Short term rentals are declining but you can still make money with the right kind of investment

By: Taro Chellaram /Real Estate Articles/Jul 26, 2023

Short term rentals are declining but you can still make money with the right kind of investment

Occupancy rates for short-term rentals have been consistently declining for the past eight months. However, this is not because there is a decrease in demand caused by inflation. In fact, the number of nights stayed in these rentals has increased by 21.3% as of October when compared to the previous year. The main reason for the decrease in occupancy rates is actually the significant increase in the supply of short-term listings, which has grown by 23.3% year-over-year. In October alone, there were 66,000 new rental properties listed, overshadowing the growth seen in the same month the year before. This oversupply of rental properties can be attributed to the surge in demand for second homes during the pandemic.

WHAT SHOULD INVESTORS DO?

New investors who purchased rental homes during the pandemic may be unable to fulfill their mortgage payments. Many property owners may be compelled to sell their properties as occupancy rates continue to fall. The widespread sale of short-term rental houses would increase the supply of homes, resulting to a drop in property prices. To succeed as an investor in the short-term rental market, it is crucial to differentiate yourself among the extensive supply of properties. One way to stand out is by being an exceptional host. Additionally, hosts should take the time to understand the algorithms used by each listing platform in order to increase their visibility and improve conversions.

While the Airbnb boom may be slowing down, there are still opportunities to earn money from short-term rentals, particularly for experienced and strategic investors. Despite the decline in occupancy rates from their peak, hosts are still earning more money now than they were before the pandemic. However, it's important for new investors to approach this market with caution due to the surge in property prices and mortgage rates since then.

Here are some key considerations for new investors in the short-term rental market:

  • Manage Expectations: It's crucial to understand that not every property you purchase will automatically guarantee success. Market conditions can change, and factors such as location, competition, and property features will impact rental performance. Set realistic expectations and be prepared for potential challenges.
  • Research-Backed Decisions: Conduct thorough research on the market and potential investment properties. Analyze factors such as location desirability, local regulations, tourist demand, and competition. Make informed purchasing decisions based on data and market insights.
  • Risk Awareness: Recognize the risks associated with short-term rentals and be prepared to address them. Economic changes, evolving regulations, and shifts in traveler behavior can impact the profitability of your investment. Stay updated on market trends and adjust your strategy accordingly.
  • Adaptability: Be prepared to pivot and adapt to changes in the economy. If the short-term rental market becomes less favorable in your area, consider other rental strategies such as medium-term or long-term rentals. Flexibility can help you navigate through challenging times.
  • Financial Planning: Given the increased property prices and mortgage rates, it is essential to have a solid financial plan in place. Calculate your potential earnings and expenses accurately, including mortgage payments, maintenance costs, and property management fees. Ensure you have enough cash reserves to cover unexpected expenses.

By approaching short-term rental investments with caution, conducting thorough research, and staying adaptable, new investors can still find opportunities to earn money in this market. While the boom may be slowing down, strategic investments and a proactive approach can lead to success in the evolving short-term rental industry. Get in touch with an industry expert before making any real estate investment decision.



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