“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.” – Peter Lynch
I’ll be honest. I went back and forth about writing this article because I didn’t know how it may be received. But after seeing so much noise and misinformation said about the short-term rental industry, I couldn’t take it anymore. Sitting on the sidelines didn’t feel right without giving my perspective of what’s been happening over the last few months.
This article is about why I still think it’s a phenomenal time to invest in short-term rentals.
The Misinformation Problem
What I’ve seen a lot on social media and the news is people who are in strong positions, whether it be in real estate or any industry, touting why we are in a recession and why their industry is in decline.
I urge you to be very careful about listening to anyone on social media talk about their declining industry. Why? They are in the perfect position to benefit from a decline.
Take, for example, someone who goes on a podcast and owns a large short-term rental company. It’s very easy for them to predict a sharp decline in occupancy over the next year or two because of a recession.
If I heard someone say something like that, the next question I would ask is, “does your company still plan to acquire more properties through this recession?”. I guarantee the answer would be yes, or they wouldn’t be on the podcast in the first place.
If their company is still planning to acquire properties through a recession, why are they going onto a podcast and saying STRs are not a good investment anymore? The logical answer, in my opinion, is that they are scaring people into not investing in the same asset class as them.
There is so much noise out there right now, and it may seem difficult to determine who is telling the truth or who has ulterior motives.
The Four Contributing Factors To The “Decline”
Lately, I’ve seen countless hosts say that their properties have seen a significant decline in revenue and occupancy. That may be true, but if I had to guess, they only have their properties listed on one platform like Airbnb and are not doing anything else to promote their properties.
From everything I have seen recently, four factors play a major role in the supposed “decline” of STRs.
The first factor is that Airbnb recently did a massive overhaul of its website that changed how properties appear in the search results and how they are displayed. Many hosts saw a decline in their bookings because of this change. This happened around the same time interest rates started to go up, and I saw firsthand that many hosts blamed an upcoming recession on the first interest rate hike over the algorithm change. That was the first mistake.
The second part is that interest rate hikes did cause a slight drop in bookings. People are traveling less, but that’s a given during a correction. It’s not normal to operate in 95%+ occupancy. That’s not even where hotels have historically operated, even during good market conditions! The metrics below give a good look at how much STRs have grown since 2019.
The third part is that many hosts overlook the fact that markets are going into their slow season. It’s easy to blame the downturn, but you may be just going into your slow season. I know that may seem too simple, but it’s very possible.
Finally, many successful hosts blame the decline on the influx of short-term rentals coming into the market. Those experts fail to talk about how much demand has entered the market. With higher demand, the number of listings hasn’t caught up, negating the argument that more listings are harming the market.
A combination of these four factors is convincing people that the sky is falling in the STR industry. There were points within the last few years where many hosts were operating at 90%+ occupancy. Globally, hotels operate at 65-80% occupancy.
The expectation for those high rates to continue is absurd.
My company is going into its first slow season during this correction. My current occupancy is 77%. We’re still profitable.
Before you disregard investing in STRs, consider the reasons above and see if your market is currently going through a combination of what I mentioned.
What You Need to Understand About STRs
Short-term rentals have been around for a long time. The only thing that’s changed is how people book them.
During the last few years, many investors jumped into the STR space to cash in on the boom. Unfortunately, many of these investors had no idea what they were doing and poorly operated their rentals.
I’ve said it many times. You need to look at your STR business as a hospitality business. What does that mean? It means you’re not just acquiring a property, putting it on Airbnb or VRBO, then calling it a day. You need to consider yourself a hotel and treat your properties as such.
Online travel agencies (OTAs) like Airbnb and VRBO should be viewed as a marketing tool for your business, but not where your properties should exclusively live. If your property is only on a specific OTA, then that company completely controls your property.
If they change their search algorithm like Airbnb did or decide to ban one of your properties based on something completely out of your control, then you have no other option than to go with whatever the OTA decides for your property. I’ve gone through this before.
The hosts and property managers that are going to do well in this recession are going to be the ones that take charge of their businesses and look beyond just posting their properties on places like Airbnb and VRBO. The hosts that focus on generating their own guests and figuring out how to get them to stay again with you in the future are the hosts that are going to prosper over the next couple of years.
It was very easy to do well in one of the best economic expansions the U.S. has ever seen. Now, we’re heading into a recession, and these so-called “experts” scream that the sky is falling. Don’t fall for it. Treat your STRs right and figure out ways to control your guest’s experience. Here are a few ways you can do this.
The Future of STRs is Direct Bookings
When I started, there was not much information available on STRs, so I relied heavily on hotel textbooks to learn how to operate my vacation rentals. The number one thing taught in those books was how to take the guests off the OTAs like Expedia or Booking.com and bring them into their ecosystem.
During the guest’s stay, they acquire their information and remarket to them via their website. We have all gone through this when staying in a hotel. You should treat your STR business the same.
Seek STR companies that offer training in direct bookings. Direct bookings mean guests are booking directly through your website compared to having to go through Airbnb or VRBO. Outside of BiggerPockets, my favorite free resource on this topic is Mark Simpson’s Boostly.
Learn to utilize social media marketing on Facebook and Instagram to promote your properties. I recently started doing this and have seen some amazing results. I run ads in cities that a bulk of my guests come from.
I hope this helped clear up some reservations you may have about investing in this market. It is not as bad as people are making it to be. I predict that we will see a dip in bookings, but by utilizing the strategies above, I’m confident your properties will do great.
People are purchasing less right now because of interest rates and being scared of the future. This is the first time in close to a decade that properties are seeing significant price declines. If you were someone complaining about prices being too high over the last three years, this is the time to buy, not sit on the sidelines.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.