@Ryan Thomson @Jonathan W. -
There are 4 Main successful STR categories I have observed.
1. Experiential Hospitality - something fun and unique like a Tiny House in Joshua Tree, Glamping, farm Stays, etc. These used to be listed on Yelp or through specialty travel agencies. Destination Hotels mimic this - think Smith Mountain Lodge in Dirty Dancing with its games, dancing, dining.
2. Executive Stay Hotel Housing Equivalent (ballpark $70-150/night), long apartment would rent for about 50% or less of STR fees (however the fees also pay for utilities, basic consumables, and furniture deterioration). This fills a need for better accommodations at an equivalent price of hotels, while staying longer term in an apartment building or condo complex.
3. Multi Member Reunion / Vacation type housing
- I think demand for this one is going to feel weaker given many more of these houses have come online after people shared saying “you can rent your 5BR house at $500-1000/night for sleeps 10-16 guests.” Airbnb and VRBO introduced an ease of locating and booking these houses outside of a rental agency like “Vacation Poconos” or New Jersey Shore Houses. A lot of these houses seem to be claiming under 40% annual occupancy or wildly varying prices ($250-300 off peak, $1200-1500 peak based on algorithmic pricing).
I feel like demand will be weaker as more people (customers) have tried this and felt like it didn’t work or they got stuck with a lodging or post-stay cleaning bill after their friends didn’t pay their fair share. My friend got stuck paying about $20,000 for 4 beach houses for a week and the bulk majority of her friends came up for 1-2 nights over the weekend and paid “$100” towards that night instead of $700 for the week.
Or conversely, the STR host got shut down unexpectedly for a "party/security" violation or filing for AirCover for major party damages, and they're FUBAR without reservations to carry the big expenses.
4. Shared House (Private Room) / Budget Lodging - substitution for like motel or economy stays at $40-70/night. - this is the type I focus on, where 3-5 working professionals will live together, each with a private room, and share the kitchen, bathroom, and laundry. They may stay for 30 days or 1.5 years. I think it’s a positive for many aspects - increased energy and space efficiency (5 people living in 2000 sqft versus driving demand for 5 one bedroom apartments let’s say 3500 sqft and increasing demand and rent $$ for single parents, couples). furnished housing reduces waste in terms of buying/trashing ikea type beds, desks, pillows, plates etc. to furnish apartments for 12 months in a location before you get a job in another city. Furnished housing also reduces appliance demand and deterioration like 1 stove, fridge, microwave, dishwasher hvac, hot water heater, serves 5 people continuously instead of 5 stoves (etc) over the same 10 year period.
(I do not understand why but SRO - single room occupancy appears to be looked down on, perhaps for violations historically because people choosing SRO by necessity (instead of those choosing to save money) because they can’t afford a 1 bed or studio apartment might be affiliated with “slumlords”. What comes to mind are 8x10 rooms connected by hallways in New York City with bathrooms in the hall and maybe a small shared kitchen space.)
Random aside - At the moment Airbnb is offering $400+ to sign up new hosts for either houses or private rooms. Six months ago I referred 3 people who started private rooms making $3000+/mo on the platform each (3-4 bedrooms listed) and didn’t get any referral payouts because they were only giving bonuses to signing up whole house rentals. So obviously private rooms are trending.
Jonathan - I like your availability heuristic - as a college student, everyone I know lived with 1-5 other people sharing a kitchen and/or living room and/or bathroom, (while paying $1000 or more a month), so continuing to do so after college when we had our first jobs was a no brainer. However, when I mention house hacking or room rentals to many people - even people struggling with their bills - they look at me like I’m crazy. Like they would rather work 40+ hours extra a month doing UBEREATS than share their house with someone who isn’t their family.
Anyway, my point is that there are multiple ways to make money filling different niches and STR platforms are helping book products that already existed but were a little more self-regulated through a common rental agency aiding with the bookings of multiple houses.
Some towns especially in New Jersey state that "between any change of tenants" (intended to be 12+ months), you need to do a certificate of occupancy inspection (essentially a check up that the property is still maintained) and if this was required between every 1-7 day STR guest, it would make it effectively impossible to operate given the delays for inspection, costs of inspection, delays for reinspection, etc.
Overall the Hotel Lobby wants to fight STR products that are reducing demand and pricing for their products. Many hotels have gone bankrupt (the lender repossessed it) after operating in the red in 2020 due to forced closures. I have seen many built within the past 20 years properties-Hyatt, Holiday Inn etc hotels on Ten X over the past 24 months due to the negative cash flow from closures and reduced in person business travel.
