Investing in Short Term Rentals: Palm Springs, CA

Updated: Feb 27



I've set a goal to invest in short term rentals this year. Actually my goal is to purchase 2 short term rentals in the Coachella Valley by the end of 2021. Not too aggressive of a goal but still a shift out of my comfort zone. I've been paying attention to this region & market for a year or so but have just shifted gears to become more committed to it.


Going to make this happen.




Why Short Term Rentals?

When I think about the benefits of making investments in short term rentals there are a few items that float to the top for me:

  • Diversification: I'm currently invested in long term rentals, music royalties, music industry, precious metals as well as the overall stock market. Adding short term rentals to the mix will add even more balance.

  • Personal Use: It'll be nice to take trips to our own properties when we need to get away. We spent ~$20,000 on vacation / travel in 2020. If I can funnel some of that money into an investment while still scratching the wanderlust then win-win.

  • Tax Deductions: There are tax benefits to owning short term rentals, but I need to do more research to determine which ones will apply. But I know there are out there.


Here's a nice breakdown I found of the advantages / disadvantages of short term rentals vs. long term rentals.


Why Palm Springs?

There are thousands of areas we could choose to target for short term rental investments - but the Coachella Valley has floated to the top for us.


Why?

  • We Like it There!: We've traveled to this area a couple of times and have fallen in love with it - from downtown Palm Springs to Joshua Tree National Park.

  • Cost of Living: Compared to the cities on the California coast this area is significantly more affordable.

  • High Rank on Short Term Markets: The Coachella Valley constantly shows up on the lists for the top short term rental markets to invest in. Although there are big swings in these lists year to year, so I don't put too much stock in them, it's nice to see.

  • Close-ish Proximity: Although we do not live right next door, you can drive there from my house in about a tank of gas.



Risks

There are many risks with an investment like this. My goal isn't to eliminate them, only to build mitigation plans.


  • COVID: Nobody knows how this pandemic plays out moving forward. Will there be more stringent stay at home orders if the pandemic continues to grow? If the pandemic does improve and people start flying again for vacations, will this reduce the demand for markets such as Palm Springs that benefit from regional road trips? There's simply no way to know this, so I'm going to just accept it as a risk and move on.

  • City Regulations: Regulations in cities are moving targets. Some cities are banning short term rentals, others are putting moratoriums on them while others, seeing the revenue benefits, are becoming more cozy with STRs. I want to invest in a city that has recently passed legislation on short term rentals, that way there should be a reduction in regulation surprises in the near term.

  • HOA Regulations: This one is a tricky one, some HOAs have banned short term rentals. Others that are currently okay with them could ban them in the future. I think the mitigation play here is to find homes that are in HOAs with many other short term rentals. Hoping that the power of numbers will help stave off new HOA regulation.

  • Overall Market Demand: There's a risk that the demand for short term rentals will decrease for whatever reason (overall reduced demand, overall increase in supply). If that happens my mitigation plan is simple - move my short term rentals into long term rentals and call it good.


Online Resources I'm Using

Not an exhaustive list, but here's some of the resources I'm using as I move forward.

  • Indio Short Term Rental Map: I've zoomed into Indio as a target city. They have a nice map that shows where the current short term rentals are in the city. Useful to find the areas that are most receptive to short term rentals.

  • Palm Springs Area City Breakdown: There are different regulations across each of the cities that make up the Coachella Valley. They range from banning them (Cathedral City) to virtually no limits (The City of Coachella). Taxes range from 9%-13% across the region, with license and fees ranging from $29 (Palm Desert) to over $1,000 (Palm Springs).

  • AirDNA: So far I've only used the free reports but am getting a lot of value out of them. I'll most likely sign up for the paid reports as well, will report back on how they are.



I already have conversations going with relators and management companies in the area to get the ball rolling. I'm going to make this happen, period. One thing that I've found in my investment journey is you must lean into the discomfort that comes from what-ifs, plan for what you can plan for and accept the rest. But don't stop moving forward.


If you have any good tips on short term rentals in the Coachella Valley please share!




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