The short-term rental market is booming right now, so you need to understand how it works before investing in an investment property. First, short-term rentals or STRs are not hotels. With short-term properties, there are no long-term leases and guests come and go as they please. This is a major difference between short-term rentals and hotels, so it’s important to understand the market before diving in headfirst.
Another key component of short-term rental properties that you need to know about is how guests book their stay online. With traditional leases, there are typically no issues with utility bills or maintenance, but short-term rentals have a specific type of system that is unique to the industry.
Most short-term rental properties are booked through online services such as Airbnb or HomeAway. These short-term property owners need to pay service fees every time they rent out their space on these sites and guests also have to pay additional booking fees to the short-term rental site.
This is a unique aspect to short term rentals and one that you need to take into account when evaluating potential deals because it could make or break your investment decision depending on how much guests are paying for their stay.
There are dozens of other factors involved with short-term rentals, but in order for you to analyze an investment property, you need to understand the short-term rental market first.
Location is Key in the Short-term Real Estate Market
Short-term rentals rely on property and everyone knows that when buying a property it’s all about location. Short-term rentals are more transient than your typical long-term rental. And for this reason, you need to know what’s bringing people to your area. Here are a few reasons why people travel.
- Sports Events
- Theme parks and attractions
- Change in weather (hot or cold)
- Industry (traveling for work)
Knowing where people are going and why helps you determine the best location to buy or lease property for your short-term rental.
Analyzing the Short-term Real Estate Market
The short-term rental market is highly competitive, so you need to know all of the competition in order to compete with them effectively. When you’re analyzing short-term rentals, it is important to know your competition. This means looking at all of the short-term rentals in your area and the rates they charge for similar properties so that you can determine how much rent you should be charging on an investment property. You need to know your short-term rental competition so that you can set a competitive rate.
This also means knowing the short-term rental sites in your area and how many listings they have on each of their respective websites, as well as what those rates are. These numbers will help you determine whether or not short-term rentals are feasible options for investment in your area.
Do a Google search for short-term and vacation rentals in your area. The Google search helps find direct booking sites local operators may have.
Search for rental properties in your area on Airbnb, VRBO, and Booking.com. Make sure to filter the results by how many guests can occupy the space. Also filter by the number of bedrooms, baths, and amenities. You should even separate your findings by property type as they attract different people for different reasons.
I suggest putting this information in a spreadsheet for easy viewing. I provide a simple example of the data you should collect when doing your market analysis manually.
You can add more columns to this and include things like “% of dates booked”, “# of weekends booked”, “# of weekdays booked”. These will give you a better understanding of how the competition is doing in that area.
Understand that this process of combing through websites and gathering information from sites like Airbnb, VRBO and Booking.com is extremely time-consuming. If don’t have the money but have plenty of time use this approach. But if you have the money, use one of the options below.
Use tools like Airdna and AllTheRooms to analyze specific markets. These tools cost money but could shorten the amount of time you spend comparing listings in different areas. The cost is usually charged a month at a time. So once you’ve done your analysis I recommend canceling the service. Each offers a limited free tier to get you started.
Here are a few examples of what you’ll get out of these tools.
Airdna Example – Short-term Rental Market Analysis
AllTheRooms Example – Short-term Rental Market Analysis
The great thing about these tools is that all the information is gathered automatically for you on demand. No need to spend hours doing yourself. Furthermore, the information is analyzed for you and presents key metrics that are valuable to short-term rental investors and hosts.
I will not purchase or lease a property before knowing the market and neither should you. Everyone thinks it’s easy to simply list a property on Airbnb and you’ll make all kinds of money. While it’s easy to list on sites like Airbnb, it’s not as easy to guarantee your likelihood of making a profit. Knowing the market will determine if you’re profitable or not. So, by not doing the proper analysis of the short-term rental market you’re essentially gambling.
And if you’re going to gamble, it’s much less work to just buy a lottery ticket.