Individual Investors: A Prime Position in the Short-Term Rental Market

The search for yield has led many institutions to look to short-term rentals (STRs) as an attractive asset class. STRs offer the potential for strong returns, making them a popular choice for investors looking to grow their portfolios. However, as more institutions enter the market, it’s becoming increasingly difficult for them to acquire and operate single-family homes as STRs.

Challenges for institutions in acquiring and operating single-family homes as STRs

Managing single-family homes at scale can be a daunting task for institutions. Sub-scale property management and logistical challenges, such as dealing with hundreds of tenants and maintaining lawns, can be overwhelming. Furthermore, institutions often struggle to deploy large amounts of investor capital quickly when compared to multi-family properties. It can take a year or more to purchase $50 million in STRs, which is significantly longer than buying a $50 million apartment building. Additionally, the need to standardize design and furniture to operationalize and reach scale makes it difficult for institutions to stand out in the market.

Why these challenges present an opportunity for individual investors

Despite the challenges faced by institutions, these challenges present a unique opportunity for individual investors. Single-family short-term rentals offer the possibility of generating returns well in excess of other real estate asset classes. Furthermore, individual investors have the potential to take a more hands-on approach to property management and focus on niche markets or luxury rentals. The growing market for short-term rentals, along with government-subsidized home-buying programs such as the Federal Housing Administration (FHA), and conventional mortgages that provide more leverage than most commercial financing institutions, makes it easier for individual investors to enter the market. Additionally, for high net worth individuals, creative financing options are available to further leverage their investments. Furthermore, guests often prefer to rent from a person rather than a vacation rental company or institution, which can give individual investors a competitive advantage.

Despite the challenges faced by institutions, individual investors can take advantage of the growing market for short-term rentals and generate strong returns. Furthermore, by taking a more hands-on approach to property management and focusing on niche markets or luxury rentals, individual investors can stand out in the market. With government-subsidized home-buying programs, conventional mortgages, and creative financing options available for high net worth investors, it’s easier than ever for individual investors to enter the market and start generating returns. Therefore, it is an ideal time for investors to take advantage of this opportunity and invest in short-term rentals.