How Young Millennials and Gen Zs are changing the face of the Short Term Rental Asset Investment Market
The idea of a small family-sized house with a white picket fence in a friendly neighbourhood is a dream sold to every child growing up. But, while a lot of people may dream of a house with a herb garden or with a terrace, millennials and Gen Zs are currently choosing to rather invest in a vacation home.
As the cost of urban living surges and the price of real estate continues to soar in the bigger metropolitan cities, young investors are finding more investment-friendly vacation homes in scenic spots away from the chaos of the city. The cost of real estate in these cities sometimes is substantially lower than in, say, a big city like London. Further, the ability to earn passive income via short term rentals along with the added benefit of having somewhere to escape to is potentially putting vacation homes on the radar of these investors.
Evolution of the Short Term Rental residential properties
Short term rental spaces such as B&Bs and guesthouses have existed for decades. But, players like Airbnb and Vacasa put residential properties on the travel accommodation industry map. What once served as quaint vacation options offered by locals have increasingly turned into a movement. Airbnbs are now offered with complete hotel type amenities like clean linen, fully stocked kitchens and all common household appliances. This new wave of rental spaces have rather created a far superior stay experience – offering not only access to a comfortable bed but to the practical comfort of a real residence.
New generations of small-time real estate investors have picked up on this trend and are creating a market where traditional hotels are being replaced by beautiful holiday let spaces that offer an authentic community living experience. But how exactly did this transition come to pass? What is it about investing in short term rental properties (STRs) that the younger generations of investors find lucrative enough to make them choose them as their first real estate investment option? Why is it that they’re increasingly choosing to invest in short term rental and holiday let properties before they’ve even bought their own home?
Changing Perception of the STRs
The short term rental operating model never was a preferred option for real estate investors. A lot of people initially tended to oppose the idea, citing safety issues for guests, a high degree of operational involvement needed and also the chance of their homes getting destroyed by guests. All were valid concerns but over time the ecosystem evolved to address all of them.
First, guests are now increasingly finding it safe to live in people’s homes. The National Multifamily Housing Council conducted multiple surveys in the year 2019 and noticed that a staggering 60% of people were seen to be more open to the idea of sharing space with a more diverse populace of travellers for shorter durations of time. This trend was especially noticed amongst the younger generations. Vacation or short term rental homes are also becoming increasingly popular among the business class. People on business trips are now opting for short term rental options over regular, even luxurious hotels. In fact, 15% of Airbnb bookings came from people on business trips in 2019.
Second, there is an emergence of a wave of professional managers who are ready to provide high quality guest management services in every local market and take away all operational hassles. As per recent data from Airdna, there are over 240 hosts on Airbnb and Homeaway with over 50 listings each. Majority of these hosts are professional managers who have built a reasonable portfolio in their respective cities.
Third, on the concern that guests may destroy someone’s property, there are insurances now available which protect the home. Airbnb offers hosts $1 million in damage protection, in case one’s place or belongings are ever damaged by a guest. This has led to a significant increase in confidence among owners listing their properties.
The combination of investor ingenuity and new tech — especially well-designed smartphone applications — overall have played a big role in changing it from a niche to a global holiday real estate phenomenon.
COVID – 19: The Perfect Storm?
The pandemic era is in a sense one of the most life-altering events that has happened on a global scale in the past century. It changed people’s lives and preferences. It greatly impacted industries across the world, in particular sectors like hospitality and tourism. Everyone thought it was the end of travel and, in particular, the holiday rental home asset class, but the story turned out to be completely different.
20+ months spent inside the unchanging walls of a home created in people a new realisation of their love for travel. With the easing of restrictions, people started travelling for longer durations and spending time experiencing their newfound freedom. Moreover, work from home policies introduced by companies meant that people didn’t have to come back to the city after weekends spent away in vacation homes. So, it became natural for people to demand more self-contained travel spaces which could act as their home (and workspace) away from home. The combination of safety, privacy, and flexibility put the holiday rental asset at the forefront of the movement.
Tech-savvy and financially smart young generations of investors are taking this opportunity to buy-out lands and small properties in places that can be considered hidden gems. They are flipping existing BTL properties in such places or building short term stays from scratch. So, when the vaccination distribution neared completion and the world started to open their borders, it not only gave a big boost to travel, but also seemed to usher in investment into the short term rental property market.
Holiday Rental Homes Now A Priority?
For the younger generation of investors, the current moment presents a golden opportunity. One can invest in a short term rental property that possesses significant growth potential, offers much higher income than usual buy-to-let investments, and can operate as a family holiday home when needed. Short-term rentals also offer a huge range of tax benefits that make them particularly desirable. For starters, the interest charged on the loan is deductible, not to mention all the other expenses like maintenance, management, marketing, and insurance.
The numbers are already up in the US. Short term holiday rental platform Vacasa reported that the percentage of millennial buyers of holiday let properties had gone from 31% in 2019 to a staggering 40% in 2020.
But, while attractive, finding these opportunities and acting upon them requires more work and research that you may feel inclined to put into the venture. We believe Omah can not only help buyers choose their dream short term investment property. Just sign up, scroll through the host of dream holiday homes on offer, and let Omah handle the rest.
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