Short-term rental (STR) revenue is attainable. Yes, you read that right.
Pre-COVID-19, post-COVID-19. In strictly regulated markets and softly regulated markets. In popular vacation destinations and unique suburbs. No matter which way you cut it, it’s very possible (and even probable) to generate revenue with STRs—so long as you say yes to accurate data and no to some of the most pervasive STR myths out there.
Below, we bust seven common STR myths using real-time market data. (Plus, we throw in tools and tips to help you bust some myths of your own.)
Myth #1 – Popular vacation destinations or bust.
Long-standing vacation destinations may seem like the gold at the end of the vacation rental investing rainbow, but that’s not necessarily true. Although hosts and investors can and regularly do generate a high return on properties in popular destination markets (think Key West, Florida, and Joshua Tree, California), that’s far from the only way to establish a successful STR business.
People travel to all sorts of places for all sorts of reasons. Our data shows that in 2021, the revenue potential for small city/rural areas grew by 55%. Likewise, some of our Best Places to Invest for 2022 aren’t well-known vacation destinations; they’re small and mid-size cities like Chattanooga, Tennessee, and unique suburbs like Slidell, Louisiana.
Myth #2 – The ROI on STRs isn’t what it used to be.
There’s no denying the COVID-19 pandemic changed business as we know it. But there’s no evidence to suggest it hindered STRs. In fact, our data indicates it actually inspired more interest in travel than ever before. Demand for STRs is higher than it was in pre-pandemic times—and so is revenue.
In our June Market Review, we found that STR demand is up 23.8% from 2019. And even though occupancy rates have slightly declined due to an uptick in supply, revenue is still 21.5% higher than it was this time last year and 60.3% higher than it was before the pandemic.
While not all markets equally enjoyed this growth (destinations and resorts experienced the biggest downturn in occupancy), it’s still absolutely possible to generate a healthy ROI on STRs—especially given that Airbnb just reported its most profitable Q2 ever.
Myth #3 – There’s a high barrier to entry.
Some would have you believe that becoming a short-term rental host isn’t for the faint of heart. But we at AirDNA believe that anyone can win the STR game with the right data. Tools like Rentalizer take the guesswork out of STR investments by estimating the real revenue potential of any property anywhere, including opportunities for turnkey properties or even rental arbitrage.
With turnkey properties, you can start accepting bookings as soon as you close (assuming you’re adhering to local Airbnb regulations). This means you can hit the ground running, whether you’re buying an existing rental or purchasing a newly renovated property in an undersupplied market.
Rental arbitrage, as we alluded to, is another great opportunity. Demand for stays in large cities is expected to reach pre-pandemic levels by 2023. Arbitrage allows you to ride this wave, even without a down payment, as you can long-term lease a property and then rent that property out for short-term stays. In East Nashville, for example, effective rents were just $1,201, while monthly STR revenue reached $3,701.
Myth #4 – STRs are a full-time job.
You don’t have to quit your day job to operate an STR (unless you really want to). Sure, managing vacation rentals can certainly become a full-time commitment, but the amount of time you actually spend running your properties is up to you. There’s no prerequisites here.
Dynamic pricing tools like Smart Rates can optimize your pricing strategy for you, so you can lock in optimal daily rates without pouring over every single detail. We’d never encourage a set-it-and-forget-it approach, but a pricing tool can go a long way to demystifying pricing for new and longtime hosts.
Technology aside, don’t overlook the most tried-and-true management approach: delegation. Hire cleaning teams, a trusted on-site host, or even a professional management company to tackle the tasks you can’t get to. This can help you generate revenue without giving up all your free time.
Myth #5 – Regulations take the R out of ROI.
Revenue and regulations aren’t mutually exclusive. Although regulations can be negative for your STR business, they can in some situations moderate and even strictly limit competition by ensuring not just any new rental can enter the market. (In our most recent Market Review, we found that markets with less than a 20% increase in listings had almost double the ADR growth compared to listings in high supply growth markets.)
Maui, Hawaii, for example, is one of the most highly-regulated markets in the United States, but the average full-time rental property still earns $102,000 per year; and our investor scores show that Lahaina and Wailuku are two of the most profitable markets to invest in for 2022.
Rather than trying to avoid government policies around operating, learn how to work within them and join local advocacy groups to ensure the longer-term health of the short-term rental business.
Myth #6 – Seasons change, so should you.
2022 seasons aren’t your grandparent’s seasons. In other words, it’s easy to assume travelers only go to specific markets in specific seasons—such as Breckenridge, Colorado, in the winter and Napa Valley, California, in the summer. But these trends are changing, and off-seasons aren’t really “off” anymore.
In 2021, October occupancy for mountain/lake destinations (55.7%) almost matched peak occupancy numbers for all of 2019 (56.2% in July). Peak season is also growing: the Acadia National Park area, for example, enjoyed four revenue-rich months in 2021, while they had only two pre-pandemic.
Many remote workers are traveling more than they did pre-pandemic, too, and are visiting destinations during months that used to be considered off-peak. Monitor the data for your market to ensure you don’t miss out on optimizing your average daily rates (ADRs) for what could be your new, extended peak season.
Myth #7 – Hotels are the arch nemeses of short-term rentals.
Some markets may seem to have a hotel on every corner, but that doesn’t automatically mean they’re directly competing with local STRs. Different people travel for different reasons, and hotels aren’t always a great fit. Travelers may want more space, expanded amenities, or a travel style that hotels just can’t match.
To start, guests are booking rentals with more rooms; in 2021, 38.8% of bookings included three rooms or more. Long-term stays are also on the rise, with stays of 28 days or more accounting for 24% of bookings in Q1 2021. Pre-pandemic, that figure hovered between just 14% and 17%.
Approximately 35% of Airbnbs are also located more than one mile away from the nearest hotel, making them more alternative than competitive.
Bust myths with accurate, real-time data.
STR myths are pervasive. Complete a quick Google search for STR trends, and you’ll likely turn up countless articles crafted to stoke stress and even fear.
The reality is that some myths may contain a thread of truth or prove true for some properties somewhere. What’s important, though, isn’t those properties that prove the myth true; it’s the story data tells about your listing. Custom property data can help set your listing apart and keep you ahead of the competitive curve—helping you bust those pesky myths and achieve short-term rental success.
Our recommendation: Say goodbye to myths and hello to metrics like occupancy, future occupancy, booking lead time, and so much more—all of which are curated in MarketMinder™’s easy-to-use dashboard.
This post first appeared at https://www.airdna.co/blog/7-short-term-rental-myths-debunked
Alan has been working in the vacation rental sector since 2004, when he first created a listing site for his property management company. He has been helping short-term rental owners and managers to stand out in an over-saturated marketplace for over 12 years and has written thousands of articles in that time.
He has written books on vacation rental photography and was the first in the industry to create online marketing courses for hosts.
He has given keynote presentations across various subjects at The Vacation Rental World Summit, VRMA, VRMintel, Host, and The Book Direct Summit.