Greater Profit Potential for Short-Term Rental Investors

New opportunities to sell products inside vacation properties could open a new income stream to property owners. There’s a potential role for real estate pros, too.

Short-term rentals could potentially offer property owners new profit avenues beyond rental income. Some companies are now tapping hosts to sell their products and services in the rental unit. It’s a business model that may make sense, as many short-term rental guests are looking for longer-term arrangements. They’ll need local services during their extended stay.

This kind of partnership could garner an average host an extra $100 to $300 per month by selling items such as fresh flowers upon arrival, snacks, or massage and bartending services, says Annie Sloan, CEO of The Host Co., which connects short-term rental owners with retailers. So, will these opportunities offer more promise for the short-term rental market in the future? Sloan offers her forecast for this niche market in 2023.

Q: What will motivate travelers to pursue short-term rentals in 2023?

A: We saw a lot of “bucket list” travel in 2022, coming out of the pandemic. But in 2023, we’ll see budget-conscious travelers choosing short-term rentals for weekend getaways and travel within three hours of their homes. Now that big events are back, we’ll see travelers booking short-term rentals for the Super Bowl, Coachella and other large festivals. Theme parks are showing a huge boom, with short-term rentals nearby also seeing record bookings.

How is technology further expected to transform the short-term rental industry?

Tech-savvy travelers are now expecting the amenities of hotels in their short-term rentals. In 2019, only 40% of Americans had stayed in a short-term rental; now it’s 80%. Short-term rentals are rapidly moving to a more tech-enabled state with keyless entry, digital concierge—both human- and AI-enabled—and consistently strong Wi-Fi throughout a property.

What will motivate new short-term rental hosts in 2023?

There are two really interesting trends motivating hosts, and they are on opposite sides of the age gap. For boomers and older Generation Xers, it’s extra retirement income. The fastest-growing demographic of hosts is still women over 60. For young people, it’s TikTok. The “side hustle” and “passive income” trends have increased STR ownership among young people. And TikTok has also helped inform young people about the value of home equity.

How will STRs compete with traditional hotels in 2023?

We’ve all heard that the current short-term rental market is “high-demand, extremely low predictability.” In order to compete with hotels, short-term rentals are becoming increasingly streamlined. This means consolidation of property management companies and software. It also means that short-term rentals need consistent cleaning protocols, consistent amenities, and even consistent in-home products like soap. Travelers need to know what they are getting before they arrive—and what to expect if they rebook.

Is there an opportunity for real estate professionals in the STR market?

Yes, short-term rentals are still selling in 2023, and this is a great time to buy. Travelers are still traveling, and the vacation rental industry is predicted to continue growing by 5.5% in 2023, according to AirDNA’s U.S. 2023 Short-Term Rental Outlook. The STR market is somewhat insulated from an economic downturn. For REALTORS®, the most important thing to have is knowledge about the local short-term rental industry and to share that knowledge with prospective buyers.

Key factors to know before buying or selling a vacation rental home: average annual revenue for the area, amount of competition (some markets are saturated), occupancy by season, local regulations, and an answer on the best property managers in the area and their rates. When you understand how the home can make money and how easy it is to set it up as a rental, it’s much easier to sell. Do the research ahead of time, check out industry trend reports and you’re off to the races!