The Risks of Investing in Short-Term Rentals

Short term rentals have been trending in recent years and praised as the latest successful new business model and market disruption. This time, the supposed disruption is to the hospitality and hotel industry. Many people rushed into the short-term rental business, using websites like VRBO and Airbnb.

Non-Diversified Investment Is Risky 

Suddenly, renting out your extra house, or extra space within your home, seemed like a viable way to make money. In fact, some individuals have begun to buy properties with the intention of going into the short-term rental business, while others have bought stock in the major short-term rental companies. However, non-diversified investments are risky, and short-term rentals are no exception.

Let's look at the benefits of short-term rental investment, which can turn out to be risks instead:

• Disruptive businesses often do well: New, disruptive businesses are seen in a positive light these days, since many of today's most successful business models, like online social networks (Facebook, etc.), began as disruptive start-ups. These businesses seem to be changing the world. Until...an unpredictable, unprecedented situation like Covid-19 comes along. Anything that negatively affects travel and tourism will have an immediate negative effect on short-term rentals. 
• Slim competition means cornering the market: There aren't too many similar businesses to AirBnB etc., so investing in the few, top short-term rental companies may sound like a terrific idea. Except...even as we speak, as the economy hopefully begins to bounce back, this could encourage more companies to get into the short-term rental biz. More competition will then make it harder to profit.
• New attention is great for business: Except...when a business begins to profit, or trends in the press, it attracts regulators. Short-term rental success has brought pushback from established hotels, as they seek more rules/restrictions for these businesses. Communities fear short-termers as the cause of long-term rents becoming too expensive, or worry about parties and noise in the typically residential-neighborhood short-term rentals. Communities want limitations, license fees, permits, and taxation for the industry. This makes doing business more expensive for those invested.

Being aware of, and managing, the risk is always wise. If you plan to add property investment and/or rentals to your portfolio, we offer multiple real estate financing options. Contact Evolt Capital today.