And How It Might Affect You.
AirBnB – VRBO – Booking – Vacasa
By now you may have heard on the news or in conversations with passersby that the short-term rental market is suffering. Occupancy rates have been dropping throughout the summer. Autumn numbers are showing record low occupancy rates in certain areas and many are wondering what’s happening. New local laws are also dramatically changing the landscape of short-term rentals. These factors aren’t just affecting AirBnB, but the whole of the short-term rental industry. As the new year quickly approaches, we decided to take a look at what is happening in the short-term market and give some Wise Tips along the way.
Too Many Vacation Rentals In Areas
One of the most relevant issues in the short-term rental market is the density of rentals. This can affect the market in a couple of ways. If we look at this from the consumer’s perspective, we can see that a lot of choice means there should be good deals. When the prices of AirBnB’s, VRBO’s and the like are higher than hotels, the consumer might take the hotel. This is because they may not see the value in staying at a house at that price when there are so many in the area. With vacation rentals, the owners don’t really have the opportunity to compete on pricing like hotels do. The price is set to cover their mortgage, bills, and ongoing maintenance. This leads to more vacancies.
If we look at this from an owner’s perspective, we can see that having a rental in a high density area can be extra work. Relying on short-term rental websites to sell your property isn’t enough when there are so many places to choose. A little grassroots marketing and personal touches to listings can go a long way. It is also a good idea to create a website for the property to stand out from the competition. Adding videos to YouTube or Vimeo about the local area and sight-seeing , local eateries and activities can add traffic to the listing. But all these personal touches require a professional touch and take time to accomplish, which adds an extra burden and potential costs to a short-term rental owner.
Prices Too High
Price is probably the biggest complaint listed from the consumer side of the short-term rentals market. There are two key factors:
- Price Per Night
As stated above, the availability of choice gives the perception of value in an area. With a lot of vacancies and prices holding steady, travelers will opt for the cheapest option – which has recently been in hotels. This is largely due to the fact that hotels can run deals and reduce their prices much more easily than a short-term rental owner can.
- Cleaning fees
The other complaint listed, probably more loudly than the price per night, is the cleaning fee. On a majority of properties listed on these short-term rental websites the cleaning fee is as expensive, if not more, than the price per night! This isn’t necessarily the owner’s fault, either. Cleaning service charges have skyrocketed over the past few years, and owners can’t absorb that cost.
Expectations To Rent
When a traveler is going on vacation or visiting family, the last thing they want to think about is chores at their rental. Stripping the bed and starting laundry before they leave, or ensuring the dishes are washed and the place is swept; these tasks often leave a sour taste in traveler’s mouths. They may not understand these tasks are to help mitigate the cost of cleaning, to further reduce the average cost per booking. And when someone is on vacation or traveling for work, these little additional expectations seem too much to bear.
Travelers Spending Less
It’s no secret that the health of the economy is precarious. We see this in the mortgage interest rates, shopping reports, and (obviously) in occupancy rates at short-term rental companies. With the Holidays at our doorsteps, the flow of money may be shifting away from travel expenses to gifting. These numbers aren’t the only indicators that people are tightening their wallets. Anecdotally, everyone is mentioning the cost of life continuing to rise. Inflation is visible everywhere, and as the cost of travel, daily expenses, and luxuries go up consumers are less likely to choose a vacation over bills.
Want To Get Into A Short-Term Rental?
Yes, getting into the short-term rental market seems daunting, given the struggles we’re hearing about. This doesn’t mean it’s impossible to make a short-term property rental work, and we still think it’s an advisable way to create a secondary income. Here are some wise tips before jumping into house hunting.
Beware Of The Statistics
A lot of the numbers you will be looking at for expected revenue in AirBnB, VRBO, Booking, and Vacasa are showing rates from 2020 and 2021. If you are a savvy investigator, you can find statistics for 2022 and 2023, but they are harder to find. This is largely due to the fact that 2020 and 2021 were peak years for short-term rentals. With the pandemic in full swing, people realized they could travel and work from “home” while on the road. These days are behind us with the “return to office” push.
If you are interested in buying a new home to list as a rental, be aware that the market for purchasing properties has shifted dramatically over the past year. With interest rates so high, a mortgage payment would require a short-term rental’s price to be quite high. Potentially higher than other local short-term rentals. If you have the means to put a large portion of the home’s value as a down payment, this can help mitigate the cost of a night’s stay. Home valuations are still rising, and an investment in a short-term rental could be a wise move in this economy.
Check Local Jurisdiction Regulations
A lot of new laws have gone into effect in many states across the country. One of the most recent ones is in New York, which requires the rental owner to be present on the premises, has caused a lot of controversy with short-term rental companies. The law has essentially taken hundreds of listings off AirBnB, pending approval from the state. A similar law has gone into effect in Denver. Make sure to check your local jurisdiction to see what laws and regulations are present for setting up your rental. You can also get in touch with The Wise Team to see if this is a move you can make in your area.
Prepare For Costs
Owning a short-term rental is’t just a revenue creator. There are a surprising number of costs that go along with owning a rental. The largest cost is the cleaning fee. Searching for a cleaner that is affordable, fast, and reliable is a struggle in this economy. If you can take on this task, then you can save yourself a lot of money and make your rental more appealing to renters. Furnishing the property can be a big expense up front, with minimal ongoing upkeep. Repairs and maintenance can be an unexpected expense when they arise. Make sure you can absorb these unexpected costs to keep your rental on the market.
Make A Business Plan
Whether you’re looking to create a short-term or long-term rental, it’s important to have a business plan. Make goals, create expectations, and incentives for yourself to make this business a success. To learn more about how to set up a rental property and prepare for success, read our other blog: Setting Up Your Rental