Maximized Margins: Three ‘A’s For Better Net Short-Term Rental Income

Maximized Margins – After the action of the pandemic-era market, the short-term rental niche has ascended to the status of an asset class, becoming one of the most powerful investment vehicles in the recovery landscape. Offering a unique strategy for portfolio diversification, with low risk, sustained demand, and frequent, above-average payment events, the short-term rental has seen rapid uptake among new and established investors alike.

With the uptake has come an influx of strategy; investors have taken different approaches to optimize their net operating income across their rental portfolio, whether that consists of a single vacation property or a robust list of properties across multiple locations. Having had some time to reflect and analyze, some strategies have proved stronger than others, and one theme has been hard to miss.

Overwhelmingly, tech-empowered solutions have been the best way to optimize short-term rental earnings. The value-add of tech is no longer thwarted by the cost of smart technologies. Instead, those solutions have become increasingly affordable and exponentially effective. The result: a quantifiable advantage.

But the list of potential tech investments is virtually unending, and each one differs in the size and nature of the ROI. By way of an investor’s priorities, there are three key areas toward which to leverage tech investments—analysis, automation, and audits—to build and support a lucrative short-term rental approach.

Analysis: A Proactive Approach

Market analysis has been under-utilized in the real estate space. Low market volatility, long time periods between liquidity events, and a lack of available technology pushed concrete market analysis solutions to the back burner. But the short-term rental niche changes that, and new to market vendors have made it possible to take a more proactive approach.

A free, short term rental analysis tool pools the real-time data for comparable rentals. Investors can enter the details of a prospective property—the address, the nature of the stay—and gain instant access to seasonally adjusted data regarding the average nightly price and occupancy rate of all comparable properties in their area. With a three-tiered performance analysis, investors can understand the expected performance of the property in question.

And while demand is strong in the short-term rental market, it’s not evenly distributed. Data from Q4 of 2022 shows some market segments can sustain high nightly prices with high occupancy rates, while other markets might capture only one or the other. Finding the best of both worlds is a balancing act, but investors can reduce the guesswork and trust in the numbers to find the right approach.

Automation: Reducing the Time Spent

In considering their net operating income, investors often forget to budget for and calculate their time spent. For a full short-term rental portfolio, time soon becomes the limiting factor and often ends up as the steepest expense. Between tenant communications, marketing, underwriting, property upkeep and turnover management, the opportunities for involvement are

endless. But most investors aim for passive income, and the time required for any of the above quickly compounds.

Targeted automation is the best way to mitigate an investor’s involvement. Beginning the process, automated marketing solutions can ensure properties are listed at the optimized price point and stay length across multiple booking platforms. Many solutions leverage dynamic market data to ensure the property offering is optimized and the prospective audience is maximized.

Further, tenant communications and underwriting can be simplified through CRM strategies, and automated conversations help investors satisfy uniform tenant needs quickly and efficiently. Turnovers can be similarly streamlined. New tech vendors offer automated strategies for assessing property needs between tenants and staffing them adaptively. Integrated financial solutions can automate the collection of tenant payments, the payment of staff, and the logging of repair expenses or maintenance needs, leaving the investor with an accurate bottom line without having lifted a hand.

Audit: The Magic of Data Properly Leveraged

With automatically organized financial statements and earnings reports, investors have the opportunity to accurately track the effectiveness of every investment. Net operating income (NOI) is the most useful metric to that end; the cost of the investment is naturally counted against the return, and an increase in NOI indicates that the investment was well worth it. Frequent earnings audits help investors not only understand how their decisions are affecting the performance of their properties but also how their properties are performing against traditional accommodations and against their market peers.

The owner’s portals can reduce the leg-work of every part of the audit process. Many options exist on the market, but a great owner’s portal makes it easy to see at a glance how demand has changed over time, how different price points and to stay lengths have affected overall earnings, and how the entire portfolio is performing as a whole. The capacity to integrate multiple properties, track changes, and be alerted to an under or over performance goes a long way in helping investors disconnect from the day-to-day noise of those dynamics and efficiently analyze the findings all at once, whether that’s weekly, monthly, quarterly, or in a more formal setting within an institutional approach. Tech-empowered owner’s portals and overviews help investors manage their investments like they would any other, letting the data speak for itself.

A properly vetted property changes an investment from the beginning. With new market technology, investors have the power of real-time data analysis wherever they go. Understanding the performance of comparable rentals in the area offers a new way to quantify considerations at the property acquisition stage. From there, investments into automated marketing, payments, underwriting, and property management result in an increase in earnings and a decrease in necessary time that quickly compounds to justify the spend. Tracking net operating income is the best way to test and vet investments, ensuring that each dollar spent toward automation is well-justified.

Finally, smarter data analytics are made possible by tech-first owner’s portals and optimized earnings reports. An investor’s magic is made at the level of numbers, and with smarter solutions, it doesn’t take work to find the numbers they need. By focusing their investments on the 3 A’s of short-term rental investments—analysis, automation, and audits—investors will have put themselves in the best position to continually capitalize on the post-COVID ascent of the short-term rental asset class.

About Emir Dukic

Emir Dukic is the CEO of Rabbu, a frontier flexible rental asset management company that helps real estate investors see the potential for short-term rental income.

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