Are Short-Term Rentals Still a Viable Small Business?
Short-term rental marketplaces have been around since 1995, but many people first became aware of this real estate asset class when Airbnb took off in the 2010s, effectively capturing the attention of consumers who were seeking better travel experiences.
While short-term rentals rapidly grew in the 2010s, they took off when COVID-19 hit. In March 2020, the World Health Organization declared COVID-19 a pandemic. Per Airbnb’s fourth quarter and full-year 2021 financial results, several factors made 2021 the best year in Airbnb’s history to that point (Q4 revenue of $1.5 billion was 38% higher than Q4 2019):
- Guests were returning to cities
- Guests were discovering thousands of small towns and rural communities
- Guests were planning more travel despite variants and surges
- Average trip length increased by approximately 15%
Due to this huge surge in demand, many entrepreneurs bought single-family homes. They converted them into short-term rentals, making thousands to hundreds of thousands of dollars in rental profits depending on the property and market.
Yet, like all real estate classes, there are cycles. This includes short-term rentals, too.
Per AirDNA’s 2024 U.S. Short-Term Rental Outlook Report, 2023 was a year to forget for short-term rental investors. In 2023, Revenue per Available Room (RevPAR) was expected to decline by 4.9%, the first full year RevPAR declined since AirDNA started collecting industry performance data in 2014. This was a result of a saturated market, which led to lower occupancy rates (see chart below).
While it still seems like short-term rental investors can make a profit, it’s definitely not as rosy as every YouTuber makes it out to be. Per Airbnb’s fourth quarter and full-year 2023 financial results, Hosts earned $57 billion. $57 billion divided by the 7.7 million active listings comes out to around $7.4K per listing. While there’s undoubtedly some more nuance that should be put into these numbers, such as how often these places are available for rent annually, short-term rentals might not be a viable small business for you if you don’t get the right fit in terms of market and property.
