Even as the economy slowly reopens and people adjust to a “new normal,” the future of the home-sharing market remains uncertain. Vacation rental companies such as VRBO and Airbnb saw a collapse in demand and revenue due to travel restrictions and the economic fallout of the pandemic.
AirDNA’s data shows that Airbnb units in the US witnessed a sharp decline in revenue, with New York registering a drop of up to 52% since March this year. Airbnb hosts are experiencing financial struggles due to canceled bookings, overlapping mortgage payments, maintenance costs, property taxes, and insurance, among others.
CNBC reported that owners have started selling their short-term rental properties after some states temporarily suspended private vacation rentals because of the coronavirus. To cut their losses, many owners have started turning their Airbnbs into long-term rentals.
If you’re a vacation rental owner, you may have already considered shifting to long-term renting. But before you make a decision, let’s drill down and discuss specific key points that you should keep in mind.
Why Convert Your Short-Term Rental Property
You should never change your business model lightly. As you mull over converting your Airbnb to a long-term rental property, consider the following trends hitting vacation rental owners in the wake of the COVID-19 pandemic.
Demand for Short-Term Rentals Remains Uneven
Bookings for Airbnbs and other short-term rentals were usually seasonal, but relatively predictable within each season. Now, with the uncertain future of tourism, both domestically and globally, no one is quite certain when things will get back to normal for the vacation rental market.
Anxiety over traveling caused by the uncertainties of an ongoing pandemic has largely dampened people’s desire to travel, whether for business or pleasure. The on-going crisis gives no guarantee when people will feel safe again to travel and stay in a stranger’s home.
With these, companies like Airbnb and VRBO suffer from a large number of booking cancellations, with little to no new reservations in sight.
No Bailout for Vacation Property Landlords
Like any other business, short-term rentals also incur costs from legal registration fees, business expenses and cancellations. Airbnb, for one, has incurred large scale losses due to COVID-related cancellations.
While the short-term rental company raised a $250 million relief fund to help Airbnb hosts bounce back from their expenses, the funding does not cover all costs that hosts have incurred due to coronavirus-related problems. What’s more, the relief fund is only applicable to Superhosts.
That means regular Airbnb hosts and other short-term rental owners without backup funds would now have to find their own ways to raise enough funds to cover costs and other expenses.
Stabilizing Your Property’s Cash Flow
Short-term rentals have always had peak seasons where hosts get their highest revenues. Once the season is over, they go back to the usual flow of business–earning depending on bookings.
One of the main differences of long-term rentals is stable real estate cash flow. Managed correctly, they offer low tenant turnover rates, and tenancies lasting at least a year depending on your lease agreement. Plus, you no longer have to spend heavily on maintenance and improvements since you’d have semi-permanent renters who stay longer in your property, instead of guests who arrive daily or weekly.
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New Cleaning Protocols Mean Longer Vacancies & Higher Costs
In May, Airbnb launched a new Cleaning Protocol with “enhanced procedures” on how to clean units for coronavirus prevention. From the usual Airbnb cleaning standard, hosts will now have to observe a 24-hour cleaning period in between stays before letting a guest occupy their unit.
Hosts who are unable to follow the new cleaning guidelines would have to create a longer vacancy period in between stays. This means reservations on their units will be blocked for a 72-hour period, which includes the initial 24-hour cleaning window that will have to follow the new cleaning protocol.
While the new protocol safeguards the health and safety of guests, it also means high turnover rates, longer vacancy periods, and extensive maintenance and corresponding costs.
More Renters Are Looking to Work from Home
As companies across the US are starting to embrace the idea of remote working, employees who live in expensive regions like the San Francisco Bay Area are moving in search of cheaper real estate. Converting your Airbnb to long-term might be the answer to thousands of renters now looking for a place to live and work from home.
Shelter is a basic need, so demand for housing will always be there. There are tons of long-term renters out there looking for a home like yours. You can strategically position your investment property and strike where opportunities arise.
How to Convert Your Vacation Rental to a Long-Term Rental Property
Decided to convert your Airbnb into a money-making long-term rental property yet? Here’s what you need to do.
1. Research Landlord-Tenant Laws in Your Area
Before you start your journey as a long-term rental owner, you should know the rights and obligations of both landlords and tenants. Learn the basics of renting such as lease terms, utilities, security deposits, and other landlord-tenant laws such as state and federal laws on fair housing.
Make sure to familiarize yourself with these laws to avoid violation or conflict. To help you out, you can find landlord-tenant law resources here. We also recommend checking with your local state, county, and city laws to learn more about rental housing laws
2. Form a Strategy
If you’re new to long-term rentals, you might find yourself wondering what strategy to take for your property’s success. To begin with, you need to decide on your lease term.
You can choose to dip your toe in the waters by renting out your property for three-to-six months, rather than the standard year-long lease agreement. But shorter lease terms lead to higher turnover and vacancy rates that can stress you out financially.
Once you’ve figured out how long you want to lease your rental, your next step is to decide on a pricing strategy. If you have no idea how to set the rent price for your property, start by looking for online rent estimate tools.
A rent estimate can help you determine the best price for your home based on the performance of similar properties in your market. It recommends the most strategic rental rate based on your market’s rental values, helping you to avoid pricing your rent too high or too low.
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3. Advertise Your Vacant Rental Property Strategically
Finding a tenant is one of the most tedious tasks faced by landlords. But with the right marketing strategy, filling in your vacancy is easy.
Make sure your property is well-groomed and attractive to prospects. You can choose to improve your curb appeal, place some greenery around the house, or give your house a needed makeover to make it more appealing. Make sure to take professional-looking photos to make your listing stand out.
You can advertise your vacant rentals on platforms like Craigslist and (cough) SparkRental, which syndicates your listing on eight other websites including ForRent.com and Apartments.com. You can also pay to list your vacant unit on Zillow and Trulia, which recently started charging for listings. Plus, you can strengthen your strategy by using print ads, email marketing, and mobile marketing.
Remember, the wider your reach, the more prospects you attract!
If you’ve got some friends in real estate, you can also hire them to market your property within their network. Or hire a property manager and let them take on the headaches for you.
4. Prepare a Lease Agreement
Part of your responsibility as a landlord is to protect your rental income and your property. A lease agreement is a mutually binding legal contract between you and your renter. It lays out all the rights and responsibilities each of you agree to.
If you have special conditions that you and your tenant have agreed upon, make sure to put them in the lease. Include a wide range of protective lease clauses to minimize the damage to your property and ensure you can legally collect all rents and fees. Make sure your lease agreement complies with all state and local laws!
5. Find and Screen Tenants
When you’ve decided on a price and lease term, marketed your property, and prepared a lease, you will find yourself with a handful of rental applications. Before you approve an applicant, you must screen them thoroughly first.
Screening tenants allows you to see who’s qualified and who’s not. To do this, you can run credit reports, criminal background checks, and eviction history reports.
Choosing qualified applicants helps you avoid troublesome tenants that may cause you stress and even cost you money. Remember, you want trustworthy tenants who can pay rent on time and take care of your property like it’s theirs.
Making Your Decision
Short-term rental companies, including Airbnb, have lost millions of dollars in revenue and have laid off a huge percentage of their employees in Spring 2020. Although the company has taken effort to provide some assistance to its partners, the compensation hosts have received are not at par with the revenue they have lost.
It is indeed a bleak situation aggravated by the uncertainty of when the vacation rental market can make a full recovery. However, it is not the end for short-term rental owners like you. Make the switch from short-term to long-term to help yourself and get rewarding results in the future.
The growing demand for long-term housing — not to mention other opportunities that arise as the US economy slowly reopens — is the key to growing your real estate investment. If you are considering shifting to long-term, the sooner you make the decision to switch, the better for your investment.
What kind of vacancy rate have you seen among your vacation rentals? Do you plan to convert your Airbnb properties to long-term rentals? Why or why not?
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About the Author
Onerent Property Management offers the first contactless rental experience to help homeowners manage and monetize residential rental properties in the cloud. Its full-stack service manages both the online and offline parts of rentals. Onerent is backed by the Chief of AI at Google and manages $1.4B in properties across 7 major metros in California, Washington, and Colorado.