare rooms rented from a primary residence.
Depending on where your short-term rental is located, shorter rental periods can be quite profitable. However, you’ll need to make sure that the city or county is friendly to short-term rentals, since some places actively discourage renting out properties for less than a month at a time.
As a landlord, your obligations are much the same as they are for long-term rentals. You’ll still need to maintain the property and make necessary repairs, whether you hire a property manager to oversee operations or do it yourself. If the hands-on aspects of rental property investing are a drawback rather than an attraction to you, good news: investing through Roofstock may be an ideal alternative.
Why invest in short-term rentals?
A higher potential income stream is one of the main benefits to investing in short-term rentals. While long-term rentals typically have a guaranteed income stream for the lease period, location and property type, the average daily rate and the average length of the stay can net higher overall income—even if the property remains empty during the off-season.
In 2021, the average annual revenue earned by short-term rentals reached $56,000 per year. While you’ll need to account for hotel and resort availability nearby, it appears that the COVID-19 pandemic has increased travelers’ desire for more space and fewer communal areas, like what you’d find at a hotel.
Second, there’s a big market for vacation homes—and not just in large metropolitan areas. There are over 1.1 million vacation rentals available in the United States, which is projected to increase in the coming years. You’ll also benefit from attracting different types of tenants, from families taking vacations to business travelers, depending on the location.
Just like long-term rentals, short-term real estate typically appreciates faster than inflation—which is welcome news in 2023. Vacation rentals also tend to perform well during recessions, since they can offer more budget-friendly accommodations for families and international travelers.
Finally, vacation rentals are eligible for tax deductions and write-offs, just like long-term real estate rentals. As long as the property is rented out for 14 days or more each year, you can take advantage.
What is Roofstock?
Roofstock is a real estate marketplace that matches real estate buyers and sellers. This is not to be confused with crowdsourced investing opportunities, where investors purchase a share of a property, rather than a whole parcel. When you purchase property on Roofstock, you are the owner and have all the benefits of ownership. It’s important to note that as the property owner, you’ll also have all the obligations that come with owning and renting out real estate, too.
When you purchase a property through Roofstock, their property management team will handle the daily operations associated with your short-term rental. However, you’ll still be responsible for paying for repairs, taxes, and other costs associated with the property.
Roofstock is unique because it allows nonaccredited investors to buy property, making it more accessible to people who may not have the startup capital to become accredited. To become accredited, you typically need at least $1 million in net worth, or a $250,000 annual salary. Younger generations are less likely to have that kind of funding, so this opens up options.
Roofstock will also match investors with lenders, if you need to take out a loan to finance your new short-term rental.
Benefits and drawbacks of investing with Roofstock
This Roofstock review will help you understand how the platform works, as well as specific features, benefits, and drawbacks to investing with the company.
The Roofstock platform allows investors to browse different long- and short-term rental properties. You’ll be able to search through all of the available properties, whether individual or in different portfolios.
Plus, the platform allows you to filter your search by categories such as location, price, square footage, estimated daily rent, and occupancy rates. It also pulls data from comparable rentals in the area, so you can get a sense of how the property might perform. It’s a simple, easy-to-use platform with significant data available.
The main drawback to Roofstock is that it’s for single-family homes only. If you’re trying to diversify your real investment portfolio with commercial properties and other options, this may not be suitable for your needs.
Roofstock vets each short-term rental property according to certain criteria to ensure that it meets their quality and occupancy requirements. You can browse inspection records and detailed financial analyses, along with due diligence reports and more. The reports also offer a location star rating, and comparable rentals in the same location.
If you really want to go the extra mile, Roofstock Academy offers training courses for real estate investors and property owners—but their blog also offers a wealth of information.
Commissions and fees
Generally, Roofstock charges a marketplace fee for buyers: either $500 or 0.5% of the contract price, whichever is higher. You’ll also be responsible for closing costs and property management fees, as well as your own repair and maintenance obligations.
All personal data is encrypted, and the platform uses BrainTree to process credit card transactions. No client data is ever sold to third parties.
Roofstock also reviews their sellers’ properties thoroughly. Their verification process includes real estate inspections, and only 15% of potential properties are accepted. Therefore, if you buy a home through Roofstock—even if it’s sight unseen—you can rest assured that you’re getting a well-vetted property.
Roofstock offers customer support by phone, email, or their website. Their chatbot allows clients to schedule meetings with advisors, such as new client orientations, investors looking for properties, investors who want to talk about specific properties, and property owners who want to sell their parcels. However, there is no live chat option—you’ll need to call their toll-free number for immediate answers.
Are short-term rental investments with Roofstock right for you?
Roofstock is a great way for new and seasoned real estate investors to get into short-term rental properties. Roofstock reviews and client feedback show that the platform is designed to be easy to use, matching investors with the exact type of properties they’re interested in. The rigorous property standards, extensive research, and educational opportunities make this a nice entry-level investment platform for unaccredited investors, and you’ll enjoy all the benefits of property ownership. If you’ve been thinking about making a move toward vacation rentals, this is a safe investment in popular locations.