Financing your short-term rental in 2023

Masterclass-daniel and adam

By The Hospitable Team

Eager to expand your vacation rental business, but endlessly crunching numbers and exploring far-away investments does not sound like fun? Then it’s time to ace this game with the help of Hospitable Masterclass! 

Daniel Ramirez and Adam Windham, the financial whizzes behind Host Financial, focused on mastering short-term rental (STR) financing. The “money gurus” spill the beans about specialized financial assistance, attracting funding opportunities and navigating potential “stumbling blocks.” 

The art of STR financing is just a few clicks away! Watch the full Hospitable Masterclass on YouTube or skim through the highlights below to elevate your business to new heights. 

Financing Short vs. Long-Term Rentals

When searching for financing opportunities, it is essential to partner with lenders who truly understand the intricacies of your particular niche. Adam pointed out that vacation rentals are relatively newer in the game, so having a well-aware finance expert is key to success.

Daniel underlined the “beauty of it all” — short-term rentals offer a backup plan. In case the short-term market takes an unexpected turn, you always have the option to pivot to long-term rentals as Plan B. For some savvy investors, a hybrid strategy can also come into play:

“There are hosts that have a strategy of splitting up their rentals— a portion being a short-term rental and a portion being a mid-term rental — which is a newly emerging strategy,” Adam explained.

Investment Tips 101: Use Correct Metrics

We don’t need to remind you how unprecedented 2020 and 2021 were. But our expert guests warned that skyrocketing numbers did not become the new normal. So, you have to look back to more typical demand years, like 2019, to get a clearer picture of your potential investment:

“Then also make sure you’re stress testing any of your underwriting,” Adam added. “If you have an increased capital expenditure or an anomaly low month or two… Make sure that you’re taking a hard look at those revenue figures and that they’re sufficient to meet your goals.”

As you zoom in on detailed metrics, Daniel encouraged to also consider the big picture. Occupancy rates are essential, but what truly matters is the projected revenue: 

“You could say, ‘Hey it’s 75 occupancy rate in this market!’ But what dollar per night are you charging to get that occupancy rate? And is that going to produce the kind of revenue to cover the [loan] note? If not, then you have to look at the yearly revenue most importantly.”

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Talking Business: Portfolio Diversification

In the investment realm, diversity is like sprinkling magic dust on your portfolio. Diversifying your properties across different areas helps you weather the storm when one region faces challenges. But there’s more to it than simple geography. 

Why not offer different types of properties? Why not target different types of travelers? That is exactly why Daniel and Adam called for investors to aim for diverse demographics and preferences. 

For the financial gurus, a good portfolio should act like a resilient shield against any market fluctuations: “It is good if you have a broader portfolio, being able to potentially shift funds around if for one reason there is a downturn in one specific market.”

Same Principles. Different Properties 

“Principles stay the same whether it’s your first property or your tenth property. Obviously, just the analysis changes,” highlighted Adam when asked about the strategy for those scaling up.  

As the decision-making “algorithm” is not changing much from the first deal, so are hosts’ most common mistakes as they scout the financial opportunities to scale their STR businesses.

Check out the full Hospitable Masterclass and get a comprehensive best-practices overview on how to avoid the pitfalls on your STR financing journey in 2023.

Hospitable is here to support a world where short-term hosting is just as carefree as simple property investment. Get your 14-day free trial now!

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Hospitable Masterclasses: STR Tips You Must Know in 2023

We know that being a short-term rental host can be like a game of Tetris… guests, bookings, and cleaning schedules are constantly falling from the sky and you have to fit them all together perfectly. To help our hosts slot everything into place, we organize Hospitable Masterclasses that are jam-packed with inspiration and insight.

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