We can thank Uber for the sharing economy. The taxi technology company helped bring the sharing economy into the mainstream. In fact, in many universities across the United States, Uber is used as a case study when teaching entrepreneurship and innovation. The brilliance of its model is its simplicity - someone has a car, someone else needs a ride, bring both parties together and voila!
Uber's success made it clear that in today's economy anything is salable and marketplaces can be built around any asset class, regardless of ownership status.
AirBnb and Short-Term Rentals
While many companies have tried to apply the Uber concept in new arenas, none have been as successful as AirBnb in continuing the trend of innovation with the sharing economy. Some regard Airbnb as a disruptive technology and claim that the company is negatively affecting real estate. After all, Airbnb hosts are swallowing up inventory across U.S. cities and managing them as short-term rentals. There's a lot of money to made in this game. Hosts are shrinking the available pools of rentals in countless cities, causing brokers, tenants and landlords alike to consider the implications of this movement. Airbnb rentals now compete directly with hotels and in many cases and offer more attractive accommodation for travelers. Some cities have gone on to introduce limitations on Airbnb or ban it outright. However, more progressive cities do not want to stifle innovation. The sharing economy is not a passing fad, it is here to stay. Across the world, short-term rentals are popping up everywhere, changing the real estate and hospitality industries.
How to Make Money with Short-Term Rentals
There are a number of resources available today to help someone become an AirBnb host. The thing is, there is no limit on the number of units that a person can manage. Additionally, there's good money to be made. A well-run AirBnb unit generates approximately double the rent in a given year. If the annual rent of a studio apartment is $20,000, the unit will generate upwards of $40,000. The more desirable the location of the unit, and the better the furniture, the more it makes.
Obviously, there are furniture costs and expenses to keep in mind. On average, it takes roughly $5,000 to furnish an empty apartment and make it attractive for short-term use. This number includes everything - beds, couches, appliances, TV, even the photos that will be posted online. Utilities and WiFi will cost, on average, another $2,000.
To use the example above, if the annual rent is $20,000 and all expenses in a year are $7,000, then the total cost is $27,000. Assuming an annual revenue of $40,000, that results in a net profit of $13,000. That's a margin of 32.5%! Very few investments can generate this kind of return. It is also important to remember that this is just one unit and the furniture was paid off in one year. The second year, the revenue would be $40,000 - $22,000 = $18,000. For hosts, it is always advantageous to sign multiple-year leases and negotiate favorable terms on the rent.
Resources to Help Hosts Succeed
Now that the short-term rental industry is in full-swing, there are many resources available to help hosts succeed.
- AirDNA offers data, analytics and pricing on short-term rentals across the U.S. The data allows hosts to create projections, analyze opportunities and determine the success of a project before making an investment.
- Rented.com is a venture capital firm that has raised $125 million for the purpose of funding short-term property managers. Put simply, they pay the rent while hosts manage the units. Revenues are shared. This allows hosts to expand their portfolios and manage more properties than their capital would normally allow.
- Guesty is a property management software that allows hosts to manage bookings, communicate with guests, and oversee the day-to-day tasks related to their units. In addition to Airbnb, hosts typically advertize their units on multiple platforms - Booking.com, Trivago.com and Expendia. This exposure ensures that occupancy is high year-round. Guesty allows hosts to seamlessly manage their vacancy across all sites, so if someone books on Expedia, that time will be unavailable for booking on Airbnb.
Making money in short-term rentals is easy and fun. Like any business, it requires time and dedication, but the returns are in most cases better than when the real estate is actually owned. Just like Uber drivers who make more money than their yellow cab predecessors, hosts have the opportunity to participate in the sharing economy and work at the forefront of innovation.