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Do Short Term Rentals have the risk of being a commodity?

MoreValue

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Does the barrier to entry for real estate make short term rentals (Airbnb, Vrbo) immune to commodization?

In ecommerce world if you sell the same stuff as everyone, you can bet your inventory won't move or sell at significant loss.

Anyone with experience with STRs find it difficult to rent out a regular private room or find it necessary to differentiate your listing adding more of an "experience"? My thought is that owning real estate has a high enough barrier to prevent commodization. My initial plan of long term tenant rental isn't working out with Multi-Families.
 

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MJ DeMarco

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Interesting question, would love to hear some thoughts from those who are engaged in the short-term rental game.

From outward appearances, it seems the space is starting to get crowded. And when crowds form, so does commoditization. And then you MUST differentiate -- a simple listing is no longer sufficient.
 

NuclearPuma

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NetFlix has a show called "Stay Here" where these experts take an average short stay rental listing and totally revamp it to differentiate it from the local market. If you are interested in this space I would watch a few episodes. Half of the formula is marketing like professional photos, tons of light, professional copy writing, stocking fridge and counter with free drinks and wine, haveing a board or poster that recommends things for guests to do, and having an independent website for the rental that guests can use to book it, and adding a "social media icon" to the rental somewhere.

The social media icon is literally just a unique feature that is good for taking a selfie for guests to share on social media (also helping your marketing). There were so many little knobs they turned, the average rentals compete on price, but the premium rentals just improve the whole experience and charge a lot higher rate for the exact same space that would struggle if it were kept in average condition.

The show covers lower price range (few hundred) all the way up to a beach house that will list for $5,000 a night.
 

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NetFlix has a show called "Stay Here" where these experts take an average short stay rental listing and totally revamp it to differentiate it from the local market.
Watched a few episodes. I'm shocked people do absolutely nothing to make their property marketable and they're still able to rent it out. This tells me that the space still has excess demand where the hoo-hahs can make money. But it won't be like that for long.
 

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Even though the property can be "just fine", sometimes a warm welcome makes a huge difference. At least that's what I thought about my different AirBnB hosts. I would gladly pay a premium to go to their place again just because I know those guys are silent, friendly and really helpful.

I don't know how this can be marketed (except lots of reviews).
 

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NetFlix has a show called "Stay Here" where these experts take an average short stay rental listing and totally revamp it to differentiate it from the local market. If you are interested in this space I would watch a few episodes. Half of the formula is marketing like professional photos, tons of light, professional copy writing, stocking fridge and counter with free drinks and wine, haveing a board or poster that recommends things for guests to do, and having an independent website for the rental that guests can use to book it, and adding a "social media icon" to the rental somewhere.

The social media icon is literally just a unique feature that is good for taking a selfie for guests to share on social media (also helping your marketing). There were so many little knobs they turned, the average rentals compete on price, but the premium rentals just improve the whole experience and charge a lot higher rate for the exact same space that would struggle if it were kept in average condition.

The show covers lower price range (few hundred) all the way up to a beach house that will list for $5,000 a night.
Never saw the show, but perhaps a rental-management marketing company that focuses on these short term rentals would be a hit right now in the right city. Sign contracts with short-term rental owners, revamp the property/listing upon approving the contract, and take a % of the income.

As for the OP, I have no experience, but I have looked into this as an option in the near future. If you can avoid putting yourself in a position with a property where the numbers only work if you use it as a short-term rental, then you should be safe as you can always lease it out to a long-term tenant as a back up plan.

Not to mention, I've personally talked to people who decided to take their properties OFF Airbnb/VRBO due to these companies trying to be more "inclusive" and "non discriminatory" and basically preventing them from screening the people staying in their properties as much as they'd like.
 

IceCreamKid

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Anyone with experience with STRs find it difficult to rent out a regular private room or find it necessary to differentiate your listing adding more of an "experience"?
I formerly had 4 Airbnb rentals in the Bay Area and found it very easy to keep the pipeline full. The secret was to start out with aggressive pricing in order to get reviews then raise prices when you have enough of a reputation.

There are minor things that you can do to differentiate yourself i.e. free bottle of wine, a welcome letter, keyless entry, map of cool places nearby, bicycles they can use...

My account eventually got banned by Airbnb. They operate similarly to Amazon where they will quickly disable your account at the slightest complaint(even if it's not our fault). Good luck trying to repeal that too.
 

Gutzofter

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As someone who has a four bedroom home and rents out 1 of the bedrooms on AirBnB, I find two things happenning in our location.

One is that competition is increasing, therefore we are differntiating from the other competition. We add continental breakfast and give plenty of information where the best locations to eat are located.

The second is there is seasonality involved in our location. During the summer we get a lot more hikers and sightseers, less during the winter.
 

biophase

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I formerly had 4 Airbnb rentals in the Bay Area and found it very easy to keep the pipeline full. The secret was to start out with aggressive pricing in order to get reviews then raise prices when you have enough of a reputation.

There are minor things that you can do to differentiate yourself i.e. free bottle of wine, a welcome letter, keyless entry, map of cool places nearby, bicycles they can use...

My account eventually got banned by Airbnb. They operate similarly to Amazon where they will quickly disable your account at the slightest complaint(even if it's not our fault). Good luck trying to repeal that too.
I am thinking of getting a condo to Airbnb and was going to use this strategy. First, I'd remodel it completely. Then, rent it to friends and family (reimburse them) to get reviews, then rent it for cheap to get reviews. Basically I'd lose money or breakeven on it for a year. Basically the Amazon strategy in vacation rentals.

I wanted to have the best looking unit and the lowest price making it a no brainer to rent out.
 

MoreValue

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I formerly had 4 Airbnb rentals in the Bay Area and found it very easy to keep the pipeline full. The secret was to start out with aggressive pricing in order to get reviews then raise prices when you have enough of a reputation.

There are minor things that you can do to differentiate yourself i.e. free bottle of wine, a welcome letter, keyless entry, map of cool places nearby, bicycles they can use...

My account eventually got banned by Airbnb. They operate similarly to Amazon where they will quickly disable your account at the slightest complaint(even if it's not our fault). Good luck trying to repeal that too.
Wow, yeah I heard they even remove negative reviews made by hosts on guests. So using reviews to screen a guest doesn't seem viable.They build a system based on trust, but then ruin it based on doing this. My plan was to do private room on Airbnb, but I don't have a fallback. Single room long term renting isn't that viable in the location I am looking at

I am thinking of getting a condo to Airbnb and was going to use this strategy. First, I'd remodel it completely. Then, rent it to friends and family (reimburse them) to get reviews, then rent it for cheap to get reviews. Basically I'd lose money or breakeven on it for a year. Basically the Amazon strategy in vacation rentals.

I wanted to have the best looking unit and the lowest price making it a no brainer to rent out.
Good plan just if it wasn't a condo. HOA has too much power.
 

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IceCreamKid

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I wanted to have the best looking unit and the lowest price making it a no brainer to rent out.
Difficult to beat a proposition like that for sure.

My plan was to do private room on Airbnb, but I don't have a fallback. Single room long term renting isn't that viable in the location I am looking at
Location that you are LOOKING at? Can you look at different properties instead or are you locked in with this current one?

I'm currently in the process of converting my Airbnb rentals into corporate rentals. Works well because all are located in prime locations near airports, hospitals, and shopping centers. I don't have enough data to say for sure yet, but I'm expecting this model will net more income than the former model which had a lot of 2-3 night stays.

My ultimate goal would be to get to a point where all of the tenants come from offline sources. I was quite disturbed by how Airbnb disabled my account and removed all of the pending reservations I had with the click of a button despite having zero real evidence for the decision.

Although the Airbnb model produced more revenue, all of the fees of running it were eating away a ton of the profit. In my area they even charge a 12% tax on all gross receipts including cleaning fees when the reservations are 30 days are less.
 

MoreValue

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Difficult to beat a proposition like that for sure.


Location that you are LOOKING at? Can you look at different properties instead or are you locked in with this current one?

I'm currently in the process of converting my Airbnb rentals into corporate rentals. Works well because all are located in prime locations near airports, hospitals, and shopping centers. I don't have enough data to say for sure yet, but I'm expecting this model will net more income than the former model which had a lot of 2-3 night stays.

My ultimate goal would be to get to a point where all of the tenants come from offline sources. I was quite disturbed by how Airbnb disabled my account and removed all of the pending reservations I had with the click of a button despite having zero real evidence for the decision.

Although the Airbnb model produced more revenue, all of the fees of running it were eating away a ton of the profit. In my area they even charge a 12% tax on all gross receipts including cleaning fees when the reservations are 30 days are less.
I talked about this is my previous thread about house hacking, but it is the Dallas Forth Worth Area. The thing is that it is so easy for someone to get their own place in an apartment and really doesn't make sense for someone to rent out a private home in a SFH with someone. Get your own place or share for pretty much the same price. Hence the reason most SFH are rented out by the entire home not by room.

Corporate Housing looks like a good idea, seems like it would attract more responsible tenants. Is corporate housing considered a landlord/tenant relationship or still a STR(1-3 months)?
 

FreeMan

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I just got back from a trip to Europe and used AirBnb pretty much everywhere. Below are my observations from a guest's perspective.

Searching for properties
  • It can be a painful process to search through all the properties, but if you can address all the guests concerns & questions in the listing, it's much quicker to get the booking.
  • We have kids and always asked if the area was 'safe' for families. Address your target market's potential concerns up front and they'll have less questions and may book immediately if you have instant booking on.
  • Be quick in responding as most people are communicating with multiple hosts at the same time. If you can answer all their questions quickly, especially for popular/competitive locations, you'll stand out.
  • Have great photos and as many as you can showing everything. Leave nothing out as it'll just raise questions and doubt.
  • Include public transportation details as well as driving instructions.
  • Include as much info about what you can do there and how to get around (and how far to main sights). One host provided a suggested two day itinerary in their listing which was great.
Check In
  • Provide detailed and super clear check-in instructions for guests. At one place we waited 30 min for the host as they put down the wrong address and weren't contactable.
  • Getting greeted by a friendly host who shows you the place and give you some suggestions makes a massive difference. Chocolates on the pillow were popular with the kids.
  • Like @IceCreamKid said, provide a local's guide on what to see, do and eat around the area. Some of the best places we ate at were recommended by the AirBnb hosts as many highly rated places on Google and Tripadvisor are hit and miss.
  • Help them with early or late check in/out whether its with storing their bags somewhere if the place is still occupied or being cleaned
The Stay
  • Most places were pretty clean, but if a place wasn't that clean, it really stood out in a negative way as you didn't feel comfortable staying there.
  • Having some kitchen basics like oil, salt, pepper helps as it meant we didn't have to buy a new batch every place we stayed. And having a well equiped kitchen is great for families who may cook some of their meals.
  • Respond quickly to the guests questions either via the AirBnB app or another messenger app e.g. Whatsapp outside of USA
  • Think about where your guests are from and what appliances they may need. We didn't have a toaster or kettle (for tea) in many places in Europe as they don't use them there as much
I'm sure there's some more things, but that's all I can think of off the top of my head. Even if short term rentals are becoming commoditized, as a guest, it's hard to beat for price, search convenience and getting to meet a local that can tell you some insider's info that you can't get off the internet.
 

JAWS

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Hi ya'll, I run an airbnb management firm in Chicago with 42+ homes. In my opinion, as venture-backed firms come into this space, it is not a question of becoming a commodity, but at what point does supply and demand hit an inflection point.

It is hard to copy intrinsic property layout/characteristics, location, and neighborhoods. Management and guest services is key. The better the reviews for the home, the higher you are going to rank in the search engine. This becomes a moat because as you get more and more 5-star reviews, and you come up on the searches higher and higher. A host can have a similar product, but if they only have a few reviews, 9 out of 10 guests are going to book your place because 1) they are going to see it first and 2) they are going to trust your listing more because of the number of reviews.

Supply and demand is interesting to me with the impending recession. Hotels had there best year in 2018 and there is a lot of supply. In tandem, more people are becoming aware of the money to be made with Airbnb. At some point, 1) the number of travelers will decrease because of a recession or 2) supply will rise to the level of current demand, which levels out prices.

All in all, the short-term rental hosts who have long-standing listings, LOTS of 5-star reviews, top-notch photos, and a unique home win in the long-run.
 

MJ DeMarco

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Hi ya'll, I run an airbnb management firm in Chicago with 42+ homes. In my opinion, as venture-backed firms come into this space, it is not a question of becoming a commodity, but at what point does supply and demand hit an inflection point.
Thanks for the report.

I'd imagine the first sign of "commodity status" is when we start seeing all the eBooks/workshops/seminars on how to make millions on AirBNB. At that point, the owners realize that there's more money in the info sales info than the continuance of operations.

"Gee, this AirBNB thing isn't so easy any more, bookings are lighter and the profit is much less. It's getting more difficult to make it worthwhile. What now? Oh yea, sell a $10K seminar on how to make money on AirBNB."
 

biophase

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I stayed in 2 Airbnb’s here in Scottsdale the past 3 weeks.

The first run is either managed or owned & managed by a professional Company. This company had over 3000 reviews on Airbnb. You could tell it was a pro at this because of the signs they had inside the home in the number of email communications you had during your stay.

The second Airbnb I thought might have been owned by a regular homeowners. But I was looking on LoopNet and the house I was staying in was actually listed on LoopNet as an apartment building. LOL.

I looked at their other listings and this company basically had about six homes in the Scottsdale area. They were listing all the homes on LoopNet as a leaseback triple net investment. If you bought the house from them they would lease it back from you for five years at 7.5% cap.

I could tell that they were amateurs at this just by what they provided inside the Airbnb. For example, they did not have enough towels and their towels were not all white. They were a little quirks about the house that would probably annoy potential Airbnbers.

The second house had very little reviews for being available for three years. They were asking only $100 a night during December in Scottsdale which was underpriced by $150-$200 a night in my opinion.
 

YanC

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Very interesting thread to follow as I'm getting started in this field in France (first condo has been renting for a month now, working on the renovation of the second). Usually what happens in the US happens 2-5 years later here, as we lag behind. I guess, from the little knowledge I have of it, that it's the same for the current state of the Amazon marketplace for example.

Commoditization seems far away but I don't see why it couldn't happen. STR involves owning a property most of the time (I've seen people just rent properties long term then rent them short term on agreement with the owner) which is a barrier to entry, but lots of people can qualify for a loan. A considerable amount of people who seek to get into STR stop pretty quickly when they realize the hassle that comes with it (they thought it was just easy money), but more and more management companies are stepping in.

As for the strategy, it's all about the reviews so yeah, cheap prices at the beginning and slowly charge more as you get a solid reputation.

I've found that small attentions go a long way in making your guests happy and getting very good reviews: warm welcome, providing coffee/tea, fresh drinks on arrival, a handwritten welcome message...
 

Angal Faria

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Thanks for sharing useful information about the short term rentals. I think Airbnb is one of the alternatives for your answer.
Risk has in every business but the rentals market increase day by day and become so tight.
 

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