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The Short-Term Rental Investing Market: Where STRs Are Going and How Far They’ve Come

[Updated: Nov 17, 2020] Dec 07, 2019 by Aly J. Yale
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It’s no secret that the short-term rental investing market has exploded in recent years. Since 2008 -- when Airbnb was founded -- more than 7 million properties have been listed worldwide and a whopping 500 million trips booked. On average, about 2 million people stay in Airbnbs every night.

But that’s just one platform.

More than a decade later, the playing field is much broader. It’s not just Airbnbs and one-off real estate investors getting in on the game but hospitality chains, multifamily asset holders, and large-scale institutions, too.

With this evolution has come change -- in both the competition investors face and what renters look for in the properties they stay in. 

Are you considering an STR real estate investment? Here’s what you need to know about the short-term rental market going into 2020.

The Short-Term Rental Properties Competition Heats Up

What began as a way for homeowners to open up their properties and make some extra cash has blossomed into an all-out industry ripe for real estate investors

Traditional investors are buying properties specifically with short-term rental profits in mind, and even multifamily property owners have found a way to capitalize on the trend. With options like Stay Alfred and Sonder, multifamily investors and apartment owners can easily turn vacant units into income-generating properties. They can also earn cash during the notoriously quiet lease-up period.

As a recent report from real estate services firm Cushman & Wakefield (NYSE: CWK) explains: “Given the valuable locations and amenity sets of these apartment buildings, an underground market emerged on homeshare platforms for these particular units. A new crop of startups arose to legitimize and streamline this market, with the most successful among them creating independent national platforms with hundreds of branded, furnished apartments.”

There’s even a new age of hospitality offerings like WhyHotel, Lyric, and The Guild that spawned from the trend. With bought- or built-for-rent properties, these start-ups take an apartment-style approach to hospitality that’s taken off in the last year or so. Altogether, this new wave of rentals accounts for over 5,000 beds across 63 markets. They currently have $319 million in venture funding, too -- including $160 million from Airbnb itself.  

What Short-term Vacation Rental Visitors Want

With the emergence of this new style of rental property has come an evolution in what renters expect from their stays. 

According to Cushman’s report: “Travelers initially were drawn to homeshares for price discounts and the added authenticity and community these offered over traditional hotels. Now, travelers have reevaluated what they’re looking for in travel accommodations entirely -- seeking more of a home in the location they desire than just a place to stay.”

In fact, a recent survey from Conde Nast shows that half of millennial travelers expect their lodging to feel like a “home away from home.” To achieve this, they’re seeking these amenities:

  • Full kitchens with dishes and cookware.
  • Washer-dryers in the unit.
  • A full, spacious bath. 

It’s also important to note the growing number of short-term vacation rental visitors who are business travelers. According to Cushman’s report, 30% of all homeshare bookings next year will stem from business needs. Currently, more than 700,000 major companies use Airbnb alone for regular travel lodging. These business travel renters have three primary concerns:

  • Close proximity to urban centers.
  • Technology amenities.
  • Privacy.

Short-term Rental Investing Trends to Watch

As we get into 2020, further growth of these new-wave short-term rental properties is expected (both nationally and worldwide) -- especially as some major built-to-spec developments finish up. 

While Cushman’s report indicates that travelers of every type are moving toward vacation rental platforms, they go on to state: “However, these platforms alone do not provide the quality and consistency that many travelers expect when it comes to in-unit furnishing, building amenities, service, or location. This is where short-term platforms that utilize traditional multifamily assets come in. Not only have these found success in limited trials, but full-scale buildings built on this model are mere months away from delivery.”

Cushman & Wakefield’s experts also predict growing investment into this niche space. According to a recent survey from the brand, 64% of investors expect to put either significantly or slightly more capital into these real estate assets in the next year, while 30% plan to keep current investments steady. 

The Bottom Line

It’s impossible to know exactly what’s in store for 2020, but one thing is clear: The short-term rental market is changing. 

Stay on top of what’s happening in the industry, and know who you’re up against. While you might not be able to compete with those big investors and large-scale asset holders, you can up your game in terms of amenities, make smart location choices, and ensure your rental properties align with current renter trends. 

If you already own a few short-term rental properties, be sure to check out our tips for making more from your investments. From adjusting your price strategy to leveraging key tax deductions, there’s a lot you can do to boost that bottom line.

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Aly Yale has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.