Author: Rachell Lee

Short-Term or Long-Term Rentals: Which One is Better?

Post author By Rachell Lee
Post date January 14, 2021
No Comments on Short-Term or Long-Term Rentals: Which One is Better?

As a first-time property investor, you are bound to run into the classic dilemma: short-term or long-term rentals. This issue is not just about how long to rent out your properties for, but also an issue of owning vs. renting property. Traditionally, owning real estate is the ultimate goal for property investors, but ownership has become less common over the years.

Building your real estate portfolio or property management business is now more achievable through short-term rental options that can also bring you passive income and reliable cash flow. The differences between the two types of rental properties should not be overlooked; take some time to understand which type is tailored best to your business goals and objectives.

For some investors, the end goal is solely focused on turning a profit, but for others, managing a property business is about enjoying a side hustle.

First, let’s take a more detailed look at the definition of each rental type.

Short-Term or Long-Term Rentals: What is the difference?

A short-term rental is typically a vacation rental property that is rented out on a short-term basis to guests in a similar fashion to hotels. However, this type of rental allows the guests to feel more comfortable and “at-home” because these properties are typically furnished like so.

One popular cash flow model used for this type of rental is rental arbitrage, which is essentially renting out a property or apartment unit and then re-renting it out on a short-term basis on vacation rental platforms like Airbnb, VRBO, or HomeAway. This type of rental business is quite common among entrepreneurs who would rather avoid the complexities involved in becoming a property owner (background check, loan approvals, credit check, etc).

On the other hand, a long-term rental is the traditional type of rental property that is typically used for residential purposes. This rental property type is usually protected by a lease agreement of at least 6 months or more with more binding terms than a short-term rental would. Many homeowners choose to rent out their properties to tenants at a higher price than their mortgage to bring in stable, monthly income that remains consistent regardless of the economic conditions. Most people are usually more familiar with this type of rental property as it is more traditional and widely-known.

Now that we understand the definition of both vacation rentals and long-term rental properties, let’s dive into each aspect of rental properties that outlines both the benefits and downsides of a short-term or long-term rental.

Profitability

The end goal of every business is to turn a profit. With both vacation rentals and long-term rentals, there is no doubt that both types provide a lucrative stream of monthly income. The question is: Are short-term or long-term rentals more profitable?

The short answer is that short-term rentals have the potential to earn more cash flow (2x to 5x) each month.

Here is why:

Many short-term rental business owners opt to use the rental arbitrage business model in which property investors can pick up multiple properties with rental leases instead of buying properties that require binding mortgages.

This process of serial renting allows for a fast-scaling business. Also, the investment costs of doing rental arbitrage for vacation rentals vs. long-term rental costs are much smaller. Short-term rentals require security deposits for the lease, furnishing costs, and monthly rent plus utilities, which might amount to a couple of thousand dollars.

However, running a short-term vs. long-term rental means your monthly budget will include replacing furniture, sheets, cleaning fees/supplies, property management software fees, unexpected guest damages, soap, toiletries, and more.

Vacation rentals can be even more equipped with household goods than hotels are with pots, pans, dish soap, laundry detergent, and just about anything you can think of that a regular home has.

In the name of convenience and homeliness, there is a cost associated with all these extra, special touches. However, these small details are worth the cost even if they add up because your monthly profit should surpass your expenses if your vacation rental is managed properly.

Long-term rentals, on the other hand, may require a 20% down payment, property taxes, HOA fees, and utilities. The initial investment for long-term rentals can be tens of thousands of dollars more expensive than short-term rentals (acquired by rental arbitrage). Also, owning a long-term rental property may require a whole year or more to regenerate the original investment money amount and buy a second property.

Even if you do own a short-term rental property instead of doing rental arbitrage, short-term rentals can help you easily scale your business into more cash flow each month, thus increasing your opportunity to invest in more properties in the future.

Make sure to do your market research for your niche, target guests, and location in order to maximize your potential profitability from short-term or long-term rentals.

Maintenance and Cleaning

Short-term rentals undergo constant maintenance and cleaning, which ensures the property investor’s ability to maintain the quality of the property on almost a daily basis. Although the cleaning is your responsibility, you have the option to outsource the cleaning duties to a cleaning company or hire a cleaning service so you don’t need to personally clean yourself.

For long-term rentals, on the other hand, maintenance is taken out of your hands and cleaning duties are mostly in the hands of the tenant. You own the property, so the maintenance that you need to do only involves large damages, such as broken A/C or damaged infrastructure.

This lowkey maintenance seems like less upkeep, but residential rentals are more difficult to monitor for cleanliness on a daily basis. You cannot go inside whenever you want without the tenant’s permission and it’s difficult to control how clean the tenant will keep your property.

Background Checks

Whether you decide to do a short-term or long-term rental, the one factor that is important to consider is who your guests or tenants are.

One downside of short-term rentals is that hosts and property owners are not able to screen guests. This aspect of short-term rentals is inevitable. In this business, as with any other business, you will encounter undesirable guests at some point or another.

One weekend you might have wild party guests who damage your property (a host’s worst nightmare), and then have the best guests ever the next weekend. According to Airbnb, they do not routinely perform background checks on its users, although they reserve the right to do so.

Despite not being able to run an official background check on short-term rental guests, here are some questions to ask potential guests before allowing them to reserve your calendar:

What is the purpose of your trip?
How many adults and how many children will be staying in the rental?
Have you stayed with us before or at another vacation rental before?
Do you smoke or do you have any pets you will be bringing on the trip with you?

These questions should help you make a good judgment on whether or not you would like to rent your property out to a potential guest, without doing an official background check.

Take some time to have a conversation with the potential guests and explain your rules for the stay, such as no smoking, no parties, no more than 6 additional guests (due to COVID-19). Keep in mind that you are not allowed to ask questions that violate discrimination laws involving age, sexual orientation, marital status, pregnancy, disabilities, and more. Your purpose in asking questions is to make a good judgment on a guest’s character, not to discriminate against them.

Fortunately, as a long-term rental property owner, you won’t run into the same problem. Residential rentals allow you the leverage to run proper tenant screening and background checks to make sure that the tenant is reliable and trustworthy. For some property investors, this option may be more preferable.

Commitment

Managing one rental property, let alone an entire portfolio of real estate requires a level of commitment and maintenance that varies depending on the rental property type and how you decide to operate. Vacation rentals are a full-time business commitment; it’s a 24/7 hustle like many hospitality services.

There are several factors to consider when renting out your property on a short-term basis (from every night to every few nights), such as constant maintenance, marketing, management, coordinating maintenance, purchasing supplies, hiring cleaners, and more.

However, short-term rentals are not as financially binding as long-term rentals are if you do rental arbitrage. Instead of being tied down by massive startup costs, property investors have the flexibility to test out new locations and have less commitment to yearly rental leases.

If your short-term rentals are not performing well in a specific location, the worst that will happen is you break the lease, pay the lease extermination fees, and move on to a new location that is more profitable. Mortgages do not allow for this flexibility, but those are the responsibilities that come with property ownership.

Tax purposes

As a business or property owner, filing for taxes can either be daunting or a blessing in disguise. There are different tax advantages as well as disadvantages associated with both vacation rentals and long-term rentals, so here’s a quick overview:

Short-term rental businesses can receive tax deductions for property decorations, furniture, paint, etc.
Running an STR through rental arbitrage means no property taxes and no need to insure property appliances
Long-term rental costs include property taxes and HOA fees
However, long-term rentals can also receive tax deductions from mortgage interest, depreciation, property taxes, and property repairs
In some parts of the world, tax rates for LTRs are much higher than STRs

This list of tax considerations for each rental property type is indefinite, so make sure to consult with your accountant and financial advisor about your taxes for rental properties.

Flexibility in Pricing and Occupancy

One huge advantage of short-term rentals over long-term rentals is the flexibility in pricing models and control over your calendar. When pricing your daily rates for a vacation rental, don’t forget to do your market research!

Occupancy rates and average daily rates are not random numbers pulled out of thin air; this data depends on several factors, such as your location, the seasonality, the historical rates, the amenities you provide, the quality of your property, the rent or mortgage of the property each month, and the list goes on.

You have the power to price your property the way you want to, but make sure that your pricing is reasonable and backed by accurate information (and covers your monthly expenses).

With short-term rentals, you also have more control over your calendar. Through direct booking sites, Airbnb, VRBO, or Homeaway, hosts have the flexibility to block off dates whenever they want, meaning they have control over when they want your property to be occupied. If you have family visiting you in town for a holiday, you can block off those specific dates and accommodate your family instead of other guests.

Your dates are at your discretion.

With long-term rental properties, landlords typically charge tenants rent that is around 1% of the home’s value instead of charging per night like with vacation rentals. There isn’t much flexibility in the homeowner’s ability to upcharge based on the number of tenants or rule violations with residential rentals.

Additionally, tenants in long-term rentals usually live in the property for at least 6 months or usually yearly lease contracts.

Regulations

The rise of short-term rentals combined with the increased spread of COVID-19 has caused STR regulations and rules to evolve all around the world. Even before the pandemic, many local communities either banned property investors from STR or required them to obtain STR licenses, permits.

So before you start your short-term rental empire, make sure to research your region or city’s rules and regulations to avoid future headaches.

Nowadays, strict regulations for short-term rentals are becoming more prominent in some regions, especially as COVID-19 continues to damage the travel industry. Some hosts saw a drastic drop in guest occupancy in 2020, while others received bookings from people who were trying to escape hard-hit areas, or who wanted to ride out the isolation in a more comfortable environment.

Some local authorities were not pleased with the influx of out-of-town visitors, which could increase the spread of the virus. This led to even tighter short-term rental restrictions in communities in Northern California, Colorado, and more.

Restrictions are not just from the local government, they can also be from a homeowner’s association. Long-term rentals are also subject to HOA rules and regulations, but there are no restrictive bans or required licenses to operate a long-term rental.

Hospitality vs. Pride of Ownership

Do you prefer running a hospitality business or having pride in owning property while enjoying low maintenance?

The differences between vacation and residential rentals are paramount to your values and personal preferences. With STR, you have the opportunity to meet new people almost every day.

Short-term rentals allow you the opportunity to meet travelers and visitors from all around the world who want a more authentic stay. Running a short-term rental business is about making connections with people around the globe through a shared home, which may serve as an invaluable experience for many property owners.

You may discover a passion for hosting new people and creating long-lasting relationships through your lodging services, or you might realize that you feel the exact opposite. In that case, you can switch over to a long-term rental or outsource the customer service aspects of an STR business to someone else.

Having pride in property ownership may seem more valuable to some property investors than others because there is a myriad of other ways to create passive income with real estate. Additionally, homeownership is not limited to only long-term rentals; short-term rentals are also owned property.

Seasonality vs. Stability

The last aspect of comparing vacation rentals and long-term rentals involves whether or not you prefer some fast-paced, peak months, and some slow months or a stable income that does not fluctuate.

For short-term rentals, there can be several slow, off-months when vacation rentals are not in-season while other months might be jam-packed and fully booked for local events or holidays. This is why many hosts decide to save their revenue for safety income during the slow seasons.

On the contrary, long-term rentals provide a stable stream of income regardless of holidays, slow seasons, or the state of the economy due to the binding nature of residential leases. Some property investors enjoy more peace of mind with this stability and predictability, while others enjoy the unpredictability of the short-term rental industry, like this successful Airbnb host in Dallas, TX.

The short-term rental industry may not be as traditionally “stable” as long-term rentals are, but using data intelligence and accurate information to strengthen your business strategy can help you achieve even more cash flow and stability.

After reviewing the extensive and inexhaustible list of benefits and downfalls of both types, it’s safe to say that short-term rentals have the potential to provide more lucrative cash flow with less investment costs, but with more daily commitment.

Long-term rentals require less daily maintenance, higher investment costs, and a certain sense of stability. Take the time to review your options and decide which rental property type is best suited for your goals and aspirations.

Access accurate data analytics in our interactive dashboard here to understand your target market.

Tags comparison, long-term rentals, profitability, propertymanager, seeall, short-term rentals, vacation rentals

Blog posts

The Top 5 Airbnb Trends to Watch Out for in 2021

Post author By Rachell Lee
Post date December 30, 2020

As the year comes to an end, it’s safe to say that Airbnb trends and insights have gone through a rollercoaster of fluctuations within the past year. With tests for COVID-19 more widely available, destinations finding ways to safely reopen without the need for 2-week quarantines, and a vaccine already in sight, constant change is the new “normal”. With a more positive outlook on the pandemic front, the predictions for Airbnb travel trends and insights for 2021 are highly anticipated by those waiting for the markets to bounce back. Data analytics and accurate information play a vital role in understanding these predictions for the next year as Airbnb hosts, property managers, destination marketing organizations (DMOs), and vacation rental professionals alike are buckling up their strategies and tactics for business in 2021.

Here are the top 5 Airbnb travel trends and insights for 2021 based on the current climate in the short-term rental industry:

1. Year-over-Year (YoY) growth in Airbnb bookings will bounce back eventually

North America

Throughout the year, the U.S. experienced diverse responses to the pandemic as some states enforced more strict stay-at-home orders while other states still have yet to enforce strict lockdown procedures. This varied response to the pandemic is reflected in the data trends of YoY growth in different regions of the U.S. and sets the foundation of which Airbnb trends will continue into 2021.

One factor that may change the predictions is the advent of the COVID-19 vaccine. On Friday, December 11, 2020, Pfizer and BioNTech announced the historic first authorization of a COVID-19 vaccine in the U.S. in an effort to deliver hundreds of millions of vaccine doses to Americans by the end of 2021. The vaccine will be given to healthcare workers and high-risk elders in care facilities first, but how soon the vaccine will be available to other civilians is still up in the air. If the vaccine is successful at keeping American travelers safe from COVID-19, 2021 may be able to see more drastic YoY growth in the average number of bookings for properties.

Currently, the U.S. is still experiencing the devastating effects of the pandemic as some states are once again shutting down, such as New York’s ban on indoor dining, and a patchwork of fresh restrictions on social distancing in other states. YoY growth increased in only a select few major U.S. destinations.

As shown in the graph, the YoY growth of bookings in Big Bear, California grew even more in the 4th quarter of 2020 than compared to Q1. We can infer from this trend that Big Bear will continue to thrive as a four season resort destination in 2021. On the other hand, several other American cities have yet to reach pre-COVID levels.

This individualistic course of action from each state spares no room for a unified, solid trend that defines the predictions for vacation rentals in the U.S. However, Airbnb hosts and other short-term rental industry professionals can take a closer look at the data for each state and how each has performed during each quarter of 2020 to predict the near future in 2021.

Europe

In Europe, the Airbnb trends accumulated from 2020 indicate that despite several hopeful factors, Europe has yet to see drastic improvements in their YoY growth for Airbnb. The Airbnb trends for 2021 in Europe point towards a slower climb towards normalcy as each European country continues to battle their own COVID-19 cases within their borders.

This December of 2020, a new and more infectious strain of COVID-19 shut down Europe, causing a new wave of travel bans and restrictions, creating a logistics crisis in the U.K., and hitting European stocks quite severely. About 18 million people in Southeast England went back into lockdown, an event that would certainly cause Great Britain’s YoY growth in booking to decrease once again going into 2021. We can see from the trends this year how tremendously cities in Great Britain have had to pull back from their Airbnb bookings, and we can expect the same from this new wave of COVID-19 infections.

In other European cities, we can see a similar declining trend in Airbnb booking growth as the year comes to an end. Europe will continue to balance this new and infectious COVID-19 strand with the introduction of the new vaccine going into 2021, so it’s vital that Airbnb hosts and vacation rental professionals to keep track of the YoY growth trends during this time.

Going forward, the Airbnb trends and insights will reflect all of the different factors that have impacted the YoY growth in Airbnb bookings in different fluctuations. Short-term rental professionals can use this information to understand where their current strategy stands each quarter and use each data point as a benchmark to improve or address different pain points.

Asia

Major cities in Asia were the first to experience the deadly effects of the virus, control the virus, and also to experience second waves of infections. Going into 2021, the Airbnb trends and insights for Asia indicate that although many cities in Asia have controlled their infections, it will still take a significant amount of time for booking levels to bounce back to ‘normal’.

Several different Asian destinations such as Thailand, Tokyo, Hong Kong, and South Korea have implemented mandatory 2-week quarantines for any foreigners coming into their borders in order to avoid new infections from outside visitors. This restrictive measure on travelers has had a significant impact on the YoY growth of bookings on Airbnb because travelers are deterred from traveling to these Asian cities with the requirement to pay out-of-pocket expenses to quarantine.

Going into 2021, there is no definite date when the 2-week quarantines will no longer be mandatory. Instead of only relying on current events and news, vacation rental professionals should also rely on accurate data reported from each major city to understand how profitable vacation rentals could potentially be in 2021 because data serves as an accurate precedent for upcoming trends.

Although different cities of the world are experiencing different phases of the coronavirus, the majority of experts predict “a rebound in international tourism in 2021, in particular by the third quarter of 2021, while around 20% expects it to occur only in 2022”, according to the World Tourism Organization.

This prediction points towards a more hopeful future of bringing YoY growth of Airbnb bookings back to normalcy. As hosts, property managers, tourism boards, and financial institutions wait for this prediction to become reality, they can focus their efforts on preparing for this trend with Airbnb insights that help solidify their business model for 2021.

*Note* The YoY growth shown in the graphs is not the platform-wise YoY growth in Airbnb bookings, but instead the YoY growth of the average number of bookings for properties that are available in both 2019 and 2020. If you are interested in the YoY growth in bookings platform-wise (or gross booking value) visit here.

2. Beaches are still trending destinations for Airbnbs in 2021

As the whole world continues to navigate the new ‘normal’ for travel, some destinations in the world have suffered more than others from travel restrictions and lockdowns. Despite the uncertainty of the travel industry, people all over the world are still hopeful of a future that allows safe travel. Many travel itineraries and trips for 2020 have been canceled, but more importantly, they have been postponed until 2021. Now that 2021 is already on the horizon, which destinations are trending?

The easiest way to find this out is to do an analysis of internet searches all over the world. Using several different tools, Airbnb hosts and other professionals in the travel industry can find out where travelers will flock to once more restrictions are lifted by looking at the numbers. Understanding the numbers, demographics, and overall measurements in the travel industry for the upcoming year is a vital tactic to start strategizing for short-term rental business.

Consumers and travelers are already looking forward to the summer of 2021, the summer that could redeem the time people spent cooped up in their homes with cabin fever. With hopes high and the case of the travel bug going around, it’s no surprise that the majority of trending searches for travel destinations relate to most beaches and exotic island destinations.

Our data analysis on Airbnb reviews suggests that the appearance of the word “beach” increased by 2.7x during the pandemic, and will continue to spike in popularity. According to internet searches, there is a surge in searches for these specific destinations:

The Maldives
French Polynesia
Los Cabos, Mexico
Miami- The booming business of short-term rentals in South Florida
Maui and Oahu
Punta Cana
Orlando
Las Vegas
Riviera Maya, Playa del Carmen, and Tulum
Cancun

All of these destinations point towards the public’s movement toward more secluded areas and locations that are relaxing, vacation-style getaways. This trend indicated a huge shift from business travel within heavily populated metropolitan areas to more remote and private areas.

3. Properties optimized for domestic tourism are on the rise

We’re not sure how long it will take for international travel and tourism to bounce back completely, but one thing is certain: domestic tourism and travel are some of the biggest Airbnb trends for 2021.

Travelers looking for new, innovative ways to satisfy their desire to explore new destinations have fueled the booming popularity of domestic tourism. This upcoming Airbnb trend has already manifested in the last few quarters of 2020 as travel bans and restrictions lifted in some cities while others shut back down.

In other words, visiting local attractions and destinations within their own borders is a huge trend for the short-term rental industry that will stay relevant going into 2021 as people continue to search for staycation getaways to escape both cabin fever and the current international travel bans.

One interesting result of the booming domestic tourism trend in the short-term rental industry is that properties in domestic locations near cabins, beaches, or mountains surprisingly experienced huge growth in 2020. These domestic destinations hit their best numbers while most short-term rentals in urban areas continued to decline. This shift in the movement of travelers flocking to more secluded areas is a significant key indicator of where STR professionals should invest in next in 2021.

In particular, this vacation rental trend is significant to hosts and short-term rental professionals because this key insight can help them re-strategize and pivot their business strategies based on different properties, locations, and amenities that will attract domestic travelers. Vacation rental professionals can use this data to visualize their objectives and goals for the new year and understand the new type of demographic they need to tailor their niche to (domestic travelers).

As hopes are high and the desire to travel continues to fester, it’s important that vacation rental professionals understand the sentiment of the data trends and re-prioritize their resources where needed.

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4. More Airbnb properties are becoming long-term stays

Remote work is now more important than ever. This whole year, companies all over the world pivoted towards a more remote-friendly environment, getting rid of unnecessary physical presences, office buildings, and more. ‘Work from home’ is a defining trend in 2020 that will continue to shape the world’s future of telework into 2021.

As we approach the new year, workers now place emphasis on the importance of being able to work remotely. The surge of remote jobs will continue into the new year as workers re-prioritize which tasks can be completed through video conferencing or emails rather than in-person. The WFH trend is highly relevant for Airbnb or vacation rental professionals because now, Airbnb listings are more likely to be booked for long-term stays.

The reasoning behind this trend is that travelers are no longer restricted by time or location to their jobs. Now, they can extend their stays in a destination while working remotely. Another huge factor behind this trend is that people now have the flexibility from remote work to try living in different areas or neighborhoods that might have a lower cost of living or a better quality of life.

Rental property hosts and short-term rental professionals can leverage this trend for their properties on Airbnb or VRBO in 2021 by strategizing their pricing model for their properties to accommodate long-term or mid-term stays. Instead of taking on several guests that only stay one or two nights, it would be more profitable and mutually beneficial for the STR property owners to rent out their places for a longer period of time (15+ days). One way that vacation rental professionals can promote this is to offer discounts for longer stays (2 weeks or longer).

According to Airbnb’s survey, there was a 128 percent increase in reviews mentioning words like “relocation,” “remote work,” and “trying a new neighborhood,” when it compared July to September of this year to the same time last year. These widely-searched phrases reflect the buzzwords that Airbnb hosts and STR professionals should continue to monitor within the next year. They can leverage these trending Airbnb buzzwords to tailor their rental property services to a specific demographic.

As the future of both travel and work continues to evolve, consumer behavior will also continue to change. Professionals in the short-term rental industry should monitor these trends to keep track of consumer confidence in vacation rental services or properties. Reviews that mention “trying a new neighborhood” or “relocation” are indicative of the next, biggest trend about consumer behavior: movement from metropolitan areas to satellite cities.

5. Airbnb guests are moving from metropolitan areas to satellite cities

As a result of the remote work trend, there is significant movement from heavily populated metropolitan areas to smaller, satellite cities around the area. Workers are realizing that they now have the freedom to relocate to wherever they want because now they are not bound to a specific location because of their work.

This trend was especially apparent as the U.S. experienced mass, unprecedented levels of people moving out of the Bay area or New York to more affordable cities with cheaper costs of living as remote work gave them the flexibility to do so.

Our data analysis of reviews illustrates this mass movement from urban areas to more secluded areas: the top trending buzzwords found in property reviews include “getaway”, “coastal”, “hut”, “garden”, “farm”, and “cabin”. The combined connotation of this list of buzzwords points toward guests’ sentiment to find more secluded getaway destinations away from their usual, highly-populated urban areas.

Hosts, property managers, and other vacation rental professionals can follow this flocking movement of travelers to new areas outside of large, metropolitan areas and focus their strategy on these satellite cities or outskirt areas.

Tourists and travelers looking to move to a new neighborhood now have the flexibility to live in areas that are better tailored to their own lifestyles without having to completely commit to the location with a mortgage. Alternatively, Airbnb and other vacation rental platforms make it possible for those looking to relocate to experience living in a specific area outside of their usual home base in metropolitan areas.

In coordination with the Airbnb trend of long-term stays, this trend of moving to satellite locations allows vacation rental professionals to leverage the newfound flexibility of relocation and tailor their rental properties to accommodate this trend. As more people move towards smaller satellite cities, guests and visitors are looking for unique experiences and rental properties that can accommodate their stays.

The future of travel may be uncertain, but STR professionals can leverage the power of data and Airbnb trends to re-prioritize and strategize for the new year. Some other key considerations to keep in mind include: consumer and business confidence, economic impact, and government support. The world is still experiencing a global recession that greatly influences consumers’ spending decisions, their travel behaviors, and the different measures governments all over the world will take to support tourism.

Professionals in the short-term rental industry must stay prepared for several different factors in 2021, such as shorter booking lead time due to the uncertainty of the pandemic or the continued, drastic shift from hotels to short-term rentals. The best practice of strategizing for the new year is to practice resilience with the help of accurate Airbnb data and insights.

Tags 2020 insights, airbnb trends, business strategy, data predictions, featured, seeall

Blog posts

New Feature Release: Introducing the Tailored Region Explorer

Post author By Rachell Lee
Post date November 10, 2020

The Tailored Region Explorer is now LIVE

At Airbtics, we strive to create the most intelligent and efficient analytics tools for your STR business. We believe in the power of customization and personalization in data– especially when it comes to tailoring your Airbnb business to the right guests in the right area.

With this in mind, we’re excited to announce our brand new feature: the Tailored Region Explorer. This new feature combines the benefits of both customization and relevancy to produce the insights that really matter for your business.

More precision. More accuracy.

Define your own region using the Tailored Region Explorer for more personalized insights. Market research has never been so easy.

Start researching

Now, you can enjoy the flexibility to define your own region to any specific location with our Tailored Region Explorer! This extra layer of personalization in our dashboard enables even more precision and accuracy that your business needs.

How it works

Our market research dashboard enabled you to search for pre-defined regions (e.g. London, Seoul, New York). You can pull certain metrics for any location in the world, such as average daily rate (ADR) and occupancy rate. But we know that geographical location affects ADR and occupancy rates; in other words, there are cultural and geographical pricing gaps in some locations in the world. So we came up with the Tailored Region Explorer, which provides you the option to pull up the actual metrics you want.

Take for example Oxford, UK. This city in the UK can be divided into separate regions with separate pricing characteristics. The prices and rates in downtown Oxford differ from those of northern and southern Oxford. Without the option to define your region to only downtown Oxford, the data would not reflect these pricing differences. It wouldn’t be effective for you to look at ADR and occupancy rates in all of Oxford because you are specifically and exclusively looking for rates in downtown Oxford. This hurdle in precision and accuracy led us to create the Tailored Region Explorer.

We understand that Airbnb and STR businesses are global industries with hosts from far and wide, not just in the U.S. We want to make sure that our tools are the best for you no matter where you are located. Now with the Tailored Region Explorer, you can take advantage of the ability to look at more specific, personalized data.

You can either choose from the thousands of predefined regions available on the dashboard or define your own region according to your business needs. To use the Tailored Region Explorer, draw a square on the interactive map to define the specific region you want to research. Then, the dashboard will fetch the appropriate data for you in a matter of seconds.

The ability to define your own region is exclusive to our analytics software here at Airbtics; you won’t be able to find this feature anywhere else.

Want to know how Airbtics can help you? Get in touch with us here.

Blog posts

Airbnb Rental Arbitrage: The Ultimate Guide for STR Investors

Post author By Rachell Lee
Post date November 3, 2020

Rental arbitrage has become a highly lucrative business for short-term rental (STR) investors. It’s definitely popular among those who desire financial freedom through passive income. The appeal of rental arbitrage is that investors do not need to own property in order to start this business.

However, many potential rental property investors are unsure of the true profitability of Airbnb arbitrage. As with every business, there are always risks. More importantly, first-time rental property hosts need to know the ins and outs of rental arbitrage before jumping to the conclusion that it’s not profitable.

So when it comes to short-term rental arbitrage, is it actually profitable? How can you get started? Where do you even find the rental arbitrage properties, to begin with? Keep reading — we’ll explain everything you need to know.

What is Rental Arbitrage?

Rental arbitrage is the practice of renting out long-term properties and re-renting them out to others on a short-term basis through short-term rental platforms such as Airbnb or HomeAway.

Contrary to popular belief, Airbnb arbitrage is a legal business, as long as you adhere to the specific laws and liability guidelines in your region. It is also known as corporate leasing or subletting if you want to Google around for more information.

Basically, rental arbitrage is a way to operate an STR business without actually owning property and for people to start earning passive income through real estate. Oftentimes, property managers and hosts use a rental arbitrage calculat1or to foresee profitability and avoid losses.

Here are some real-life examples of successful Airbnb hosts who started doing rental arbitrage in their own apartments. Check out the podcast files below!

Rental Arbitrage vs Owning Rental Property

STR property investors can either buy their own property or start rental arbitrage for their business. There are several differences as well as pros and cons to both methods. But rental arbitrage seems to be a more popular method among those who want consistent cash flow. Here’s a closer look at the differences between owning property and doing rental arbitrage for an STR business:

Rental arbitrage

You don’t need to own the property
Provides a steady stream of passive income
Enables serial renting (renting multiple properties)
No property taxes
No need to insure appliances (landlord’s responsibility)
Enables the ability to grow in small increments and reinvest profits monthly
Allows the opportunity to end the lease early- LESS COMMITMENT

Owning Property

Need to put 20% down payment on the property (non-FHA loan)
Need to pay for property taxes, HOA fees and utilities
Requires a whole year or more to regenerate the original investment money amount and buy a second property
Requires high commitment to a mortgage. (If the property is in an unpopular area for Airbnb, you’re stuck with the mortgage. You need to turn it into a long-term rental property or sell the home)
Appreciation

If you are more interested in buying a second house, check out these helpful tips on how to manage one!

How to Start a Rental Arbitrage Business Without Owning A Property

There are many phases to getting started with your Airbnb business, but here is a general list of action items to help:

Step 1. Find a “Goldmine” area for Airbnb

(Skip this step if you have already decided where to start your Airbnb arbitrage business.)

As a first-time STR business owner, the most realistic option is to start looking at rental properties in the area you live. This option is the most convenient for you to handle guest or property issues in realtime. You will be able to fix issues more quickly if you live close to the property.

On the other hand, it’s not ideal to limit your business to the area in which you are currently living. The opportunities are endless when it comes to rental arbitrage. The STR market may be booming in other cities far from where you live. So it’s important to keep this in mind when choosing the location. You always have the option to expand your short-term rental arbitrage business to other locations. After you are done experimenting within your current area.

Key Points to Remember

Primarily, it is important to find a location that produces the most profit. The short-term rental price (bid) and the amount of short-term rental revenue (ask) should be high.

1. Start with a neighborhood that is within a 2-hour drive from your base.

2. Identify a market that has at least 2,000 Airbnb listings

3. Identify a market that has above 50% year round occupancy rate

4. Check if there is above 70% gap between annual average Airbnb revenue and 1-year long-term rental cost.(E.g. annual average Airbnb revenue = $18,000 & 1 year long-term rental lease cost = $10,000, then the gap is 80%, so it’s good)

Let’s put this into perspective with a more realistic situation. If you are looking to start a rental arbitrage business and currently live in London, UK, then you might want to choose profitable regions that are within a 2-hour drive from London.

The first step you should take when looking for an area is to identify the locations where there is sufficient short-term rental demand and a high volume of transactions. This step will ensure that you can keep occupancy rates high for your business. One important metric to consider during this step is the “Average Occupancy Rate”.

The Average Occupancy Rate is a great indicator of overall supply and demand in the market. Use this data to determine how many days your property might be booked out of all the days the property is available.

Tips from Airbnb hosts

We spoke to 50+ Airbnb hosts to get an idea of the different ways that hosts found a location. After screening all the answers, we found out that they get their information from various sources.

Here are some of the different methods used by Airbnb hosts:

Connecting with local property managers in their area.
Participating in Airbnb host communities on social media platforms.
Asking questions in the real estate forum, BiggerPockets.
Manually researching individual listings on Airbnb for various locations.

Whichever method or combination of methods you choose, keep in mind that all hosts are different. One host might run their business differently from another host in the same area. This might be gaining more profit despite the similar location.

We recommend that you use a more methodical approach to set up your business. Using a software to conduct rental arbitrage market research could be a great option to find the best location. Our exclusive Tailored Region Explorer allows you to define your own region to gain more tailored and accurate insights. The advantage of this data is that our software tools account for geographical pricing differences across different regions. So the data is more accurate and reflects the location’s pricing trends.

Instead of blindly starting your business based on someone else’s experience and knowledge, we recommend starting your own journey by doing your own research.

Make more informed decisions using precise data that is tailored to your specific business needs so you don’t have to rely on others. We built our STR software tools so you can use others’ knowledge as a supplement to your rental arbitrage business, not a primary source.

Once you have found a couple of locations that you would like to further investigate, move on to Step #2.

Step 2. Find a unique gap in your market

Unique gap similar to a product’s unique selling point. By looking at your competitors’ performances within your preferred area to start a rental arbitrage business, you can easily find a unique gap in the market. There are opportunities in every location and you simply need to find the gap in the market where there’s a low supply and high demand. Since you are renting instead of buying a property, you have more options to choose from.

Here are a few things you need to think about:

Which niche do you want to focus on? (handicap-friendly homes, business traveler-friendly, anime-themed rooms, etc.)
What type of property do you want? (studio, 5-bedroom house, 3-bedroom apartment, etc.)
How many bedrooms do you want to invest in? What is the number limit of people you want to accommodate for?
What kind of amenities are you looking for? (hot tubs, pools, gyms, recreational rooms, etc.)

There are so many factors that you must think of before launching your rental arbitrage business. So we did some of the work for you and according to our research, studio units tend to have higher occupancy rates and relatively higher average daily rates (ADR) compared to the monthly, long-term rental fees. It’s also usually worth it to buy a few extra beds so that you can accommodate more people.

We want your business to run smoothly with the help of innovative software. So make sure to check out our dedicated market research to generate detailed reports and insights as a basis for your business decisions.

Our market research reports include data such as occupancy rate differences by the number of rooms and revenue earnings for a certain property type each month.

Step 3. Check real estate laws and regulations

There are different regulations and rules for the STR industry in regard to Airbnb arbitrage depending on the location. Make sure to apply for any required permits for rental arbitrage in your target location. For instance, Airbnb rental arbitrage in Brooklyn prohibits hosts from renting out their entire homes as an STR.

For a more detailed location-specific list of legal and regulatory issues to consider before hosting on Airbnb, visit Airbnb’s official page.

Step 4. Secure your credibility to prepare your pitch to property owners

Before you dive head-first into crafting your pitch to property owners, here are a few things to consider:

Maintain good credit.
Save enough funds (extra money to offer for rent).
Have some references available.
Agree to cover minor maintenance issues up to an agreed value.
Provide your own liability insurance (especially if taking direct bookings).

All of these suggestions will help you alleviate some of the property owner’s concerns or issues with your rental arbitrage pitch. Preparation is key to the time you spend getting ready to pitch to property owners, so make sure not to skip this step.

Step 5. Furnish the property

This step is where most of your expenses should go. Great quality design and make use of an Airbnb furniture checklist that can appeal to different types of guests.

Make sure to budget a few thousand dollars to cover all of the basic Airbnb amenities. A sofa, a high-quality mattress and bedframe, great pillows, kitchen utensils, towels, and more. The details are solely up to you, but try to consider adding some extra special touches here and there to truly make your home stand out to guests.

How to pitch to property owners

There are different kinds of property owners, from single-family property owners to multi-family and even whole apartment buildings. The key to pitching to different property owners is to look closely at that specific property owner’s needs.

Try not to focus on your needs as a first-time STR business owner.

The whole point of pitching to property owners is to focus on what their present or future needs are and how you can help them with your business.

For example, you can emphasize the fact that they can also expand their real estate investments by using you as a guaranteed tenant if they choose to buy another property. This approach would focus on their future financial desires to expand their real estate portfolio.

If the property you are looking at is a newly-built apartment building, this means the property needs to pay off a hefty bank loan.

They have a financial need to increase their occupancy to at least around 70% in order to pay the banks back. You can leverage your understanding of this and ensure a profitable cash flow if they allow you to run Airbnb from that property.

If you’re dealing with a landlord who owns a single-family home, make sure to convince them that you can be the one to handle the management of the property. They have a supervisory need to deal with tenants and handle rental property needs.

Who likes to deal with tenants on a daily basis?

Not many people.

If you offer to be the sole point of contact and property manager for both the tenants and the landlord, you can make the landlord’s life easier.

When negotiating for your Airbnb business, keep in mind that some homeowners may be sensitive to the fact that their property was attained through years of hard work and saving money.

Their property is a huge and significant asset that might not be easily negotiated.

You need to be sensitive when approaching this topic and show respect for their property.

Additionally, you can start targeting homeowners who don’t have as much success renting out their properties. They have more of a financial need and will be more open-minded.

Here are some key compromises to consider when pitching your rental arbitrage business to homeowners:

Suggest that you will fix anything that needs maintenance
Offer to do a background check on every tenant
Possibly negotiate a profit-share
Offer a slight premium on rent

Is rental arbitrage profitable?

The profitability of rental arbitrage is based on a certain number of factors. Location, type of amenities, the current market, historical or future trends, and occupancy rates to name a few.

As a first-time rental investor or Airbnb host, we understand that it may be difficult to research all of these factors independently by yourself, especially among the long laundry list of items you need to accomplish.

We made it easier for you by compiling all the information you need about specific Airbnb locations in our market research dashboard, such as the average daily rate (ADR), occupancy rate, guest origins, and more. Understanding and regular monitoring of this data is essential to know how potentially profitable your rental property can be.

Compared to the equity you earn from owning property, the cash flow you earn from rental arbitrage has the potential to grow exponentially, or at least in small increments.

Once you start to generate profit from your rental properties, the best practice is to use those profits to reinvest in new properties.

Why?

Because people who succeed in business understand how to scale it even further.

Take Elon Musk, for example. We all know him for his success with Tesla and SpaceX, but what most people don’t know is that he has been launching several other companies since 1995. Musk used the profits from his previous companies to fund and create even more successful companies. This method of scaling and funding your business with your previous investments is key to your ROI.

Reinvesting your money on a monthly basis instead of annually, as you would if you actually owned the properties, will substantially increase your rental arbitrage profitability.

Rental arbitrage can be absolutely profitable as long as you have the correct tools and resources to help you maintain your rental properties.

We want you to succeed in your investments, so we’ve created a free Airbnb Income Calculator to help you simulate your potential profit from your rental properties. Using these calculations, you can feel more confident in making decisions with the help of accurate data.

Real-Life Success Stories

Calculating potential rental arbitrage profit is only the tip of the iceberg, so let’s take a look at real-life success stories.

Even throughout the COVID-19 pandemic, some Airbnb hosts have found success with their rental arbitrage properties and we’ve featured their stories on our podcast: Into the Airbnb.

An Airbnb host who does Airbnb rental arbitrage in Texas on four listings achieved a 70% occupancy rate even during the pandemic. His story is just one of many among others who have successfully mastered rental arbitrage despite the uncertain economy.

At Airbtics, we provide the most accurate and relevant data that you may need as a first-time STR investor or even a veteran. We recommend that the best practice to increase rental arbitrage profitability is to understand the data and create a data-based business strategy to scale your investments.

Best cities for rental arbitrage

Rental arbitrage is a business that continues to evolve, especially as people continue to pivot their travel plans or living situations during the ongoing pandemic. To pinpoint only a handful of places as the “best cities for rental arbitrage” is not a conclusive answer to your search for the best location.

The factors that determine how great a location is are not always controllable. Some Airbnb hosts may have been successful with their properties in booming tourist areas before the pandemic hit, but now those specific cities may not be doing well anymore.

Location analysis must be one of your top priorities when deciding on a rental location in order to increase profitability during such volatile times, especially while the pandemic continues to impact the rental market.

Let’s take a closer look at the progress of some cities during the pandemic (Jan. 2020- June 2020) that reflect COVID-19’s impact.

1. Myrtle Beach

After COVID’s sudden impact in late March, Myrtle Beach saw a huge decrease in growth until business started picking up again in early May. It is also considered one of the best places to Airbnb in South Carolina!

2. Big Bear Lake

Similarly to Myrtle Beach, Big Bear Lake (CA) experienced a sudden decrease in demand. On the contrary, Big Bear Lake drastically increased far more in demand during mid-May than it had earlier this year. Big Bear Lake is also one of the best neighborhoods in LA for Airbnb, with an average monthly revenue of $2,538.

3. Honolulu

Honolulu (HI) has been a popular destination for people all over the world, but COVID-19’s lasting impact on this location has yet to improve.

4. San Jose

San Jose experienced short periods of increased and decreased demand after the pandemic hit and has yet to show complete signs of recovery.

All the data here without explicit references are sourced and processed by our technologies.

To see more snapshots of the US Airbnb market (June 2020), visit our blog post analysis here.

As we can see from the graphs. One could argue that Honolulu could have been considered one of the best cities to do rental arbitrage before the pandemic hit. Now, Honolulu has yet to show signs of recovery from the pandemic and would not be a prime choice of location for rental arbitrage at the moment.

Looking at Big Bear Lake in California, the amount of growth it experienced during these recent months is a great indicator of the current trends of traveling domestically and enjoying “staycations” rather than international travel.

These unprecedented times have changed the factors of success for STR properties. As we continue to navigate the post-COVID landscape in the rental arbitrage industry. It’s important to regularly monitor the progress and data of each specific location.

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Try the analytics tool

Despite the future’s uncertainty, using data to your advantage will help you determine the best location for your rental arbitrage business. We have included the most useful metrics in our vacation rental insights dashboard. So now you have the flexibility to decide which locations are best for you.

As mentioned before, if your current rental arbitrage properties are not doing well. Then you always have the choice to cut the leases and move your business to another location. This kind of low commitment is the appeal of rental arbitrage. Until you figure out which cities are the best for you.

Why is market research important and how can you use it?

Market research is highly valuable for your rental arbitrage business. As it has the potential to earn a substantial profit because data = knowledge.

You can use data to identify the cause of problems and predict future trends. This will help you to make informed decisions and implement evidence-based strategies for your rental arbitrage business.

Other than having the determination to succeed in rental arbitrage. Making sure you understand data is one of your strongest assets to strategize in your business.

We’ve seen from the pandemic this year that crises throw out several unexpected problems and obstacles for business owners. But, there is strong potential to bounce back as long as you know how to utilize the data to your advantage.

Here’s a closer look at our case study of the STR market during COVID-19 in the US:

To see YoY growth for cities in Europe and China and what we found from this data. Visit our detailed blog post here.

Market research is always important in knowing how to take the next step in your business. In our analytics dashboard, we include specific metrics to help you make better decisions.

Here’s a snapshot of current occupancy rates and ADR of specific cities that reflect their current performance:

1. Honolulu, United States

The occupancy rate is still experiencing a decrease, so this location may not be ideal for your business in terms of occupancy. On the other hand, their average daily rates have increased by $9, so you need to take this metric into consideration as well.

2. Cancun, Mexico

Cancún has always been a popular destination and the data continues to reflect specific trends. Although there is not a huge increase or decrease in occupancy rates and ADR, you can compare these numbers to another year’s numbers to make a judgment on this location.

2. Greater London, United Kingdom

This location is also experiencing a slight decrease in occupancy rates as the pandemic continues to impact Greater London, but we can see from the data that the ADR has remained the same. This may prompt some investors to continue their rental arbitrage in this area or to find somewhere more profitable.

We strongly recommend that you create actionable strategies for your business according to the data.

For example, if the data shows that despite COVID-19’s impact on the economy, specific cities still see a significant number of bookings, it’s time to pivot your business strategy.

You can see which cities are doing well or doing poorly and decide to move locations accordingly. This is the charm of rental arbitrage because you are not tied down to a mortgage. Instead of a lease, which is a lot less commitment than a 15 or 30-year fixed mortgage loan.

If you would like to gain access to this kind of helpful data, contact us here.

When identifying an underperforming factor that causes your profitability or booking numbers to decrease, you can use data to find any concrete evidence that points to the specific problem.

Our Mission

At Airbtics, our mission is to help you manifest success with your rental arbitrage or any STR business endeavors. We invite you to interact with our resources and start making data-based decisions. This will boost the profitability of your rental arbitrage properties, and help create the passive income stream you’ve always dreamed of!

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Table of Contents

Short-Term or Long-Term Rentals: What is the difference?

Profitability

Maintenance and Cleaning

Background Checks

Commitment

Tax purposes

Flexibility in Pricing and Occupancy

Regulations

Hospitality vs. Pride of Ownership

Seasonality vs. Stability

Table of Contents

1. Year-over-Year (YoY) growth in Airbnb bookings will bounce back eventually

North America

Europe

Asia

2. Beaches are still trending destinations for Airbnbs in 2021

3. Properties optimized for domestic tourism are on the rise

4. More Airbnb properties are becoming long-term stays

5. Airbnb guests are moving from metropolitan areas to satellite cities

The Tailored Region Explorer is now LIVE

More precision. More accuracy.

What is Rental Arbitrage?

Rental Arbitrage vs Owning Rental Property

Rental arbitrage

Owning Property

How to Start a Rental Arbitrage Business Without Owning A Property

Step 1. Find a “Goldmine” area for Airbnb

Key Points to Remember

Tips from Airbnb hosts

Step 2. Find a unique gap in your market

Step 3. Check real estate laws and regulations

Step 4. Secure your credibility to prepare your pitch to property owners

Step 5. Furnish the property

How to pitch to property owners

Who likes to deal with tenants on a daily basis?

Is rental arbitrage profitable?

Real-Life Success Stories

Best cities for rental arbitrage

1. Myrtle Beach

2. Big Bear Lake

3. Honolulu

4. San Jose

Gain Insider Access

Why is market research important and how can you use it?

1. Honolulu, United States

2. Cancun, Mexico

2. Greater London, United Kingdom

Our Mission

Our Customer Representative

Product

Company

Resources

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