Cindy Diffenderfer is the CEO of Orion Housea leader in the home sharing industry – turns everyday tenants into real estate investors.
The urban flight continues, and if you haven’t yet shifted how and where you invest in real estate, you’d be wise to reconsider your current strategies. Hastened by the pandemic, households are flowing from urban centers to smaller and cheaper metropolitan areas. According to AirDNA’s 2022 US Short-Term Rental Outlook Reportaverage annual revenue earned from short-term full-time rentals grew to $56,000 at the end of 2021 — the highest level ever and 35% higher than at the start of the pandemic.
But that doesn’t mean that every area that has grown in recent years is the right one to invest in. Here are three insights into the ways migration patterns can affect investments in the short-term rental market (STR) and how to account for them.
1. Empower people to stay connected.
Travelers looking for a rental property in the short term are no longer primarily holidaymakers. According to an recent research by Global Workplace Analytics, approximately 56% of the U.S. workforce has jobs compatible with remote work, either partially or fully. As working from anywhere has become the norm, this has led to an increase in customers looking to combine their newfound flexibility with a scenic workplace.
But to be able to work remotely successfully, a tenant needs the most reliable and fast infrastructure. This means that even if you look at investment properties known for their proximity to outdoor adventures or for their peaceful and quiet location, if the internet access is not reliable it will be much less attractive to those seeking work and pleasure. combine in a new location.
2. Align with growing market sectors.
Ideally, you probably want to make sure your properties are in popular locations, but where there’s still room to grow. Take Nashville for example. Always a vibrant and sought-after place for tourism, the city has experienced exponential growth in recent years, with more than 14.5 million visitors in 2021. And according to one recent article in the New York Timesthe city has also become the country’s most popular place for bachelor parties.
Hen parties are usually larger groups of people who all want to be together – something a typical hotel may not be able to offer. It is precisely these types of visitors that can benefit from a short-term rental, which is why your properties must have a plan in place to adapt to visitor trends.
3. Know when it’s time to shut down.
In 2020, the most popular places to rent were in popular holiday markets with plenty of room to insulate. But it’s important to avoid flash-in-the-pan locations and be prepared to accept fluctuating prices. Take the short-term rental market in the East End of Long Island, which is quintessentially a summer rental area and where demand – and associated prices – skyrocketed at the height of the pandemic. Now the rental market considerably cooled like those who spread their wings in the Hamptons to travel elsewhere or are simply reluctant to pay sky-high prices for a summer vacation in this economy.
That’s not to say that popular vacation areas aren’t a good choice, but chasing an overpriced market by raising your rents will likely lead to vacancy as the economy cools. No one has a crystal ball, but it’s important to think about the possible direction of a local market down the line. Because a short-term home is not tied to a long-term lease, you can respond more quickly to changing market conditions by selling the home to an investor looking for an income home or to an owner looking for a primary home.
As more and more people adapt to a mindset of living and working from anywhere, the opportunities have increased exponentially for investors who want to participate in STR. By tracking migration patterns and emerging consumer trends, you can ensure that your real estate investments are aligned with consumer demand and ultimately profitable.