Over the past year, the resilience of the short-term rentals market in the face of the COVID-19 pandemic has been lauded left and right. This year, it’s obvious that the market is not only alive and well, but it’s finished recovering and moved into the next phase of expansion. Data from AirDNA shows that occupancy levels of April 2021 were the highest they ever were, at 61.6%.
Some changes in the market are noticeable. Urban properties saw 41% lower levels of demand, while small cities and rural markets saw 67% more nights sold than in 2019. A year or two from now those trends might change as urban travel picks up again.
The model itself, however, isn’t going anywhere. Ralph DiBugnara, a real estate investor, sees short-term rentals’ profitability as one of the major reasons. “I really believe that the Airbnb, VRBO model is here to stay,” says Ralph DiBugnara, “and is almost three times more profitable than long-term rentals in the residential real estate space.” He doesn’t mind putting his money where his mouth is, either; Ralph DiBugnara owns and operates some 20 short-term rental properties, and he has a course coming up that teaches others how to get into the market.
One of the topics that comes up often with short-term rentals, and real estate in general, is the importance of the location. However, because short-term rentals are different from any other type of real estate, finding a good location for them presents a unique mix of challenges that need to be tackled.
The biggest one, and the one that’s been getting a lot of media coverage, is the regulations that some states or cities impose on short-term rentals. They can be something as simple as an additional tax levied on a property that serves as short-term rentals, or something as disrupting as a complete ban on short-term rentals—something that might happen in cities that have a strong hotel industry presence. Any investor looking for a good location for their short-term rental should understand any provisions that apply to them and calculate them into their business model.
The seasonality of the property’s occupancy is another trait that needs to be looked into. Investors can expect vacation rentals to be fully booked during the season. How long that season is and the earning potential during it are major concerns for every short-term rental investor. For some properties, off-season slumps might be mitigated by positioning the rental to aim for a different type of renter.
Some properties don’t have seasons. Business and medical travelers might provide a steady influx of occupants throughout the year. If that’s the business model an investor wants to pursue, however, it makes sense to look for a property that’s near a facility that would create a demand for those kinds of rentals. Doing some research of the local market, to see what the saturation rates are might also be warranted.
Investors might also like to get the general feel of the area where they plan to invest in a short-term rental. Signs of a neighborhood that’s on the economic rise might nudge investors toward the decision to buy. Strict rules from the local homeowners’ association might make them look somewhere else.
Short-term rentals, despite their name, present a real estate investment that’s more than able to produce long-term wealth. The location of the property needs to reflect it and show potential for long-term wealth-building. “If you believe you will have riches overnight it’s not going to happen,” says Ralph DiBugnara to those seeking advice. “Set the right plan and expectations and you can be very successful, if you get a good property.”