There has never been a better time to be a short-term rental investor.
Short-term rental investing, otherwise known as Airbnb or VRBO hosting, has been one of the most popular strategies for real estate investors over the past several years – and with good reason. it has a lot to offer.
What’s more, new data from AirDNA, a company that provides data to the short-term rental industry, suggests that right now—even in this crazy market—may be the best time to invest in short-term rentals.
What is STR?
If you’re unfamiliar with short-term rental (STR), it’s an investment strategy where you buy a property, but instead of renting it out to long-term tenants, you rent the property on Airbnb, VRBO, or another vacation rental. offer. rental website.
Benefits of STR
This strategy has become really popular lately, and it’s easy to see why. First, it provides something that’s so hard to find right now: cash flow.
Cash flow is becoming increasingly difficult to obtain, primarily because home prices are rising much faster than rents. But STRs still provide huge cash flow potential. Of course, you need to have a good asset in a good market — as with any investment — but STR has proven to offer cash flow even in markets that typically lack cash flow, such as Denver, Austin, and Seattle. are not.
Second, the markets that perform well for STR are also the ones with high appreciation. Think about where people go on vacation, such as ski towns, lake houses, or big cities like Miami. There are markets that have developed enormously over the past several years. STRs provide options in great markets with great potential to generate cash flow and for asset appreciation.
So there are good reasons for a lot of investors to get into this strategy — and it looks like things are about to get even better.
How is STR market performing?
To be honest, at the beginning of COVID I was quite worried about my STR. I thought the journey would come to a screeching halt and the property would lie vacant for months. Instead, the opposite happened, and COVID actually accelerated the existing trend of people moving away from hotels and towards STRs.
To support this, I found some data from AirDNA. Given this data, you need to know two terms: 1) occupancy, which is the number of nights your STR has been rented out in a month, and 2) average daily rate (ADR), which is basically Average amount of guests. Get paid to rent your property.
To find your cash flow, multiply your occupancy by your average daily rate. As an investor, you want both your occupancy rate and ADR to be high. Data from AirDNA shows that both have been up significantly over the past few years.
is captured
The chart below shows that 2021 has been the best month on record—or at least the one dating back to 2018. So despite all the restrictions and limitations on travel during the pandemic, the demand for short term rentals is significantly higher than both the 2020 and 2019 numbers. Look at the difference between the yellow and green lines throughout this year. Demand and occupancy are up.
The even bigger news is that the average daily rate across the US is up 22% when comparing July 2021 to July 2019. This is a huge increase.
If you put these things together — the increase in occupancy and the huge increase in ADR — that means a lot of cash flow for STR investors.
Small towns and rural areas are popular
Of course, not all STRs are equal. It’s no surprise that certain types of properties and some markets are going to fare better than others – and AirDNA has provided some data to help shed light on what’s happening.
The chart below shows that there is a big difference in demand between location types. Be sure to note the y axis on this chart. You’ll notice that 0% is right in the middle, so all the bottom lines see a decline and the top lines see an increase.
For me, the big thing here is that the smaller cities and rural towns are exploding with destinations and resorts, while the bigger cities have really taken a hit. Those big cities are recovering, but they have yet to return to pre-COVID levels. On the other hand, demand in smaller cities remains very high and is much higher than 2019 levels. As an investor who owns a STR in a hill town, I can confirm from experience that demand is very high.
large units are in demand
Guests are also choosing larger units. The following chart shows that larger units are at the top, while shared and private rooms are at the bottom. It’s common sense to me looking at the world at the moment—no one wants to share a room during a pandemic, and many families have long been renting large homes as a way to bring everyone together . The data suggests that so far, the bigger the better, and I think this trend is likely to continue.
Lastly, the data shows us that luxury properties are in highest demand. People may be spending their extra money on holidays than before. Maybe more people are finding value in living in a nicer place after living at home for a year. Whatever the reason, the data is clear: the higher the asset, the greater the increase in demand.
A bright future for STR
All told, this data is extremely encouraging for STR investors. We have seen that occupancy rates are up and ADR is up, which means more cash is coming into the market. We’ve also learned that big, luxurious properties in smaller cities or vacation destinations are performing best right now. So whether you are an existing STR investor or you are looking to enter the market, these can be good places to make your next purchases.
If you are thinking about investing in STR, I have two resources for you. The first is AirDNA, which honestly has the best STR data on the market; I use it myself and it has been extremely valuable. Second, I put together a guide to analyzing STR earlier this summer, which you can find on BiggerPockets—it’s very useful if you’re getting into the short-term rental game, so be sure to check it out. .
Find long term wealth with short term rentals
Vacation rentals can be an extremely lucrative way to boost your monthly income – but only if you acquire and manage your properties correctly. This ultimate guide to analyzing, buying and managing vacation rental properties will set you up for immediate success and long-term wealth.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
