authority. You’ll discover, for example, whether you must buy an existing STR because they are not allowing new ones, STRs are not allowed at all, there are rules for starting new STRs, or there are no rules or regulations at all. TAX SAVINGS Investing in STRs is a powerful way to reduce your W-2, 1099, or other active or business income. Many people are not aware of this, and we help educate our clients and provide them with referrals to other professionals to help them maximize their tax savings. Basically, the IRS considers a short-term rental a form of active business if you document 500 hours of what they call “material participation” of your time actively helping run the STR. Then, the normal real estate depreciation can be used to reduce your active income taxes. There are two other ways to reduce your taxes: BONUS DEPRECIATION. Bonus depreciation is a way to write off the cost of certain parts of a short-term rental in the first year it is brought into service. Basically, the cost of anything that can be depreciated faster like furniture, landscaping, hot tubs, flooring, fixtures, etc. can be written off in the first year. For property acquired on or after January 20, 2025, the bonus was set to be 20%, but with the passage of recent tax legislation, investors may take 100% of the cost of the above-mentioned items in the first year of service. Note: The previous rate still applies for property acquired before January 20, 2025. COST SEGREGATION. Another strategy STR investors take advantage of involves
a cost segregation study. This is a process where a study is performed on a property to break it into its component parts, accelerating the depreciation and pulling forward tax savings. This can be done on any property, not just an STR. Short-term rentals can be a powerful way to reduce your active income taxes. Not everyone knows this or how to. We have the team to do it at a high level. MAXIMIZE PROFITS Obviously, before a property is purchased, all due diligence should be completed to ensure the property will be profitable as a short-term rental and the price should have been negotiated down. The key to maximizing profits, however, is effective property management and excellent reviews. Property managers are an underrated part of your real estate investing team, but that is where the money is made, especially with short-term rentals. You have a few options with property management: You can manage it yourself, hire a property manager, or use a co-host. Whichever option you choose, you want to maximize revenue and property value and reduce costs. Some of the ways to maximize profit are: SUPER-HOST/CO-HOST. Use a Super- Host property manager or co-host—or become one yourself. This—along with solid reviews—will help your property rank higher on searches in your area. USE DYNAMIC PRICING. Tools exist to help you manage pricing across all platforms; basically, you want to factor peak season and when there are local events or festivals nearby that would support higher pricing.
OFFER ADDITIONAL SERVICES. Rent boats or jet skis. Offer event planning services. Offer massage or spa experiences. BOTTOM LINE Markets are changing. Investing in short-term rentals can help you achieve cash flow in areas where it is difficult to find cash-flowing properties—and they can help you powerfully reduce your W-2 or active income taxes. Buying a short-term rental well is critical. Not all STRs are profitable. Having an experienced team to make sure the property is profitable and the area not saturated with other STRs is key. You want a team that will do the due diligence on the property and negotiate the price down. Managing your property well, getting excellent reviews, and offering extra services is the way to maximize STR profits. To Your Success!
JEFF ROTH
Jeff Roth is the founder of Arbor Advising in Ann Arbor, Michigan. Arbor Advising is a real estate consultancy passionate about helping clients invest, buy, and sell in Michigan. You can contact Jeff at jeff@arboradvising. com, or www.arboradvising.com, or subscribe to the weekly newsletter at www.arboradvising.com/subscribe.
22 | think realty magazine :: september - october 2025
Made with FlippingBook Online newsletter