The Top 5 Questions About Our Short Term Rental Fund
In this post we’ll dive into some of the most common questions I’ve answered over the past 6 months working with TechVestor and their incredible short term rental fund opportunity.
Lets get right into it...
1. Is there an Airbnbust?
The Short Answer:
NO. Based on both our experience and 1st source data we’ve actually seen a growth in revenue and increased demand for our rentals as well as increasing demand on Airbnb’s platform. The source that initially published these metrics has not responded to requests for data sources which are much different from Airbnb and AirDNA.
The Long Answer:
Most people who think of the Airbnbust are citing an article that was tweeted showing some markets experiencing 40%+ decreases in revenue. However, the organization that released that data (AllTheRooms) hasn’t responded to questions on how that data was gathered.
“AllTheRooms, meanwhile, has not spoken publicly about the data and has not engaged with journalists and others seeking to confirm or deny the data.” Source
This is especially alarming considering Airbnb (1st source data) has shown different metrics citing many of the markets which ATR showed having 40% declines were really experiencing 1 - 2% declines - something that was normal for the time of year data was gathered.
In our experience acquiring and operating 120+ short term rentals, there’s an AirbnBOOM if you’re able to keep up with changing demands and guest feedback.
Our properties have better amenities and design that are capturing more guests than our competition. This is shown as our rentals have held a ~69% higher average occupancy rate in their respective markets when compared to competitor rentals (even those professionally managed).
One of our advisors, Robuilt, also breaks down some of these trends in this video. Hosts who are experiencing a bust are those who haven’t updated their operations, spaces, or amenities, and are continuing to operate as a solo hobbyist.
Many of these hosts were the original hosts Airbnb had in mind, which were casual peer-to-peer properties to rent out a spare room or couch. These hosts don’t treat their properties like a business with regular systems and operations, and because of that are now suffering as organizations like ours have come in with institutional grade operations and data.
Short Term Sage also released some great numbers showing some causes for slowdowns in some markets along with some growth trends too - Short Term Sage.
2. How will short term rentals perform during recessions?
The Short & Long Answer:
There isn’t a ton of documentation on recessions and short term rentals, but we see short term rentals acting as a recession option for travelers.
With our median party size, Airbnb’s are the more economic option rather than splitting a hotel room. We’re also well positioned in our markets to be driveable to over 90% of the US population (8 hour drive or <2 hour flight). This is important because while long distance travel will hurt the most during recessions (think international trips) more families will likely stick to stay-cations.
Short stays with nightly rates also allow for flexibility in pricing during economic ups and downs, giving us more flexibility than other lease options with 12+ month locked in terms.
During a recession, people still move around and travel but they may substitute their international travel plans for a more local flight or drive.
3. Are institutional companies (private equity, hedge funds…) interested in acquiring Airbnbs?
The Short Answer:
Yes there is demand from institutional investors both in the space and for our portfolio specifically. It is difficult for large investors to build and scale a portfolio so there is massive value in packaging and selling off large territories or the entire portfolio at once.
The Long Answer:
Institutions have been looking for emerging asset classes to make up for some pit falls seen by standard residential or multifamily investments over the past few years.
Short term rentals provide higher cash flow and more flexibility with operations which is appealing to larger investors.
Companies like UDR, Sentral, and Blackstone are already adding short term rentals to their portfolio or converting their existing multifamily rentals into short term rental properties. - FORBES.
Both supply and demand for short term rentals are seeing growth. Although all markets are hyper local, nationally AirDNA is seeing lower daily rates but longer stays. - SOURCE
This actually has a positive impact on profitability as many travelers are booking for longer and operators are minimizing turn costs as a result.
Total travel bookings in the US also tell a story of more travelers shifting from hotels to short term rentals:
[2018] 8% of bookings were to short term rentals and 92% to hotels.
[2023] 15% of bookings were to short term rentals and 85% to hotels.
5. What are the regulation risk of Airbnbs?
The Short & Long Answer:
All assets have unique risk, for short term rentals that comes in the form of regulations.
Selecting markets is key here and when we're picking markets one of the top factors we look at are:
> current regulations
> future regulations
> political motivations
> lobbying power of hotels in that area
> how much the areas economy needs travelers to support it.
We carefully select markets that don't have huge competition with hotels and in areas that have favorable views of short term rentals with loose regulations (not no regulations, but loose. No regulations are a bad sign).
Historically, when cities have put up short term rental regulations there is a grandfathering period for current rentals, which would limit our ability to expand in a certain market but would actually make our current offerings in that location more desirable.
Conclusion
I hope this was helpful and gave you some insight as to why we’re excited about this asset class and how sensitive we were about the risks associated with it.
We’re closing our fund in the next few weeks, so this could be your last chance to get involved!
Investing in the later stage of the fund also mitigates risk as the fund has been operating for close to a year now and is starting to see properties stabilize and benefit from the economies of scale laid down by Fund 1 properties.
Fund 2 has had the benefit of Fund 1’s learning and scale from the start, and because of that are seeing $100k+ revenue months ~7 months earlier than Fund 1!
All investing has risk, and my goal is to arm you with the best information possible so you can make an educated decision based on your risk tolerance. Please consult with your personal tax and financial counsel before making investing decisions. Nothing mentioned in this post is a guarantee or results or a solicitation to sell securities.
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