Short-term rentals are taking hold in the hospitality marketplace. It’s an attractive model for investors looking for substantial cash flows and ROI. Though a proven model, real estate entrepreneurs need to consider the inherent operational, financial and regulatory risks and adopt mitigating strategies to ensure project solvency.
Vacation rental investing promises higher rents, no eviction hassles and simplified property marketing; however, it also carries liability and other operational risks. Let’s take a look at the emerging trend, consequences for the industry and how to get started in vacation rental investing.
Short-Term Rental Growth
Vacation rentals are nothing new, but the convenience and efficiency of the short-term rental model via online platforms like Airbnb, HomeAway and Vrbo are attracting droves of investors and customers.
The short-term rental market in the U.S. has grown by more than 100% in only the last three years. Markets experiencing the most significant increases in short-term rental revenues include Indianapolis; Jacksonville, Florida; Dallas; Austin, Texas; Denver; San Diego; and Los Angeles; with respective year-over-year (YOY) revenue growth ranging from 3.6% to 17%. Other regional markets aren’t faring so well: San Francisco is down 11.8% from the prior year; Fort Worth, Texas, is down 18%; San Jose, California, is down15.5%; and Seattle is down 10.6%.
Though revenue numbers have declined in these markets, the overall demand for short-term rentals remains strong. Resistance from the hospitality industry, local government and community creates challenges for the short-term rental sector as the disrupted market reaches a new equilibrium point. The shift toward the short-term rental model and more affordable pricing for accommodations is compelling hotel franchises to adopt new pricing structures, innovative technology and marketing strategies.