The year 2020 dramatically changed many businesses including short term rentals. Travels business almost ground to a halt globally as countries battled the Covid-19 pandemic but business has steadily crawled back to life though in a hushed manner. The US short term rental market has literally been flipped and new market segments have emerged while some old ones are struggling to find their footing.
Whether or not to invest in short term rentals is a tough questing for many investment advisors. In view of the current uncertainty, many are turning to predictive data to find guideposts to upcoming hot markets as well as speculative ones. A recent report by Airdna points to a rebounding sector where returns are growing but points to a fundamental change in the specific boom areas. The report focused on three data sources that would point to where demand has been going to in 2020 as an indicator of the near term trend.
2020 will go down as a year when many people shifted from working in offices to remote locations especially homes. Offices were left vacant or manned by a skeleton staff to keep workers in safe social distance. Renters also started moving from residents close to their working places to driving distances away from high populated suburbs in the city. Demand for rental property out of town grew while that of urban homes remained depressed. Many people who had been relieved from office work and required to work remotely needed accommodation in secure places adding to the demand in small towns and rural America. Rural drive-to markets have seen a hike in demand and this might follow through to the near term.
Another indicator of future demand according to the report is growth in revenues. No one wants to invest where there are no returns and so investments always follow revenues. Areas where properties earned more in 2020 than previous years are more likely to maintain the same trend in 2021 and even beyond. The report identified emerging high revenue growth markets as Castroville CA, Cherry long GA, Athens NY, Geerton NC, Pioneertown CA, Denison TX, Tuckasegee NC Yucca Valley CA, Ridgedale MIssori, Joshua Tree CA, Morganto GA, Mineral Bluff GA and Big Bear Lake CA among many others.
Cost of Investment
Besides rental demand and revenue growth, the report focused on the cost of putting up or buying a short term rental property as a factor that will influence flow of short term rentals investment capital. It compares the cost of homes using Zillow home value data to the average short term rental returns on Airbnb and VRBO. The current situation has got many investors holding on to their capital and to only invest where they can recoup their investments in a shorter than normal time. This has led to changing choices in locating with preference being on areas where there is a double advantage of a growing market and low entry cost.