Owning a short-term rental (STR) business can be very profitable but, when new hosts get into the market, business can quickly turn to smoke and debris, mission failure, and ‘implosion’. In this article, we look at three key areas that can lead to Airbnb business-destruction.
New hosts are likely attracted to the generous cash-flow potential of STMs, and so are tempted to scale as quickly as possible. For instance, if you can make $5,000 a month from a single listing, why not aim to make $10,000 by renting out two homes, or even $20,000 from four? But more is not always more.
The problem with scaling too fast is that it often leads to reduced operational control. Owners that acquire more properties without the experience or systems to handle them often become unwieldy; service quality can dip, guests have bad experiences, and bad reviews follow.
Instead of turning into a property aggregator, it’s far more important to focus on building a sustainable business. That means identifying the right market, optimising the current operation, and building a solid foundation ahead of any growth. hosts must ensure that their existing homes are paying for themselves, with profits being reinvested in the business.
A second common blunder for Airbnb hosts is to amass too many properties in one market. While it might seem convenient to build a portfolio of properties in one neighbourhood, doing so puts hosts at risk.
For example, if the host has more than one property in one neighbourhood and there are regulatory changes locally, or if tourism slows, this can lead to a financial crisis. Geographical diversification is useful. The more geographically separated your properties are, the better you will be able to insulate yourself from changes in local economic conditions or to regulation.
Just venturing into the short-term rental market without a clear understanding of seasonal trends can be detrimental. Many hosts who are just starting off make the mistake of entering into the short-term rental market without proper research on the timing of their entry.
Consider a host who starts Airbnb renting during the slow season: soon, he can find days with almost no reservations come due, straining his wallet as he feels unable to fill his calendar. He may feel the need to lower prices, in turn accelerating the depletion of potential profits.
One way to avoid this trap is to plan ahead. Understanding the dynamics of seasonality in your particular market will help you prepare for them and adapt your strategy accordingly. Cash on hand to cover the slow times can also be helpful.
Aside from the big three, hosts should watch out for biting off more than they can chew. If you are trying to do the cleaning, the accounting, and the guest communications all by yourself, it’s going to burn you out. Pick your battles. Outsource the rest; hire experts in the areas that you’re not good at, or don’t want to wait until it’s too late.
By tackling these strategies from the onset – upscaling smartly, spreading geographically, preparing for seasonality, and dodging burnout – hosts have a chance to create a sustainable and profitable permanent vacation-rental business.
The most frequent error is growing before you are prepared, without having a good grasp of the operational requirements. New hosts are more concerned with buying additional properties instead of streamlining what they already have.
Preparation involves researching seasonal trends in your market and the local economy, maintaining cash buffers during the high season, and developing marketing strategies to bring in longer-stay guests in the slow season.
It’s safer to have your assets spread across different locations, which will protect you against swings in local markets or regulation.
If you want to prevent burnout, outsource the things that are non-essential to you – the cleaning and the guest communication, for example. Find your niche, find people to do complimentary tasks to yours, and make it work.
Adhering to these rules will help you avoid many of the usual traps and reach a prosperous and sustainable future in short-term rentals.
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