How Operators Can Profit from Short-Term Rentals

There are inflection points in every industry that bring new challenges, and with them, new opportunities. The “Fosbury Flop,” for example, is the oft-cited sports industry turning point from 1968 when Dick Fosbury, American high jumper, approached the bar in a radically new way. Rather than landing on his feet, Fosbury jumped sideways in a curve that allowed greater flexion, rotation, and ultimately higher clearance.

The multifamily industry is at a similar inflection point: The confluence of leasing up new buildings, the professionalization of Airbnb, and the maturation of the short-term rental industry make today the perfect time for multifamily owners and operators to reap the rewards of the short-term rental industry.

With the short-term rental industry experiencing double-digit growth for years, the sharing economy is showing no signs of slowing down. And by embracing this demand and a new approach to leasing, multifamily building managers and owners stand to reshape the way in which new multifamily buildings are leased and managed for years to come.

How, though?

Option 1: Airbnb’s friendly building program

Airbnb has already recognized the potential that lies in connecting the short- and long-term rental industries. Through the Airbnb Friendly Building Program, landlords can authorize residents to rent their apartments to guests through the sharing economy.

While friendly to residents, however, Airbnb’s model fails to protect building managers and owners. Reliant on inexperienced, amateur hosts with little accountability and few safeguards for resident safety, operators and their residents are left completely vulnerable.

And it’s no surprise that landlords have widely rejected the program. With the risks of lawsuits, regulatory complications and rowdy guests, it’s simply not worth the risk for the majority of apartment owners. With less at stake, tenant hosts are likewise more likely to disregard the apartment brand reputation and be more lenient with those they allow as guests.

There are, however, better options.

Option 2: Rented corporate leasing

Multifamily operators can still reap the advantages of the growth of the short-term rental industry without the involvement of current residents.

Have you ever leased units to corporate housing companies or corporations directly? Do the same—but with a totally new pool of clients.

Lease multiple units (10 to 20 at once) to corporate tenants—in this case, professional short-term rental management companies that would pay market rents, furnish the apartments, pay utilities and take responsibility for guests and interior property conditions.

This model not only accelerates lease-up by allowing multifamily operators to lease their available units, it likewise provides the following benefits:

1. Control: By contracting with a short-term rental management company, building management can enact a policy that prevents all other tenants from subleasing, thereby ensuring that all units are licensed and hospitality taxes are paid. The management company will then have a third party to police residents’ sharing economy activity.
2. Productivity: By embracing short-term rentals in a professional, legal and measured way, building managers and owners can attain new levels of productivity from their on-site personnel. Staff can lease multiple units (often as much as an entire floor of units) to a single operator in one transaction, thereby freeing the team to perform other work or even support lease-up at other buildings. In many cases, interior unit maintenance will be likewise performed by the short-term rental management company, which will limit the strain on existing maintenance resources.
3. Amenities: Perhaps less obvious is the ancillary benefit of a new amenity for residents: onsite, bookable, “hotel-like” units for friends and family.

Better safe than sorry
Of course, resident safety is of the utmost concern to most building managers and owners and one of the largest risks that comes with the Airbnb Friendly Building Program.

Fortunately, by doing Rented Corporate Leasing, those concerns are aligned with those of the short-term rental manager, who takes on both reputational and financial risk with every unit leased and booking made.

To ensure only quality guests, short-term managers can and should screen potential guests for troubled financial or criminal pasts using software such as Safely. Not only does Safely check guests against a worldwide database of rental guest history that captures house rule violations, disputed payments, property damage and more; it also vets guests against 200-plus global fraud and crime databases.

To prevent adverse impacts to lease roll, terms can also be staggered on the front and back ends. Minimum notice provisions can also be implemented to marginalize impact on lease roll, should the management companies ever decide not to renew their leases.

In my backyard?

Consumer demand is ultimately driving growth in the short-term rental industry across major markets, secondary markets, tertiary urban markets, as well as destination markets, and we’ve already seen the success of Rented Corporate Leasing in areas such as Nashville, Atlanta and Savannah, Ga.

As consumers increasingly opt for alternative accommodations over traditional hotel lodging, the program can continue to grow. While at this point in time, many suburban developments will not be a fit, outcomes will vary city by city.

Next Steps
Do you currently have empty units, or are you looking to take a bite of the growing short-term rental pie? If so, evaluate the possibility of leasing to short-term rental managers in your buildings.

Mickey Kropf is the co-founder & COO of Rented.com. Rented.com is the leader in connecting multifamily property owners and short-term rental managers for corporate leasing multiple units. Prior to co-founding Rented.com, Kropf worked in various segments of the commercial real estate industry. Kropf is a former professional baseball player, avid runner, family man and graduate of Harvard College. Rented.com is a free service for multifamily unit suppliers, so feel free to test this approach with any vacant units in your portfolio.