The height of the pandemic was a nightmare for vacation rental investors. Here’s why things are looking up now.
Key Points
- Flexible work means travel is becoming a lifestyle. This translates to increased preference for vacation rentals over hotels and longer stays.
- Unique experiences and larger properties for gatherings are becoming increasingly popular, giving vacation rentals even more advantages over hotels.
- The supply/demand balance suggests investors will continue to have opportunities for strong, stable income going forward.
It’s no secret the pandemic kicked off a dark time for vacation rental properties. The safer-at-home lifestyle created a far from ideal environment for the travel industry. But thankfully, several factors have come together to make these properties one of the brightest spots in real estate investing again.
Short-term rental data analyzer AirDNA has provided data for 2021 and made some predictions for what we might expect to see from vacation rentals in the new year. Let’s explore a few of the trends they’ve identified and see how they apply to vacation rental investors or those still on the fence.
Flexible work
For many people, traveling used to be something they did for one or two weeks out of the year. Full-time work tended to make being away from home much more than that impractical. But the pandemic has thrown the gradual shift to more flexible working styles into overdrive, and it’s looking more and more like that genie may never go completely back into the bottle.
Office demand fell to 39% below 2019 levels last month. And of those companies requiring employees to return to a physical office, only 15% expect that to be with no hybrid arrangement of any kind, according to commercial real estate services group CBRE. The vast majority of office employers plan to allow at least some degree of flexibility for remote work going forward.
This represents an opportunity to transform the mindset most of us have around travel. According to Airbnb CEO Brian Chesky, this shift toward travel as a lifestyle even inspired some of the site’s recent upgrades. This trend is leading to longer stays, which means many travelers now have a greater desire for a true home away from home over the hotel experience. The reduced turnover also tends to mean less work for hosts and/or property managers.
Unique opportunities
Airbnb’s new features also include making it easier for guests to find the specific types of properties they’re searching for. The site now even includes a category for offbeat homes. This is important because demand for unique properties has spiked since the pandemic began. When people weren’t venturing out as much when they travelled, they liked the idea of having a home base that was an adventure in itself. And like flexible work arrangements, this taste for unique rental properties looks like it may be here to stay. All 10 of the fastest-growing property types AirDNA identified for 2021 offered some form of unique experience, ranging from tiny homes and yurts to farm stays and treehouses.
If you’re thinking of becoming a host, a property offering an experience that simply can’t be duplicated at a hotel could be worth checking out. This is an opportunity to think creatively. When it comes to the offbeat, Airbnb properties include igloos, caves, themed properties, and homes with fascinating histories, such as former celebrity digs and allegedly haunted houses.
Large properties and estates were another hot vacation home type in 2021. Many families and groups of friends that stayed largely apart for 2020 came back together this year and wanted the space and environment to make it something special. Unlike some other trends we’ve mentioned, it’s harder to say whether this will be a one-off occurrence or a lasting trend.
Many people have discussed reflecting more on what truly matters to them during the pandemic, and prioritizing family and friends is often at the top of that list. So it’s not unreasonable to expect these get-togethers to become a new tradition for many families. This is worth keeping in mind if you’re looking to buy a rental property in the new year and can afford a larger property.
Supply/demand balance
For the most part, supply has been following shifting demand fairly closely. As urban areas became less popular earlier in the pandemic and rural properties became more desirable, investors were watching those trends closely and responded accordingly. And now that more demand is gradually shifting back toward cities, investors are offering more properties in those areas again.
So how much can vacation-rental hosts expect to make? The amount varies widely, of course, but much of the answer revolves around that supply/demand balance. According to AirDNA, the average annual revenue for vacation rental properties is ending this year at an all-time high of $56,000. This figure is expected to decline about 5% next year as supply increases and rates decline but to then stabilize and see another increase in 2023.
Should you invest in vacation rentals?
Like in most of the real estate investing world, the pandemic — and government and public response to it — is the wild card in all this. No one can say for sure whether widespread shutdowns and/or increased travel fears will be repeated. But as you can see, there are some very exciting things going in the vacation rental property space, and recovery has been swift. If you keep all these new travel trends in mind when searching for and marketing your property, you could find yourself hosting a very successful vacation rental in 2022.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Nell McPherson has no position in any of the stocks mentioned. The Motley Fool owns and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.
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