Category: Short-Term Rentals

Typical real estate methodology for analyzing short-term vacation rentals produces inaccurate metrics. Unlike traditional long-term real estate, you cannot put a list of properties into a lot and calculate “occupancy” or “vacancy”. Each property is an independent entity. Short-term rentals, especially vacation rentals, are forward-priced while long-term real estate is priced based on backward-looking metrics. Short-term vacation rental hosts sell a perishable asset that left unsold will become an absolute total capital loss. This causes unpredictable speculative pricing.

Short-term vacation rental rates are the result of purchasing and selling, not supply and demand. Nightly rates move based on pressures on both sides of the transaction where time-decay is a significant variable, creating volatile price movements which are also affected by inflation and seasonality, which further impact the value created.

Short-term vacation rentals are a business asset where every stay has an expiration date, the value of the stays move with a single change in time, weather, inflation, or seasonality.

Short-term rentals have been a growing trend for some time now, and people are still utilizing platforms such as Airbnb as a “safe” way to make extra money or seek returns on real estate investments; however, short-term rentals are not immune to volatility and risk.

I recently did a study on the short-term rental market in Navarre Beach, Florida to test a hypothesis I had about the volatility of nightly rates.

Seasonality

As I was looking at the rates over time, I noticed that there are anywhere from 1% changes in rates to over 40% changes in rates just within a week’s time. This kind of volatility creates cash-flow risk for hosts who aren’t familiar with market dynamics, and don’t know how to build a strong pricing strategy.

Time-to-Stay

Volatility in the nightly rates are also affected by time-to-stay. Rates for future stays are more unpredictable than rates for current stays. This creates risk, but also opportunities for both sides of the transaction in the Navarre Beach area.

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