FORBES reports that on average, short-term rentals (STR) yield 30% more profits for property owners than longterm leases. The math on this is clear. Take a popular STR market such as downtown Vancouver for example. The average longterm monthly rental rate for a modest 1 BDR condominium is approximately $2400. Apply the formula to find that the multifamily owner would pocket an extra $8640 per annum. Multiply that by more than one condo, and the number grows proportionately.
The scenario above points to why multifamily property owners, investors, and landlords have become motivated to get into the short-term rental space. While the bump-up in one's fiscal bottom line alone is a big part of the allure, there are other benefits found by shifting away from traditional longterm leases to towards a hybrid that allows for STRs. Let's review.
Why Short Term Rentals Can be a More Sustainable Revenue Earning Option for Multifamily Property Owners in 2022 and Beyond
Greater Flexibility = Greater Profit
As alluded to above, greater profit is on the table for multifamily owners who leverage short-term rental platforms such as Airbnb and VRBO. But greater opportunity for revenue growth is found in flexibility.
There are two scenarios regarding this flexibility to consider.
For one, an owner/investor who rents out properties on STR platforms can adjust rental rates throughout the year to account for seasonality. In most jurisdictions, they can also increase what they charge from year to year without being constrained by Residential Tenancy Acts (RTAs). In BC, for instance, the RTA does not apply to living accommodations occupied as vacation or travel accommodation. Let's look at the pandemic as a perfect example. Federal, provincial, and state governments around North America enforced a moratorium on rental increases and evictions throughout 2020-21. Under an STR model, owners and landlords are not beholden to such mandates.
But flexibility applies to another scenario, one where owners/investors enjoy consistent monthly/annual income from longterm leaseholders, while the latter is offered flexibility and revenue earning opportunities as well. Keep reading.
Demand from Renters / Leaseholders is Growing Too
Vacationer demand for traditional hotel alternatives has clearly grown, but another important consumer group would like to see a greater proliferation of STRs in multifamily properties.
“The multifamily real estate sector is starting to access the short-term rental market because they can see the commercial opportunities on offer for high growth and ROI [...] More flexible leasing options have replaced the rigid long-term agreements and this is working well for both investors reaping the benefits and residents wanting to sublet their apartments on Airbnb and VRBO, earn additional income and work from anywhere.” (Mike Liverton, Jetstream Founder & CEO)
As master lease agreements fell down during the pandemic, taking companies like Lyric with them, new revenue-sharing leasing agreements emerged. For example, Mint House was quick to capitalize on more flexible agreements, taking over 200 vacant units in four apartment buildings in 2020. As another case in point, Orion Haus, reportedly the largest multifamily home-sharing management company in the U.S., recently added 10 buildings to its portfolio. The company has signed more than 8,000 pre-lease agreements. Orion Haus properties enable residents to flex their apartments as they choose so they can sublet.
This type of leasing is more attractive for multifamily investors as they share in the profitability with longterm renters and leaseholders. Subsequently, multifamily investors are finding that they can attract longterm renters with greater ease. By allowing renters to sublet, they are able to earn revenue themselves. To return to our example in the introduction, an owner/investor gets their $2400/month in rent, while the renter/leaseholder could keep the 30% markup by subletting on the space on Airbnb and VRBO.
This demand from renters/leaseholders has grown due to the 2020-21 shift towards remote work and telecommuting in a wide number of industries. The labor force trend is expected to stick around for the foreseeable future. A recent Leavetown survey found that 81% of the workforce believes that they’ll continue to work remotely post-pandemic at least part-time, with 45% agreeing that they will continue to work remotely most of the time. Professionals are now able to travel and work from anywhere they please. The STR model, therefore, works for property owners and their renters/leaseholders. And guess where the latter is spending their time away from their primary place of residence? In other STRs, which spurs the demand even more. It's a win-win-win for all involved in this flourishing industry.
We know what you're thinking. While everything above sounds like an amazing opportunity, there is more hands-on work required by allowing your multifamily properties to be listed on platforms such as Airbnb and VRBO. On your own, that may be the case. But with Jetstream's all-in-one distribution and channel marketing solution you barely have to lift a finger. Learn more about how Jetstream helps multifamily property investors and property managers capitalize on the new normal.
