Hotelier or Bust?
In recent times, the vacation rental industry has faced a significant decline in occupancy rates due to circumstances such as the global pandemic and economic uncertainties. During the pandemic, STR's nearly doubled between 2020-2021 resulting in an oversaturation in the Phoenix area and other popular destinations. It is no surprise that this will result in 'weeding' out the properties and owners that have not properly invested in becoming a true hotelier. Much like the Real Estate Industry, it is no longer enough to simply put a sign up in the yard and place the listing on the MLS to attract the highest price. However, despite this temporary setback, it is crucial to recognize the long-term potential and enduring value of investing in the vacation rental market. In this blog post, we will explore why the vacation rental industry remains a good investment choice despite the current decline in occupancy rates.
1. Diversification of Revenue Streams:
One of the key advantages of investing in the vacation rental industry is the ability to diversify revenue streams. Unlike traditional rental properties, vacation rentals offer the flexibility to switch between short-term and long-term rentals, depending on market conditions. This adaptability allows investors to navigate through occupancy fluctuations and optimize their income during various seasons or economic circumstances.
2. Increasing Popularity of Vacation Rentals:
While occupancy rates may have temporarily declined, the popularity of vacation rentals is steadily growing. Travelers are increasingly seeking unique and personalized experiences, and vacation rentals provide exactly that. The vacation rental market offers a wide range of options, from cozy cabins to luxurious villas, catering to diverse traveler preferences. As the travel industry rebounds and tourists regain confidence in leisure travel, the demand for vacation rentals is expected to surge once again.
3. Flexibility and Control:
Investing in vacation rentals provides investors with a level of control and flexibility that is often absent in other investment avenues. Property owners have the autonomy to make decisions regarding rental rates, property management, and marketing strategies. This level of control allows investors to adapt to changing market conditions and optimize their investment returns. Additionally, those owners who have made the decision to invest in the identity of their individual properties to set them apart from the competition are still seeing occupancy rates much higher than the current average of just over 58%.
4. Attractive Return on Investment:
Despite the temporary decline in occupancy rates, vacation rentals continue to offer attractive returns on investment. Recognizing that mediocre properties will get 'flushed out' and that this is actually a positive trend for serious investors. By carefully selecting desirable locations, optimizing pricing strategies, and providing exceptional guest experiences, investors can achieve high rental yields. Furthermore, vacation rentals often appreciate in value over time, providing long-term appreciation potential in addition to rental income.
5. Emerging Market Trends:
The vacation rental industry is constantly evolving, adapting to emerging market trends and consumer demands. By staying abreast of these trends and investing in properties that align with them, investors can tap into new markets and capitalize on emerging opportunities. For example, the rise of remote work has led to the emergence of "workation" trends, where individuals seek longer-term rentals in idyllic locations to combine work and leisure. Such trends present new avenues for investors to attract guests and maximize occupancy rates.
While the vacation rental industry has experienced a decline in occupancy rates recently, it remains a promising investment choice due to its ability to adapt, diversify revenue streams, and provide attractive returns on investment. Investing in vacation rentals offers flexibility, control, and the potential for long-term appreciation. By carefully selecting desirable properties, hiring the right team to turn their investment into a marketable 'product' and staying attuned to emerging market trends, investors can position themselves for success in this resilient industry.
