In real estate investing we have always been taught that the most expensive thing in investing is a vacant home. This makes so much sense. Even the restaurant industry has a similar mantra being “The most expensive thing in any restaurant is an empty chair.”
This logic has been turned on its head with the growing segment of real estate investing being short term rentals. With short term rental homes the equation shifts from the measurement of vacancy to dollar cost averaging of the income from each night and how to maximize this aspect. People who would never pay $5000 a month in rent will gladly shell out $166 a night for the same house. The logic behind the math is different for everyone but the idea of paying for convenience seems to be the most common thread that runs the short term rental landscape.
Since we are not locked into a contract and we are not forced to show that our credit is worthy of renting the same place for a weekend as we would be if we tried to rent it for a year we are not exposing the home owner to a long term risk and the renter or guest is not subject to the same long term arrangement that traditional real estate contracts are designed to do.
Short term rentals are normally associated with either leisure or business travelers. These is a different market segment than a family looking for stability and they both have their benefits and differences for the homeowner. Short term rentals by and large don’t get the same wear and tear as there are less people hours spent in the home. There we go again…it is not vacancy that is the demon but the cost per night being too low and the number of nights being too low.
There is obviously a difference between vacancy on a monthly basis and vacancy on a nightly basis that is made up for on the nights where the home is booked. It is the revenue generated per month that is the driving force of the short term rental market. Of course we want to keep those nights booked but we are less concerned with booking each night and more focused on booking as many nights at the right price.