Have you heard? Wall Street, media, and top corporate executives are talking about a looming recession. If this sounds concerning to you – as it should be, for any business owner – you’ll want to pay close attention. But don’t lose sleep over it. In this post, we’ll tell you how you can prepare and make your short-term rental a recession-proof business.
The majority of leading economists, Wall Street analysts, and top CEOs believe the U.S. economy is falling into recession. The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity that’s spread across the economy, lasting more than a few months.
Nearly 70% of economists surveyed predict the NEBR will announce it sometime next year. Some 38% believe the downturn will start in the first half of 2023, while another 30% think it won’t happen until the third or fourth quarter.
Some of the reasons they’re pointing to are rising prices of food and gas, supply chain disruptions, the ongoing Russia-Ukraine conflict, Federal Reserve policies, and the lingering economic effects of the Covid-19 health crisis.
The travel industry is long accustomed to financial slowdowns. Over the last two decades, U.S. tourism has suffered from 9/11 and a host of public health crises — from SARS to MERS to Covid-19. But it has always bounced back, although at different rates of recovery.
As everyone in the industry knows, economic downturns cause drops in bookings. Many people lose their jobs and businesses, causing them to cut down on expenses. But because of the Covid shutdowns of 2020, and the resulting 2 years of pent-up travel itch, a recession forecast for 2023 isn’t expected to cause as big a plunge in bookings as we saw in previous recessions.
Travel is a necessity. People go on trips for business, commerce, medical care, and government.
And they still travel for leisure, even in times of instability. They may do it less frequently, on shorter durations, and to nearer distances. But they still go on pleasure trips.
If Covid-19 is any indication, folks still traveled in spite of a global health crisis. As soon as travel restrictions were lifted, they trooped to far-flung domestic destinations with kids, pets, and laptops (for remote work and schooling) in tow. STRs in vacation markets, and especially within driving distance from cities, not only thrived. They flourished.
So while the tourism industry can lose a lot of income in a recession, it can never crash. When people are stressed, depressed, and restrained, they’ll jump at any opportunity to travel. Even just for a weekend.
This year, folks are traveling again — with a vengeance. Airbnb’s revenue in the first quarter of the year was higher than expected, and shares jumped in extended trading. Top CEOs across the travel and hospitality industries are hopeful this summer is going to be ‘gangbusters’ for travel.
“There is so much emotion attached to travel right now that people are not going to cancel a trip to see their family for the first time in two years,” a hotel investment company CEO told CNBC.
Historically, short-term rentals in domestic leisure destinations perform well during a recession. Amy Hinote, founder and editor-in-chief of VRMIntel Magazine, says short-term rentals have in fact seen notable growth during economic downturns. This is due to a number of factors:
As many vacation property owners have been seeing, a downturn’s effects can be market-specific. There are a number of destinations and clientele that do very well in recessions, and there are those that don’t. It’s highly dependent on your property’s location, the type of guests you attract, and the amount of competition in your area.
Even so, a predicted recession in 2023 would be difficult to compare with the one of 2008. Before The Great Recession, Airbnb wasn’t around yet. Nor were smartphones and travel apps. And we know how those innovations changed the tourism ballgame. They contributed not just to the quick recovery of the travel industry, but also to its phenomenal growth in the past decade.
So if vacation rentals could flourish after the Great Recession, how much more in the years to come when continuous innovation keeps propelling the home-sharing economy forward?
Read also: Airbnbust, The Fall of Short-term Rentals: Real or Fake?
If your property is in a drivable destination that has a good tourism draw, your business will least likely be affected by an economic downturn. But if you’re in an area already saturated with STRs, or in a metro with a high cost of living, limited attractions, and poor walkability, then “stay-cationers” won’t find much reason to go there. It may be a challenge for you to stay afloat.
According to Investopedia, no company or industry is 100% safe from an economic recession. But here are a few tips that we believe can help tide you over.
Consider accepting monthly and extended stays. It’s better to keep your occupancy high and your income flowing regularly than to have your calendar go empty for days and weeks on end. Additionally, offer discounts on monthly bookings to encourage longer stays. It’s always good to strive for customer retention.
Read also: What to Include in Your Property for Airbnb Long-term Stays
Don’t limit your channels to just Airbnb and Vrbo. There are a host of other online travel agencies out there. Invest in a good channel manager or property management software that syncs all your calendars.
You can also tap social media, influencers, and paid ads.
Additionally, you can create your own website so you can get direct bookings and save money from commissions imposed by the big OTAs. This will also give your repeat customers a cheaper way to book your place, without having to pay unwanted fees to third-party platforms.
Open your place up to traveling nurses, professional staff, and university students (if near a university). Look into corporate rentals. If you have a single-family home with multiple rooms and bathrooms, consider renting out each room to different guests.
You could also consider hosting online experiences. These are live activities that you can do on Airbnb to generate added revenue. If you have a particular talent, hobby, or expertise that you can share with others on Zoom, that can turn into another source of income stream.
Related: Rent to Traveling Nurses — The Quickest Way to Boost Your Bookings During Slow Season
Often, during slow months, hosts tend to bring their prices down. And in a recession, most property owners will likely do the same. You can do that, and see if it brings you good results. If not, try doing the exact opposite – charge higher than your local competition. See if potential guests will take a bite. Capitalize on the concept of perceived value, and price your property accordingly.
When customers recognize the value of your brand, they’ll see it’ll be worth paying the price you ask for it. Of course, you’ll have to follow through with your part of the deal, which is product and service excellence.
Throw in a few more amenities to boost guest satisfaction, and you’ll can guarantee their return. Is your property pet-friendly? Offer dog-walking services. Are you located in the suburbs? Provide bikes or scooters.
Don’t spend on unnecessary projects that may or may not give you a return. For example, you may skip on welcome baskets, wine, and other giveaways. Instead, provide products and services that keep guests coming back. A fast WiFi, a quiet, comfortable work-station, and pet-friendly accommodations have been Airbnb’s most-searched-for amenities these past couple of years.
If you can do certain tasks yourself, do so. Try to avoid outsourcing the cleaning and maintenance to third parties – it could cut your housekeeping costs down to half. And try to do the customer service yourself.
Listen to the podcast: How Hosts are Staying Positive in Times of Uncertainty
On the other hand, try to keep your best talent. If you have good, highly trusted employees, do your best to retain them. Layoffs aren’t harmful to employees alone; they’re costly for companies, too. You wouldn’t want to lose time and money sourcing and training new staff. According to the Harvard Business Review, retrenchments also hurt company morale, dampening productivity at a time when organizations can least afford it.
By all means, tell your workers you’re in for a recession, but that you have a plan to survive and ride it out with them. Manage your team well and show them your appreciation.
Track your data over the months, quarters, and years. That way, you can see trends in your occupancy and RevPar. If you haven’t started doing it yet, now is the best time to do so.
Understand your key performance indicators (KPIs), look for trends, and strategize. You can try to optimize your strong months and do something about the lean ones. If you don’t know your metrics, you won’t be able to easily see problems and correct them. You also wouldn’t be able to track and maximize your strengths.
Read also: 11 Ways to Beat the “Airbnbust” and Boost Your Bookings Quickly
According to MashVisor, a recession isn’t a good time to sell one’s property. The economy, and especially the real estate market, undergoes a cyclical trend. Property prices go up and down, but in the long run, real estate is and has always been a sound investment. So try to hold on to your properties for now. You won’t lose anything if you don’t sell. Economic slow-downs end sooner or later, and you’ll find opportunities to sell them at high prices later.
In fact, a recession might be a good time to invest in more properties. Because unfortunately, many owners default on their mortgage and end up getting foreclosed. As a result, there’s plenty of properties being sold at discounted prices. If you have cash on hand, now’s a good time to acquire units while they’re at below-market prices.
There may also be an abundance of vacant apartments and condos. That’s a good opportunity to score new leases for rental arbitrage.
Think strategically. A recession is a time when seasoned investors are looking for new opportunities. Many tend to move their money out of the plunging stock market and into funding safer, more tangible investments.
If you have your business plan, update it to include a medium to long-term expansion strategy. Keep it ready so you won’t have a hard time finding new investors.
With careful research, planning, and smart strategizing, you can ride out a coming recession. Lots of innovation actually result from periods of economic instability and slowdowns. Airbnb itself was born during The Great Recession of 2008. It grew exponentially over the past decade, quickly taking over the home-sharing economy. It’s now valued at US$113 billion.
Remember, the investment market is cyclical, and it’s best to hold your ground and ride out the storm until you’re at a better point in that cycle.
For more short-term renting and real estate investing strategies, sign up for our online course. We’ll teach you how to run your business more efficiently, automating your operations and beefing up the marketing so you can maximize your revenues.
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