\n<\/p>\n
The hotel vs. Airbnb battle <\/strong>may have just completely flipped<\/strong>. Post-pandemic, it seemed as if short-term rentals<\/a> were the only places worth staying when traveling. Having a house with multiple beds, a kitchen, a private yard, and parking was considered too good for hotels to compete with. But, as the world reopened, travelers got tired of cleaning up after themselves and taking out the trash, and hotels began to claw back market share<\/strong>.<\/p>\n With the idea of a short-term rental \u201ccollapse\u201d<\/strong> constantly being pushed throughout mainstream media, we brought on AirDNA\u2019s Jamie Lane<\/strong> to give us the facts about how the hotel vs. Airbnb battle <\/strong>is going. Jamie walks us through some surprising statistics about short-term rental occupancy<\/strong>, why things are starting to change in a post-pandemic world, the real estate markets<\/strong><\/a> seeing the worst (and best) performance<\/strong>, and how hotels are faring.<\/p>\n For those who have seen their short-term rental markets start to struggle with so much supply and not enough demand, Jamie has some insider-only tips<\/strong> on finding smaller markets where you can still make a decent profit<\/strong> and how owning an international vacation rental<\/strong> may be your best bet as Americans leave the road-tripping and domestic flights behind<\/strong>.<\/p>\n Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Jamie: Dave: Jamie: Henry: Jamie: Dave: Jamie: Henry: Jamie: Henry: Jamie: Henry: Jamie: Dave: Jamie: Henry: Jamie: Henry: Jamie: Dave: Jamie: Henry: Jamie: Henry: Dave: Jamie: Henry: Jamie: Dave: Jamie: Henry: Jamie: Henry: Jamie: Dave: Jamie: Dave: Jamie: Dave: Jamie: Dave: Jamie: Dave: Jamie: Henry: Jamie: Dave: Jamie: Henry: Jamie: Dave: Jamie: Dave: Jamie: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: Henry: Dave: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Hey, everyone. Welcome to On The Market. This is Dave Meyer, your host, joined by Henry Washington. Henry, you really went out of your way for this one to go all the way to Maui and post up in a short-term rental just to set the mood for the show about short-term rentals. It\u2019s very nice of you.<\/p>\n
Look, that\u2019s the extra mile that I\u2019m willing to go for you, Dave. I am willing to get on a plane and fly to Hawaii just so that we can do a show on short\u2026 I did this just for you, Dave.<\/p>\n
That is the Henry Washington experience, everyone. What a standup gentleman.<\/p>\n
I will go to a tropical destination just so that you can get the inside information at that tropical destination.<\/p>\n
Well, for you, we\u2019re going to do one of these shows once a month so you can start traveling around and go to a short-term rental. Well, we do have a great show for you all today. Honestly, I feel like it\u2019s been way too long. We\u2019ve been doing On The Market for what, 140 episodes?<\/p>\n
Yeah.<\/p>\n
We finally have a real bonafide expert on short-term rental data. We\u2019ve had some fantastic operators on the show already, but we have Jamie Lane joining us today who runs the Research Department. He\u2019s the Vice President of Research for AirDNA which, if you don\u2019t know them, is one of the biggest short-term rental companies out there. I\u2019m super excited to talk to Jamie about all the headlines out there about whether short-term rentals are declining or what\u2019s really going on in the industry, and Jamie is definitely the person to tell us what\u2019s truly going on.<\/p>\n
Yeah. The internet says the sky is falling out of the short-term rental market, and headlines are sometimes just headlines, and sometimes there\u2019s some truth behind it, and I think what a great way to\u2026 Actually, let\u2019s find out what the actual data says so that people can make informed decisions about growing or scaling a short-term rental business.<\/p>\n
All right. Well, with that said, let\u2019s bring on Jamie Lane, the Vice President of Research for AirDNA.
Jamie Lane, welcome to On The Market. Thanks so much for being here.<\/p>\n
Yeah. Thanks, Dave and Henry, for having me.<\/p>\n
Jamie, let\u2019s just start by having you introduce yourself. Can you tell our audience what you do for AirDNA?<\/p>\n
So I am the Chief Economist at AirDNA and SVP of Analytics. I\u2019ve been with AirDNA now for three years.<\/p>\n
So for our audience who maybe hasn\u2019t heard about AirDNA, tell us a little bit about what kind of data AirDNA helps with and what you guys track.<\/p>\n
Yeah. So we are a short-term rental data and analytics company. We track the global performance of short-term rentals. So every listing that\u2019s online and available for rent across Airbnb, Vrbo, Booking.com. We track the performance of that listing and then provide that data back to our customers. So, for investors, they can understand what the earning potential is of new investments, what markets and sub-markets make the most sense to invest in today, and what the future earning potential of those investments might be.<\/p>\n
Henry and I have a long list of questions that everyone else probably cares about, but I have to ask questions selfishly. How do you track all of that data? I\u2019m just very curious how you get it because it seems like a very unique dataset.<\/p>\n
It is a very unique dataset. So we actually started tracking it back in 2014, and we do it by collecting it from the OTA. So, Airbnb and Vrbo. We are looking at the calendars of every single listing every single day, and then tracking the movements in those calendars. So is a night available? When does it go unavailable? We then have a proprietary machine learning algorithm that can tell whether that\u2019s a booked or a blocked night. We then take the last variable rate for that unit for that night as the revenue for that booking, and then we do that every single day across 10 million listings around the world, so it\u2019s a massive data undertaking. We\u2019ve got teams of engineers that manage the pipelines. We have to check the accuracy. There\u2019s changes happening across the OTAs every day that we have to keep up with that makes it a\u2026 It\u2019s makes it a serious endeavor.<\/p>\n
So what you\u2019re saying is it\u2019s no big deal, it\u2019s just a couple of inputs, and you just throw it all together? Easy-peasy?<\/p>\n
Yeah.<\/p>\n
I am also a data nerd. I did data analytics for my career before I went into the real estate business. So thanks, Dave, for asking that question because that\u2019s\u2026 I always have an appreciation to hear about how this stuff is put together because it\u2019s crazy difficult, and then I\u2019m cool that you guys get to do it now, and I just get to sit back and be a person that looks at the aggregate.<\/p>\n
Yeah. I spent 10 years as an economist covering the hotel industry before joining AirDNA, so that was\u2026 Actually, I was one of the, if not the first, customer of AirDNA getting the short-term rental performance data and actually incorporating it into our analysis of the hotel industry and trying to predict its future performance because obviously, the short-term rental industry and its massive growth that we\u2019ve seen has impacted how hotels are able to perform and the rates they\u2019re able to charge.<\/p>\n
So let\u2019s talk about what everybody else is thinking about when they hear short-term rental or AirDNA because there\u2019s been all kinds of crazy, scary, the world is falling apart, doomsday headlines about the short-term rental space. Every time you turn on your phone, you\u2019re hearing somebody say, \u201cAirbnb is dead,\u201d or, \u201cShort-term rentals are dead.\u201d So going into the fall, what do you see demand looking like for short-term rentals in this current market?<\/p>\n
You\u2019re not talking about Twitter X and the doomsday scenarios that we\u2019ve been seeing on that. I don\u2019t know what you\u2019re talking about. Yeah. There\u2019s been a narrative out there around the collapse of the short-term rental industry. That is not what we\u2019re seeing really at all. We\u2019re seeing a normalization of performance. So back in 2018, 2019, short-term rentals averaged about 55% in terms of overall occupancy. Now, that accelerated massively in 2021. So for a full year, it averaged about 63%, so 800 basis points higher for occupancy. While it might not seem big, that\u2019s a big change for an industry that was typically running in 55% year after year after year. Though 2018, 2019 was the historical peak. That was one of the best years ever for travel, for short-term rental performance. That was a really good year.
If you think about how we got to that 63% occupancy in 2021, it wasn\u2019t because we saw a massive increase in demand for short-term rentals. So the narrative that everyone started traveling and staying in short-term rentals in 2021, demand was essentially flat compared to 2019 when it had been historically growing 10%, 15% per year. What happened was we saw a massive decrease in supply. So supply dropped 25% roughly in 2020, and it took a long time to crawl back. So, in 2021, demand started coming back, supply wasn\u2019t there, and that pushed occupancies to those record levels. So, now, we\u2019ve started to see a normalization coming back down. We only expect 2023 to end up at 58% occupancy. So, yes, down from the 63%, but not nearly what we were at pre-pandemic. So it\u2019s, in our opinion, a very healthy market.<\/p>\n
Where does supply sit now, Jamie? You said that it took a little while to recover. In 2023, how does it compare to pre-pandemic levels?<\/p>\n
Yeah. We\u2019re sitting about 25% higher today than we were at in 2019, but as I said, the trajectory of what we are growing at pre-pandemic was growing 10%, 15% per year. So we\u2019re now what? Four years past the onset of COVID and have only grown 25% over that past year. So we\u2019re well below the trajectory that we are on. We\u2019re getting back to it. Last year was a good year for growth. Supply was up about 20%, but now where it slowed in 2023, we\u2019re running about 12%, 13% growth this year.<\/p>\n
So tell us a little bit about where you are seeing\u2026 Go both ways. So where are you seeing dips in occupancy, and then what parts of the country are you seeing STRs are really rocking it right now?<\/p>\n
Yeah. Where we\u2019re seeing the dips is more areas that we\u2019re seeing the most normalization. So there\u2019s markets like Joshua Tree or Phoenix, Coachella Valley that did really well in 2021 into 2022, and both on the demand side. So we had, in a lot of these markets, abnormal seasonality patterns like people traveling to Phoenix and Joshua Tree during the summer. I don\u2019t know if you\u2019ve been to Phoenix or Joshua Tree during the summer.<\/p>\n
Why?<\/p>\n
They\u2019re not markets that you typically want to travel to. When you look at the occupancies that those markets were generating pre-pandemic, those were the slow seasons. So now we\u2019re getting back to normal, typical seasonality patterns in this market, which is causing it to look like occupancy is declining all the while, and it is declining, but it\u2019s still a very healthy normal market. Then, there\u2019s other areas like a market like Miami that has seen significant supply growth and is actually seeing overall weakness in demand, and that\u2019s a market that\u2019s interesting because of the impact of domestic and international travel. So that was a really popular market for people that wanted to travel to maybe an exotic city, but wanted to stay in the US, wanted to be able to go to the beach.
Now, we\u2019re seeing a lot of people start to travel overseas again, and Miami is a market that has historically been really dependent on international travelers coming into it as tourists, and we\u2019re not yet seeing the recovery of international travel to the US. So that\u2019s a market where we\u2019re seeing some overall occupancy weakness, but it really is a different story for each city on why we\u2019re seeing the declines. Just about every market is seeing declines in occupancy in 2023, but still just about every market is above 2019 levels of occupancy.<\/p>\n
Jamie, what if you cut and look at the data a little bit differently rather than trying to segment by geography? Do you have any insights into other characteristics of the rentals that are seeing more occupancy or declines in revenue? I\u2019m just thinking, is there anything about tenure of the operator or scale? Is it upscale, midscale, something like that?<\/p>\n
So we do actually segment all properties into different price tiers, and this is one of the changes we\u2019ve had since in the past couple of years that you can go on and see the performance of luxury properties, or budget properties, or mid-scale properties. Throughout history and even today, luxury properties typically generate the lowest overall occupancy, and it\u2019s much higher ADR. A lot of homeowners have a much higher ADR threshold for which they\u2019d be willing to rent out their home and wanting to control the type of renters that are coming in, making sure their property is not getting trashed on a party or something like that.
So 2019 luxury properties are generating less than 50% occupancy. They saw the biggest increase over the past four years. So they\u2019re generating well over 50%, almost 60% occupancy in 2021 now running about 56%. So they saw the biggest overall increase, and a lot of that was the higher-end traveler that\u2019s staying domestic that would\u2019ve traveled overseas without the pandemic. That\u2019s especially true in coastal and mountain markets, and that plays into maybe the narrative in an area like Destin or Panama City that did really well, especially at the higher end because someone like from Atlanta that\u2019s going to do a drive-to-beach vacation, drive down there instead of traveling maybe to Nice, or Cahan, or somewhere in Europe.
Those locations now are seeing the biggest overall decline at the luxury side because of the changing travel patterns for those consumers. So that\u2019s an area we\u2019re seeing overall weakness. Where we\u2019re actually seeing the best performance is in that mid-tier. So reasonably priced properties are still relatively competitive to hotels and a really good product. So has key amenities, well-located, on the beach. These are the type of things you\u2019d actually want to rent, and they\u2019re doing really well today. So going after that core travel segment that uses short-term rentals on their vacations.<\/p>\n
Well, I love hearing that because I have mid-tier short-term rentals, and they have been doing fairly well consistently, and so hearing that makes me happy. Real quick, define ADR for the people who don\u2019t know what that is, and then I have another question for you.<\/p>\n
Yeah. So maybe I\u2019ll go through the three main metrics. So occupancy and how many nights are you selling out of every night that you make your unit available. ADR is the average daily rate. So what is the rate that you\u2019re actually selling that night for? Then, RevPAR. That\u2019s one of the best ones. That combines occupancy and ADR. So what is the average revenue that you get for every night that you make available? Essentially, you just multiply your ADR times occupancy because you can manipulate your occupancy by either increasing or decreasing your rates. So if you want to drive up occupancy, you can lower your rates, fill your unit every night of the year. So RevPAR is that great mix. So you can really get to the overall health of how your units and how the industry is performing.<\/p>\n
Wonderful, and my next question, I\u2019m asking for a friend. You said those mid-tier short-term rentals tend to do the best, especially if they have the right amenities with those mid-tiers. So what are you seeing? What are the right amenities or the best amenities for those mid-tier type properties? Again, this is for a friend. I\u2019m just going to relay this information. No big deal.<\/p>\n
Such a nice guy.<\/p>\n
It really depends on the market, and that\u2019s where\u2026 In certain markets now, there are certain amenities where they\u2019re considered table stakes. If you don\u2019t have those amenities, then you just can\u2019t compete for guests. If you\u2019re investing in Gatlinburg right now, and you do not have a hot tub, you\u2019re a budget property. You\u2019re a property that\u2019s going to\u2026 and 80% of properties, entire home properties in Gatlinburg have a hot tub. So it really depends on the market properties. Like in Joshua Tree, if you don\u2019t have a pool in Joshua Tree, you\u2019re seeing double the overall decrease in occupancy from the market average. So there are certain things like during the pandemic, maybe you would\u2019ve got booked in Joshua Tree if you didn\u2019t have a pool, but now you\u2019re having to really compete to find guests if you don\u2019t have those basic amenities.
There are amenities that can take you over and above like having game rooms, having pickleball courts, having just unique things that really make your property stand out, and those unique things are what\u2019s driving outsized performance in those markets, and those are constantly evolving as like in 2018 in Gatlinburg, if you had a hot tub, you\u2019re like, \u201cOh, yeah. I\u2019ve got the new hot amenity,\u201d and then everyone copies you. So you constantly have to be seeing what those top-performing properties are doing to make sure you\u2019re staying competitive.<\/p>\n
So what you\u2019re saying is that your answer is saying people should look at the data from the data company.<\/p>\n
You caught me. Yeah.<\/p>\n
Well, I think the best business in all of real estate is being a hot tub repair company in a short-term rental market because the amount of money I pay the service company for a hot tub because you have to have it like you just said, Jamie, is ridiculous. In these small towns, there\u2019s two of them, and they definitely collude on prices, and good for them they\u2019re making a killing. Anyway, I digress. So we\u2019ve talked a little bit about supply, demand, and occupancy. I\u2019m just curious a little bit about average daily rate and how that compares not just to the short-term rental industry, but how it also compares to the hotel industry because I think\u2026 We talk about this a lot on the show, Jamie, is that short-term rentals, they\u2019re, of course, real estate investments, but your competition is as a hotel, not a rental property or not a flip. So I\u2019m just curious how that all stacks up in today\u2019s climate.<\/p>\n
Yeah. So one of the things that have made short-term rentals such an attractive investment over the past couple of years is the massive increase in ADRs that we\u2019ve seen. So ADRs today are 40% higher than they were in 2019 overall for the short-term rental industry. That makes the returns on investment that much more attractive because it\u2019s not like you\u2019re having to turn over more units, pay more for cleaning, all those things. This is just the exact same home that you\u2019re now being able to rent out for 20%, 30%, 40% more, and that comes essentially right down to the bottom line in terms of your profitability of operating these investments. What we are seeing though is the rate of increase is slowing substantially and even declining in a lot of markets around the country, and it plays into the overall inflation picture that we actually see in the economy.
So, last year, last summer, inflation was what? 9%. That was what caused the Fed\u2019s reaction to start raising interest rates. Short-term rental ADRs were growing up 11%, so we were outpacing the rate of inflation. That was great for short-term rentals, not great for the Fed\u2019s reaction to all the rising prices that we\u2019re seeing across the overall economy. Now, we\u2019re actually seeing ADRs decline slightly. So, last month, we saw about a 1% decline in overall ADRs for short-term rentals. We\u2019ve seen a few months now of consistent year-over-year declines which means\u2026 and overall, you\u2019re not getting as much. A lot of what\u2019s playing into that is the declining occupancies.
So if you\u2019re seeing your unit not being rented as much, you want to maintain the occupancy that you\u2019re getting. You\u2019re cutting your rate to stay competitive. Bring guests into your properties. That\u2019s happening across the country. Not necessarily great for our industry, but great for the price pressures that are going to overall impact the real estate industry long-term of the Fed feeling comfortable that prices aren\u2019t going to overall spiral. Then, how that competes with hotels is hotels had seen overall weaker performance coming out of the pandemic. So people were much more likely to stay in a short-term rental relative to a hotel.
Now, that\u2019s largely flipping. Hotels have seen really strong performance in the past couple of years. A big part of that is the return of business travel or return of conferences, people going to these big events, and hotels now have significant pricing power. So they were growing rates 5%, 6% this summer which actually means hotels are starting to look a bit more attractive. Overall, hotels are still more expensive, comparable units in major cities. Short-term rentals is more expensive in coastal destination markets, and it\u2019s not necessarily a fair comparison given that you get a kitchen, more amenities, and short-term rentals relative to hotels.<\/p>\n
Yeah. I mean, you do get more amenities, it seems like, in an Airbnb. I think what makes it attractive for myself in particular is when I travel\u2026 and I like to bring everybody. For example, I\u2019m sitting in a short-term rental right now, and we chose short-term rental over a hotel because I can get multiple bedrooms because I brought my kids, I brought my two kids, and then we brought a nanny with us so that my wife and I can actually get some quality time in this vacation destination. So when you\u2019re going to be stacking multiple rooms in a nicer luxury hotel, it gets super pricey compared to a short-term rental. But in that same vein, are there certain clients that you see that are more attracted to hotels or more attracted to Airbnbs? What\u2019s that client base look like?<\/p>\n
Yeah. So, overall, and this narrative that\u2019s really held over the entire four years since the onset of COVID has been the larger the property, the better your performance. So people that are traveling with groups, traveling with families maybe started staying in short-term rentals for the first time and are continuing to choose short-term rentals for that type of travel. If you look at the hotel industry\u2019s response, it\u2019s been like Hilton saying, \u201cWe\u2019re going to now let you confirm adjoining rooms, and that\u2019s our response to all the demand for short-term rentals.\u201d Over half the pipeline for new hotel investment is extended stay properties, so properties with kitchens, properties with additional bedrooms, suite-style hotels.
So they\u2019re seeing what\u2019s happening in terms of the popularity of the short-term rental product and trying to adapt to it. I think they\u2019re going to have a hard time overall really competing, and we\u2019ve actually done a lot of studies in terms of what\u2019s happening in terms of short-term rental share of overall paid accommodation. So the total number of rooms being sold across hotels and short-term rentals. The short-term rental industry had been growing their share of overall travelers and pretty significantly. That obviously increased in 2020, came back down in 2021, and now we\u2019re slowly pulling back share again from hotels. Still, 85% of overall travel is happening in a hotel room, so there\u2019s still a much bigger slice of the overall pie of travel, but short-term rentals were 8% of overall demand in 2018, and now we\u2019re up to almost 15%. So this industry is growing more and more. People are trying it for the first time, and seeing that for certain types of travel, it is a much better fit for how you want to interact and have accommodation when you go on vacation.<\/p>\n
Yeah. If hotels figure out how to compete with this multiple-room, large-family scenario, but in a hotel environment, I will be a sucker for it because I love a good hotel bar and delicious restaurant access by just walking downstairs. So I\u2019m their huckleberry if they figure that out. That\u2019s for sure. One more thing I wanted to ask about hotels and Airbnbs. So are you seeing certain markets where hotels are beating out Airbnbs particularly?<\/p>\n
Absolutely, and it\u2019s interesting the types of markets that are really beating out hotels. It\u2019s not because of anything the short-term rental industry is doing. It\u2019s what\u2019s happening in terms of regulation. So we just saw new laws going to effect in New York which dropped the short-term rental supply by almost 80% overnight. We had regulation go into effect in Los Angeles, and Chicago, and Boston, and Dallas. So there is an impact there in terms of the short-term rental industry able to and just provide the accommodation that people want in the types of units that they\u2019ve showed historically that they want to be able to stay in because of new laws and regulation going into these markets.
So if you look at the overall share of demand staying in short-term rentals in urban areas, we\u2019re now essentially at 2018 levels of share. So all the growth that we\u2019d seen in 2018, 2019, 2020, 2021 has essentially disappeared because of lack of supply in those markets to accommodate guests in the areas where short-term rental supply has been growing the most, so beach and mountain markets, small and mid-size cities. Short-term rental share in those areas is just going gangbusters and continues to grow at a great rate.<\/p>\n
What about international markets, Jamie? I\u2019ve read a lot about US travelers going internationally a lot particularly this year. Are you seeing a lot of growth there?<\/p>\n
Yeah. So I talked a little bit about areas that we\u2019re seeing weakness in the US because of Americans now traveling overseas. That has been a real bright spot for the global short-term rental industry of Americans really coming back at an amazing rate of traveling overseas again. So we track the overall share of international travelers in these destinations. It\u2019s now at record highs. There\u2019s markets like Ireland, Switzerland, Italy, Portugal, and over 15% of the demand for short-term rentals in those markets is coming just from Americans over the past year.<\/p>\n
Wow.<\/p>\n
So a massive increase in demand there. There\u2019s events really coming back now, so we are tracking\u2026 I had the team just look into what was going on in October Fest, and we\u2019re seeing demand up 30% this year for stays in short-term rentals compared to last year. So, now, fully recovered back to pre-pandemic highs and seeing strong growth. So people traveling for these fun events in Europe, again, going back to the beach, going back to Greece, going back to south of France, and it\u2019s really a healthy market where Europe\u2026 If you looked at the data in 2021 and 2022, it was really struggling. So lockdowns were much more stringent there. People were really reluctant to get on a plane for 10 hours. Now, that really shifted, and people are getting back to traveling, and it\u2019s\u2026 The Americans are back.<\/p>\n
Yeah, man. Tell me about it. All my good deals on Airbnbs in Europe have evaporated over the last two years. Everyone stay away.<\/p>\n
So a data point there for you, Dave, you laugh, but I had mentioned how ADRs were down in the US. ADRs this summer were up 15% in Europe year over year.<\/p>\n
Wow, wow.<\/p>\n
Yeah.<\/p>\n
Yeah. I mean, you see it firsthand. Everywhere is just bustling right now.<\/p>\n
Yeah.<\/p>\n
Okay. So, obviously, you have access to all this amazing data, and I\u2019d imagine most people listening to this show are either current short-term rental operators who are wondering should they be growing and expanding their portfolio, or they\u2019re aspiring short-term rental operators, and they want to get into this space. So what advice would you give to those people who are looking to either grow or get started in this space? What should they be looking for, not looking for, adding, or avoiding?<\/p>\n
So this may sound self-serving, but you got to be looking at the data.<\/p>\n
You\u2019re a good company here, Jamie. Our audience will be receptive to this idea.<\/p>\n
Your audience is going to know that affordability of housing is at all time lows, and you\u2019ve got interest rates over 77%. We\u2019ve got housing values still at all time highs. So we had seen a little bit of dip. That\u2019s now come back and reaching all time highs again in terms of housing values. Short-term rentals revenue peaked early last year. We\u2019re not seeing an overall decline, but it\u2019s essentially plateauing at the peak, which makes it where you\u2019ve got to be really careful and really, I would say, intentional in where you\u2019re going to make an investment today where if you were looking in maybe 2020 and 2021, you could throw a dart on a board, hit a market, and probably have found a great investment. That is much harder now. We\u2019re seeing way more activity in small and mid-size markets today.
Essentially, the best investments for short-term rentals in a lot of ways the areas that haven\u2019t seen significant upticks in housing values over the past three or four years. Those markets are becoming harder and harder to find, and you\u2019ve got to find ones that still have the drivers of short-term rental demand. So maybe a state or national park nearby, maybe a hospital or a university that\u2019s driving a demand to that destination, but there\u2019s still great markets out there, and we\u2019re trying to build new and innovative tools to help people find those diamonds in the rough. Not only the best markets to invest in, but I would say just about every market has got a sub-market that is investible today. It just might not have been the same market or sub-market that you would\u2019ve invested in even just last year.<\/p>\n
Your advice does sound a little self-serving, but I appreciate it because we\u2019ve been saying this, really, about all aspects of real estate investing when we talk about it on this show, right? This market is forcing people to be more fundamentally sound investors because it\u2019s a much more unforgiving market. So education in any real estate investment industry is so much more important right now because you can\u2019t make the mistakes you could make two or three years ago. Two or three years ago, you make a mistake, your value was going to go through the roof, and you\u2019d be fine. Right? Two or three years ago, you make a mistake with a short-term rental, and you were still getting booked up. It didn\u2019t matter. The market is just not allowing for that now, but it doesn\u2019t mean that it\u2019s falling apart. Right? You have to ignore the headlines, and dig into the data, and do the research. There are always opportunities in every market, and essentially, what you\u2019re saying is you\u2019ve got to do the research. Find the areas where there\u2019s opportunity, and then capitalize on that opportunity. That\u2019s investing fundamentals, so I really do appreciate that answer.<\/p>\n
Yeah. When you\u2019re looking at the data, and just to give a tangible example, if you\u2019re looking at the current occupancy that your market is running, go back and look at what it was running in 2018 and 2019. If it\u2019s still magnitude is higher, you\u2019ve got to expect it to normalize back to those levels, and you can\u2019t expect the highs that we\u2019ve been running to continue. That\u2019s, I think, unsafe, maybe conservative underwriting, but I think prudent in the type of environment we\u2019re at.<\/p>\n
Well said. Well, Jamie, thank you so much for joining us. You don\u2019t know this yet, but you will be appearing on this show again. Well, if you\u2019ll have us, but we would love to have you back. This was super helpful. If people want to follow you and AirDNA, where should they learn more?<\/p>\n
Yeah. So, AirDNA. Our website is airdna.co. Me? I\u2019m active on Twitter, @jamie_lane, or on LinkedIn. Please follow me. I talk about short-term rental data all the time, and we also, if you like the podcast format, have a data podcast on short-term rentals called the STR Data Lab, and you can hear me every week talking about this sort of stuff.<\/p>\n
Awesome. Great. Thanks again, Jamie.<\/p>\n
Thank you.<\/p>\n
So it sounds like even though we are both short-term rental investors, we both prefer hotels. Is that why?<\/p>\n
It\u2019s 100% accurate. If I have a choice, price excluded, I\u2019m going to stay at a hotel 10 out of 10 times.<\/p>\n
Dude, I\u2019m exactly the same way. I find going to cool hotels to be one of the most fun things to do about traveling. I love checking out new hotels.<\/p>\n
For me, too. It\u2019s nostalgic for me. My parents used to take us on all these trips. They didn\u2019t believe in taking vacations without the kids, and this was back when you could just let kids wander. So we\u2019d check into a hotel, and then the only rule we had was we couldn\u2019t leave the hotel grounds. We would just wander around exploring the hotels, and I still have that sense. So when I walk into a new hotel, I feel childlike. I don\u2019t get that same feeling with an Airbnb.<\/p>\n
Totally. I\u2019m with you. You mentioned the bar and restaurant, which I love. It\u2019s like a fun place to socialize, but I mean, a hotel breakfast\u2026 I walk into a hotel, and I\u2019m like, \u201cI am going to make sure this hotel loses money on me based on how much I\u2019m going to consume at the hotel buffet. I will get them,\u201d and I make it my mission.<\/p>\n
I think that\u2019s a fair mission in life.<\/p>\n
But there is something true about the group travel. When I go on a ski trip with friends or for example, we\u2019re planning a family reunion for next summer, I think Airbnbs are great for that, having nieces, and nephews, and cousins running around, that kind of stuff. It\u2019s really fun for group travel, but if it\u2019s just me and Jane alone, it\u2019s definitely going to be a hotel.<\/p>\n
Agreed. 100%. I\u2019m with you, bud.<\/p>\n
But that\u2019s it. I learned a lot. I did not realize that demand continues to just grow. You see these headlines that occupancy is down, and it is a normalization, but what he said was that supply was up 25%, but occupancy is still up relative to 2019 over the same time period. So, clearly, there\u2019s still plenty of demand, and he also told us that hotels still make up 85%. So it\u2019s not like Airbnb at this moment in the summer is capturing some huge portion of market share. It\u2019s still just a fraction. So it doesn\u2019t feel to me anymore like there\u2019s some risk that all of a sudden, demand might evaporate.<\/p>\n
I mean, what I heard was that there is still plenty of opportunity all across the country to be a successful short-term rental operator, and I think what I hope people are seeing and hearing from shows like this is that you just have to learn how to find the opportunity. You have to learn how to research the markets, and then interpret that data, and yeah, you\u2019re going to take some risk, but you\u2019ve got tons of data at your fingertips. Think about investors who were doing vacation rentals before. They didn\u2019t have this level of data to use to make their decisions, and so you really have a superpower with access to this information. If you spend a decent amount of time researching your market, and then understanding what you need to provide to that market and where you need to provide it, I think you can be successful. It\u2019s just not like it was two years ago when you could throw anything out there, and you\u2019re going to get a booking. I mean, you\u2019re operating a business, which means you have to figure out a way to set yourself apart, and then solve a problem.<\/p>\n
Totally. I\u2019ve been saying this for a while, and I think it\u2019s still true is that in a lot of new industries or new asset classes, when it first comes on, there are these pioneers, and there\u2019s a gold rush. I think that happened in short-term rentals, and it\u2019s before the market becomes efficient. It\u2019s relatively easy to make money. There\u2019s not great systems. You just get in there and figure it out. Over time, if it proves to be a profitable asset, you can sure as hell bet that sophisticated investors are going to start moving into the space, software companies\u2026 It\u2019s going to become an efficient market just like the stock market is efficient, just like the rental and the multifamily market is efficient. That doesn\u2019t mean they are bad investments. They\u2019re still investments. It just means that they are more driven by the same fundamentals and need for good operations and good decision-making as every other asset class.<\/p>\n
100%.<\/p>\n
All right, man. Well, enjoy your short-term rental. We were just talking about hotels. Go sneak into a hotel breakfast and find yourself a buffet.<\/p>\n
If you think I already haven\u2019t gone next door to the Four Seasons and acted like I was staying there, you, sir, are mistaken.<\/p>\n
You get the best of both worlds.<\/p>\n
Absolutely, absolutely.<\/p>\n
You got your whole family in one spot. You got all the amenities at the Four Seasons.<\/p>\n
100%.<\/p>\n
You\u2019re living the dream, right? All right, man. Well, thank you for joining us from your vacation, and thank you all for listening. If you appreciate this episode, make sure to leave us a review on Spotify or Apple. We\u2019ll see you next time for On The Market.
On The Market is created by me, Dave Meyer, and Caitlin Bennett, produced by Caitlin Bennett, editing by Joel Esparza and Onyx Media, research by Pooja Jindal, copywriting by Nate Weintraub, and a very special thanks to the entire BiggerPockets team. The content on the show, On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.<\/p>\n