Are Short-Term Rentals Worthwhile for the Multifamily Community?
Due to their cost-effective nature, sharing economy apps such as VRBO and Airbnb have established themselves as a popular new way to secure a place to rent for a short term. These short-term rentals, popularly known as vacation rentals, are typically used for one month or less. They give renters a feeling of home with all the necessary amenities, but do not tie them down to a long-term commitment. Such rental spaces are generally located near tourist destinations. Some renters even use them for business trips.
The Rise of Short-Term Rentals
The popularity of such short-term rentals can be gauged from the fact that Airbnb alone has more than 6 million listings across 100,000 cities around the world. They cater to a whopping 500 million guest arrivals. With such impressive figures, this aspect of the rental business has rightfully earned a gold-star rating in the minds of budget-conscious travelers, who can get a rental for an average of $80/night. However, short-term rentals are not limited to budget travelers. There are plenty of listings for luxury homes and villas that cater to the well-heeled as well. This across-the-spectrum clientele makes short-term rentals highly sought after among many multifamily communities.
When the economics of short-term rentals are analyzed, we find that such apps provide a cost-effective renting option to a wide array of travelers such as business professionals, vacationers, and many other categories. More than half the renters who use these apps do so because they feel they are getting value for their money. The level of satisfaction with these rented properties is a mind-boggling 93%, with about 2 million renters clocking in each night. These excellent fundamentals make a valid case point for offering short-term rentals in addition to the standard long-term options as a part of a multifamily community’s leasing and marketing strategy.
Benefits for Homeowners
For homeowners, short-term renters are a source of extra income. Why continue to waste money on an idle asset when it could make you money instead? The buyer effectively receives all benefits of short-term ownership without any long-term costs, and that makes it a win-win situation. This industry is expected to be worth more than $300 billion by 2025. It makes sound economic sense for multifamily units to take part in this sharing business and reap the economic benefits.
The popularity of such sharing apps is driven by Millennials and Gen Z, for whom the internet is their breathing, living world. They form the largest class of renters of apartments, both long- and short-term. It makes sense, then, for a multifamily community to offer them the facilities that best suit their lifestyles. Their active presence on various social media platforms can also ensure many more leads for a multifamily community.
A Proactive Approach to Subletting
Airbnb has done its research well and has found a new category of sublets, which are longer than the usual short-term stay, but shorter than the standard one-year lease. They have a dedicated page for sublets greater than 28 days and up to 6 months. Currently, most of the sublet listings are from single homeowners or from those who rent out individual units. So far, these listings have mostly affected those with less than 50 multifamily units. However, given its increasing popularity, it is only a matter of time before larger multifamily businesses are also forced to cash in.
About 43% of vacation rentals have taken place in multifamily units such as apartments and condos without the knowledge or permission of multifamily unit managers. It is in the best interest of these managers to change their stance and allow such short-term rentals by joining vacation rental app listings. As the saying goes, “If you can’t beat them, join them.” Property managers might as well get a slice of the pie when the going is good.
It has been apparent for some time that residential units have been aligning with the hospitality industry, and that it has been going on for many years. The niche between an apartment and hotel, a comfortable place to call home in the short term, is what vacation rentals are all about. This trend can be converted into a steady cash flow for multifamily communities, which will help them to lower operating costs, boost brand recognition, and have a positive impact on the bottom line.
About the Author:
Veena Jetti is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative opportunities for investors.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.