Every multifamily landlord and manager wants to maximize the performance of their properties. Some can do that the old-fashioned way by consistently optimizing rates and occupancy. But as new supply increases and challenged properties seek alternative strategies to drive performance, one approach frequently considered, but seldom understood, is Airbnb and how best to engage it, if at all. Determining whether your property is a good fit for listing with Airbnb and other short term rental sites is a strategic decision every property manager has likely discussed by now. There are plenty of pros and cons, but this decision should come down to a few factors.
First of all, consider local codes. Does your market permit nightly stays?
Secondly, think operations. Who is going to do the work and will they do it the right way?
Lastly, consider the economic potential. Will short term rentals materially impact the bottom line?
Once these questions are answered, Airbnb can be an exciting new avenue for those that control units, and can be a highly valuable tool for decreasing vacancy and increasing profits. It can also be daunting to think about how much more work is involved in renting short term, having the proper insurances, making sure nightly rentals are legal in the market, and so on.
Should your company choose to embrace Airbnb, here are four directions you can take.
1. Rent excess units in-house.
There are multi-family management companies that are leasing out excess inventory for short term stays. This requires the units to have utilities set up, furniture, linens, electronics, and flatware for guests to use. It can be a great amenity for your long term tenants to have a place for the in-laws to stay, but there are some caveats to doing it in-house.
The average time it takes to manage a short term rental property is 8.4 hours per week. This can be a huge time suck for one of your employees, who likely has no experience in the operations involved with using Airbnb. If staff can be trained or hired accordingly, it certainly is a viable route for many properties.
2. Friendly Buildings Program via Airbnb
With the Airbnb Friendly Buildings Program, you allow your tenants to rent their units themselves and you share in the earnings. This sounds great in theory. It’s a much more hands-off approach than renting in-house, plus you get to keep a portion of the upside. The downside to this approach is that your tenants are not likely to know the best way of protecting your asset and reputation, or to necessarily care. For the sake of experimenting with Airbnb, this may be the best entry option for your property.
3. Lease to a professional short term rental operator
The approach most aligned with traditional multifamily management is that of wholesale leasing excess inventory to professional short term rental management companies. There are companies that will lease units and provide top-notch care of the property. Noise monitoring systems can be used to notify the manager if the decibel levels exceeds a threshold and are a mainstay for professional short term rental managers. In addition, guest verification companies exist for short term rentals to ensure only screened guests are arriving on the property. Vacancy rates can significantly decrease when partnering with a company like the aforementioned since you can lease one to dozens of units at a time. Payments are automated and reliable. The downside of this approach is you may be leaving money on the table.
4. Partner with a professional short term rental operator
If you are able to sub out some vacant units to a professional operator, you can receive all of the benefits of working with a manager while keeping the upside for yourself. It is no secret companies like ours exist because there is an arbitrage between long term leasing rates and short term rental capabilities. The downsides to working on a commission basis are:
A. Variable payouts based on seasonality; and
B. No guarantee of performance. It can be very difficult to determine on the front end if a rental company is a good revenue generator or not.
The opportunity for multifamily landlords and managers is clear. So clear, in fact, that even Airbnb is planning to get into the game, having recently purchased its own multifamily property in Kissimmee, FL. Plans are to lease out the property to long term tenants, who can ultimately use the platform and leverage additional on-site services to provide guest services. This is the first of many to come, given the war chest of capital Airbnb possesses. No matter which direction fits best for your property, it appears that Airbnb is here to stay. How you choose to move forward is up to you, but one word of advice: Do something. Don’t let this once in a generation opportunity pass you by.