To Invest or Not to Invest?
The recent explosion in popularity of short term rental properties like AirBnb and VRBO across the country has investors running to purchase homes due to the high potential for ROI (return on investment). The lower interest rates from 2020 to 2022 allowed the opportunity for many people to purchase second and even third investment properties.
With all of these homes now on the short term rental market, it seems like that market has become over saturated.
Occupancy rates are down nationwide, and it’s not due to inflation. In fact, the number of night stays is up from previous years. People are still traveling and looking for temporary lodging outside of the traditional hotel options. In fact, it’s expected that the demand for short term rental options will grow over the next year. But will that guarantee the ROI that it did before the real estate boom of 2020?
That’s up to debate. According to the statistics, there has been a 5.6% growth in average daily rental rates. With so many homes available for nightly rental, the rates are staying low and in some cases even dropping in order to keep up with competitive prices. Owners are battling between keeping their rates high enough to make a profit and still keeping them at a comfortable price point for would-be renters. If the owners can’t keep their occupancy rate up, they’re at risk of being forced to sell their property to avoid being underwater on their mortgages.
In some areas in the US, local governments are issuing more regulations on who and how short term rental properties can be operated. Our local Charleston market is one of those who have issued strict short term rental regulations that limit the number of this type of property in our areas.
Some owners are turning to the long term rental market if they can’t keep their occupancy up in the short term. Long term rentals are in high demand, especially as rising interest rates and rent prices force renters to find lodging they can afford.
All hope for would-be investors is not lost. It’s recommended that if you’re considering purchasing an investment property to use as a short term rental option that you do your research and crunch the numbers ahead of time.
If you want some professional advice, our team is more than ready to answer your call and help with your questions and concerns.
Authored by Nicole Hein