Many homeowners have renovated ADUs (accessory dwelling units) to their own property or bought secondary property in order to rent out to short-term renters. While the most common use for these spaces is to house family members or lease out to long-term renters, some homeowners find short-term renting to be extremely profitable.

Renting — especially in sought-after vacation markets — is a great source of extra income, so it’s no wonder platforms like Airbnb, HomeAway, and VRBO have been on the rise. However, while short-term rentals have perks, homeowners should consider the negative factors as well. 

Short-term rentals are on the rise

In HomeLight’s Top Agent Insights for End of Year 2021, 51% of agents have seen more and more properties being listed on vacation rental platforms in their markets. In the South Central region, 61% of agents have seen an increase in short-term rental properties. 

Since the start of the pandemic, vacationers are on the lookout for ‘longer’ short-term rentals, which allow stays for months as opposed to weeks or days. This is mostly due to the shift toward remote work. Now that employees can work whenever they’ve found a connection to the internet, they can hop off on a remote vacation without missing a day off work. 

What makes short-term rentals valuable?

If you’re thinking of converting your home or a portion or your home into a short-term rental, first you’ll need to be sure vacation rentals are legal in your market, as only 67% of real estate agents report that it’s legal to rent out ADUs in their market. 

Next, think location. The closer your property is to a popular tourist destination, the better. In addition, 60% of real estate agents claim proximity to the city center is a top location factor that increases a short-term rental’s value in the market, followed closely by proximity to a college campus at 47%. 

If you think your property has a desirable location, a few features will set it apart from the rest. First and foremost, 84% or realtors cite a private entrance as the top ADU feature, followed by air conditioning and in-unit laundry machines. 

The risk: short-term rentals can reduce property values

Since short-term rentals support tourism, the city benefits equally with growing bars and restaurants, along with local activities like farmers markets, music festivals, bands, and more surging to the area.

So what’s the drawback?

When more and more short-term rentals move into a neighborhood, other property owners can sometimes become fed up with the noise, as no one wants to live next to a property with a new set of partiers arriving each weekend.

Since no one wants to live next to a short-term rental property, real estate agents have estimated that an owner-occupied property is worth up to 13.3% less when surrounded by a high volume of short-term rentals.

Remember, while you’ll surely get a solid price for your property in the current housing climate, selling a home and closing on a new property can be a tricky process, and you won’t want to do anything that could negatively affect your neighborhood’s property value right before putting your home on the market.