Short-Term Rental Market Is Oversaturated?

Source: Filios Sazeides from Unsplash.

Since 2021, people have found new uses for short-term rentals, whether it be for remote work or as an alternative to hotels and other vacation accommodations.

The short-term rental boom had us all saying things like a staycation and leisure travel.

And the numbers certainly don't lie: the US is currently the top contributor to the short-term rental global market share, with travel distribution sites such as Airbnb, HomeAway, and VRBO (Expedia Group) leading the industry with their strong online presence.

Although the short-term rental industry has made great gains in the last three years, the world is slowly reverting to a preference for a more hybrid and more balanced lifestyle, with urban life once again prevailing over the once-popular rural destinations during the pandemic.

Just like any booming industry, the short-term rental market faces new challenges such as oversupply, uneven demand, and, yes, a need for increased regulations to protect investors and tenants alike.

This presents a few unique opportunities for long-term rental investors to step in.

Investing in Areas with Low Short-Term Rental Occupancy Rates

A study conducted in Q3 2022 across US cities shows short-term rental occupancy rates declined 8% to 10%, mostly across small to large cities. There’s a surplus of available listings and not enough bookings being made, and data shows that places where short-term rentals saw the most growth over the pandemic are seeing the largest declines in performance this year.

Long-term investors can take advantage of properties sitting empty for profit, and short-term investors may even be eager to sell, given slow and infrequent demand.

Source: Airdna.co

Advantages of Investing in Long-Term Rentals

Long-term rentals (LTRs) are a popular choice among landlords and investors in the real estate industry because they provide a consistent, reliable income source with low turnover rates. Tenants commit to rental properties for a period of at least one year, while landlords are responsible for property maintenance and dealing with tenants.

Here’s a list of the advantages of investing in LTRs:

• - High occupancy rates at 95%
• - The turnover rate for LTRs is significantly lower than STRs
• - Lesser work to manage and maintain LTRs compared to STRs
• - LTRs are subject to the usual, standard landlord-tenant laws that rarely change
• - Only income tax is required for LTRs (no business tax, unlike STRs)

Plus, you can hire a property management company (PMC) to manage the rentals and tenants if being a landlord isn’t your thing. There are plenty of PMCs out there (like us!) that are familiar and experienced with handling LTRs, regardless of their number and complexity—we’ve handled huge portfolios.

Long-Term Rentals are for Long-Term Success

Long-term investors can capitalize on the fact that the processes are simple and regulated under Landlord-Tenant Law/Landlord-Tenant Code. In contrast, there is too much uncertainty in the short-term rental market, with confusing legal restrictions that differ per state.

Short-term rentals also often rely on host discretion, and there isn’t enough consistent guidance from travel distribution sites on permits and taxes. There are also unique local regulations, like how the City of Detroit only allows short-term rentals in your primary residence or owner-occupied properties with two or four units, according to the government’s website.

Further reading:

All in all, long-term rentals are stable sources of income and will be a constant backbone of the housing accommodation industry. Long-term investments are straightforward, and investors' barrier to penetrating the market is relatively low, especially when compared to short-term rentals.

2023 is the Year for Long-Term Real Estate Investments

Short-term rentals may have had their limelight, but their success may be… short-term.

As the market goes into correction and individuals are now inclined to stay put for work and school, long-term rental investors can take advantage by buying up unprofitable short-term rentals, highlighting the cost stability of long-term properties and providing practical options for the housing market.

Message me to know more about long-term investments in Metro Detroit! With over two decades of experience, our team is more than willing to help you in your investment journey—myself included.