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6 Reasons Why Short Term Rentals Lack Long Term Sustainability

AirBnb is hot for both real estate investing and vacationers, but is scooping up a short-term rental the way to a long term and profitable investment strategy? The potential for setting lucrative rates on these rentals is appealing for many investors. Why wouldn’t it be? It sounds like a great idea, short-term rentals, but there are flaws to this strategy.

Although AirBnb seems to be winning the battle with counties and cities for short-term rentals in many areas, short term rentals in not great if it's the only choice you are making for investing. By focusing only on AirBnb style properties, you may cause yourself trouble down the road. Here are six downfalls that I have noticed with short-rentals as a real estate investor.

Vacation rentals are dependent on how well tourism is doing

The travel industry is very subject to how the economy is doing. People will always need places to live, but they won’t always be going on trips if their finances or jobs aren’t doing well. There are always changes in what the markets are doing. Tourism has a high chance of being affected especially with the possible job disruption in the mere future. The ability to set a high rent can entice an investor and so can a beautiful destination, but the possibility of passive income rolling in is very unreliable.

Rental rates are unnaturally high with short term rentals

AirBnb rentals are often set at two to three times what regular rates are in the area! That’s insane! Business travel and non-local visitor rates must be strong. Locals often are unable to afford the prices of a short term rental. Important workers in the community are forced to leave the area because the costs surpass an affordable range. When teachers, healthcare workers, and other needed workers are pushed out, this is bad news for the long term outlook of the community. The ultimate outcome of overpriced rental rates is a resulting crash that causes an investor’s income to dry up. That’s not good for business.

Landlord competition goes up with short term rentals

Now, everyone can be a “landlord” with the ability to use AirBnb and similar platforms. That yields to more competition than normal. When competition increases, it will be a battle of who can lower the price the most.

High fees can affect rental gains

Management companies will often charge higher fees for vacation rentals due to the ongoing maintenance in between occupants. The platforms where properties are listed charge 10, 20, or even up to 30 percent sometimes. That eats into a lot of your profit if those fees are taken out of every rental period.

Long term and reliable tenants are hard to come by with short term rentals

The smart and patient buy and hold investors value long term tenants. When renters stay for years, investors are able to save in turnover costs. When people continue to come and go at a property, an investor has less motivation to keep up on the maintenance and look of a property.

Cash flow is variable on short term rentals

High demand holiday locations can book out 12 to 18 months in advance, but this is not the norm. Most landlords have to shuffle the puzzle of, “How will this property be occupied consistently?” If you are going for the short-term rental option as a real estate investor, you need to ask yourself if you will still be profitable if there is only 30 percent occupancy every year.

Summary

It’s true that short term rentals are appealing. I mean, you can buy a property in your favorite vacation destination and use it for yourself for 3 to 6 months out of the year. It’s a nice idea, and you will probably really enjoy it, but for those looking for long term, more consistent, and sustainable returns, it’s best to shy away from vacation rental options. Overall, short-term rentals are too susceptible to market changes, and although you can always find reasons to invest in AirBnb style properties, in the grand scheme of things, these investments are not viable for long term investors.