October 20, 2023

Can you really make money with short-term rentals? Part I

According to a recent report by Vantage, the short-term rental market will continue to grow over the next few years. It's predicted to be worth $99.6 billion by 2028, with a compound annual growth rate of 5.1% from 2022 to 2028.

This growth is driven by the increased popularity of travel and leisure experiences, as well as the trend to invest in property and buy overseas. New regions are being explored as people actively move in search of better places to live. The digital nomad generation is relocating every 6-12 months, with the trend of remote working continuing in the post-pandemic period. Many new players are entering the STR market, including a significant number of non-professionals.

In a rapidly changing world with new travel habits and emerging technologies, short-term rentals (STRs) have become an attractive investment for property owners, entrepreneurs and investors. More and more people are interested in making a profit from their apartment, holiday home or newly purchased investment property, but the question remains: Can short-term rentals become a highly profitable business?

Whether you're an individual owner looking to capitalise on your extra apartment or an aspiring business looking to venture into the world of hospitality,  read our expert opinion and tips on how to make a highly profitable short-term rental business. In Part I, we will cover the traditional approach to STRs and the first steps to optimising operations

Traditional approach to short-term rental - what is it?

There are several ways to get into this business. You can start by managing your own apartment, and then friends may offer their apartments for you to manage. Another approach is to set up a property management company and collect properties under your management. Those who choose the latter route often have previous experience in the field, having worked in either hotels or service companies.

The main issue here is how to attract more units to management. There are different models for distributing income to owners - a fixed payment (flat rate, essentially renting and paying for apartments) or a percentage of revenue. Owners prefer flat rates, while management companies benefit from a percentage of revenue. The flat rate requires building up reserves for slow months, which requires savings for investment. On the other hand, paying a percentage of revenue can be challenging due to the need for transparent income reporting.

How much does a host typically earn?

On average, hosts earn around 7-8%, but with the right approach and the addition of extra services, this percentage can be significantly increased.

How to increase earnings with short-term rentals - where to start?

To increase your profit from short-term rentals (STR), you should consider optimising your existing processes. Here's how you can start with maximising your profits:

Andrew Verbitsky, a business growth and new venture expert in the hospitality industry, shared his experience:

"Vacation rental businesses can find an additional revenue stream through the use of digital guest service solutions, such as XAAN. Such new technologies, with the curated network of selected suppliers, can help to achieve better guest reviews and lower further acquisition costs through repeat bookings, including direct bookings, as well as better visibility in search results on OTAs".

In Part II, we will discuss how to scale a short-term rental business without compromising profitability and explore less obvious ways to maximise profits. Stay tuned!