This is part two of my article on the negatives of short term rental investing. Click here to read part one.
4) Natural Disasters (and Pandemics)
Yes, the current covid-19 crisis has greatly hampered or completely shut down most short term rentals. The effects are quite unprecedented in spread and scope, but this is actually not the first time we’ve experienced something of this sort. In years past, whenever a severe hurricane threat has forced evacuations, we’ve experienced a surge in canceled stays or vacancies. Twice, we have had such significant flooding in our neighborhoods that access to the properties was impossible, and obviously guests could not stay even if they desperately wanted to. But had these rentals been for tenants with a long term lease, the risk and burden of these potential disasters would be shared with them. When you’re forced to either hunker down at home or evacuate temporarily, you wouldn’t think of asking your landlord for a refund. But of course if you’re traveling you expect to have reasonable access to your accommodations.
3) Lost Revenue from Maintenance and Repairs
In a similar vein, whenever maintenance issues appear and repairs must be performed, it often means lost revenue. Sometimes that’s because you’ll have to keep the property vacant during a major repair, other times it is due to refunding guests for dealing with the hassle of more minor issues. Either way, this is a double whammy of lost revenue in addition to the actual repair costs.
However, if these issues and repairs occur during a long term lease, I usually find our tenants are grateful for how quickly we address the situation and/or the fact they’re getting a brand new roof, toilet, appliance, or whatever the case may be. But if the AC stops working during a short term stay and your HVAC repairman gets to it the very next morning, you’re likely still gonna be refunding that guest for one night, at the minimum. Same exact situation occurs, but with drastically different results: a grateful tenant vs an understandably frustrated guest.
2) City Regulations
Kind of like reliance on third-party platforms, this acknowledges our total dependence on favorable ordinances and our lack of control over these municipal laws and regulations. Sure, to some degree we can fight for our interests and influence these decisions, but ultimately, if city officials were so inclined they could cripple all short term rental prospects. Short of outright bans in certain neighborhoods, some cities require hosts to live in their property full time, or limit the number of days a property can be rented out short term, or limit the number of short term rental licenses issued in particular areas.
The point is, whether it is right or wrong, there are many different ways a government might seek to protect its citizens and its communities at the expense of short term rentals, and at best it forces us to adapt, while in other cases we simply can no longer operate. So it’s incredibly important to keep an ear to the ground and be aware of the pulse of the city in regards to this topic. Some governments have been proactive in finding win-win-win solutions for as many parties as possible, and these are the places that are probably the safest for STR investment. However, even then I would caution against ever being too comfortable and assuming the situation won’t change in the future. Always be prepared!
1) Unrealistic Expectations
This is my number one headache and source of stress. I try my very best to be transparent and forthcoming and set appropriate expectations for our guests, but given the sheer volume it is no surprise that we occasionally encounter skewed and unrealistic expectations. Our short term rentals are in very good locations but they range from average to slightly above average in quality. They are by no means luxurious and they are priced accordingly. However, the pricing does fluctuate based on demand so it is possible to have a nightly rate three times higher than another night in the same week. That said, we try to provide top notch service and are always a huge bargain compared to nearby hotel rooms.
And yet, every so often, guests will just expect something else. Sometimes they think the furniture will be nicer. Or the street will be prettier. Or the neighborhood quieter. Or the house will be newer. A lot of these things aren’t going to be anyone’s fault, but it nevertheless leads to discontent and complaints. Then there are some cases where the skewed expectations are the result of a guest not reading the listing carefully. We explain when the laundry room is on the outside, when there is a shared facility, when there is no cable television, or if there’s no off-street parking, but not every guest reads everything. But regardless of the cause, the fact remains that if done properly, a normal tenant will not have these issues.
A traditional tenant is on your side. What I mean is they like your home and have chosen to live there. They’ll almost always have seen it first so on the surface there should be very few, if any, surprises. Often, a traditional tenant even falls in love with their home. They’re proud of it and want to take care of it. The minor flaws in your property don’t bother them as much. Sometimes the complaints (decor, cooking utensils, groundskeeping) are actually the responsibility of tenants in a long term lease.
And when there’s a complaint, guests sometimes don’t even tell us until afterward when they are requesting a refund! We have a very responsive management team and are able to fully address most concerns on the spot. A lot of times the fix is very simple and something the guest was just unaware of, while other times we are more than happy to make a small purchase to provide them with an amenity that they request. So really, setting appropriate initial expectations and then maintaining good communication are key!
Recap:
I do not mean to scare anyone away from operating a short term rental. I think it can be a very good thing in the right circumstance. But be aware there are many negatives that come with it. And if you need a reminder of the positives of having short term rentals in your investment portfolio, read this!
