Short-Term Rental Options for Multifamily Operators

4 min read

The five-page report from D2 Demand Solutions breaks down the six STR business models.

As the new year begins, the multifamily industry is still grappling with the impacts short-term rentals (STRs) continue to have on the apartment sector. A report from consulting firm D2 Demand Solutions outlines how multifamily firms can navigate “one of the fastest-changing developments in both the rental housing and lodging industries” and focuses on the various STR options and operators.

The five-page Short Term Rentals in Multifamily report notes that STRs offer an attractive revenue opportunity for multifamily operators but also states few “can currently claim to have control over their properties involvement in the STR business.” D2DS, founded and run by Donald Davidoff, has advocated for several years that operators should consider STRs primarily as part of a property’s revenue management strategy that can fill units and provide revenue, often during lease-ups.

The report notes STRs can also help maintain high occupancy without lowering rents and even support rent growth with the right partners and operating procedures. As the STR industry has grown in recent years, there are now a variety of business models. Multifamily operators interested in STRs should research which option will work best for their needs and properties.

The report breaks down the various models, some of which are mutually exclusive and some that complement each other. D2DS includes six business models, though the final one addresses those multifamily companies that prohibit STRs in their properties and proactively enforce those policies. For those operators, a company like SubletAlert.com, can alert them if a tenant is trying to list their unit on one of the many public STR markets. While D2DS provides the information for this strategy, the report does remind operators STRs can provide revenues that might otherwise be missed opportunities.

Business Model Breakdown

The D2DS chart offers advantages and disadvantages for all the business models, which also include: specialist STR property management, pop-up hotel, corporate housing intermediary, do it yourself STR and STRs as an amenity.

One of the more common options, specialist STR property management, includes names like Lyric Management, Sonder and Stay Alfred. These third-party STR-specific operators typically want a property owner to agree to offer two- to three-year leases for units in a building that they then rent out through STR platforms like Airbnb, VRBO and HomeAway for short stays similar to hotels. The advantages to this model include increased occupancy, premium rent, higher retention rate and offloading of primary liability for the property owner.

The pop-up hotel option is used by developers during the lease-up phase. They will take a large number of units and run them as a hotel during lease-up with the help of a third-party operator like Whyhotel. One of the main advantages cited by D2DS is realizing rental revenue more quickly.

The report notes that Urbandoor invented the corporate housing intermediary which is a marketplace that brings sellers and buyers of corporate rentals together through a technology platform, using a months-long strategy, rather than daily rentals. The main advantage cited by D2DS is that owners make more money while buyers save money.

Multifamily operators can also follow a do it yourself STR model in which they offer short-term rentals directly to the public using one or more units. They can create their own technology platform or use platforms from companies like Apartment Jet, which was recently purchased by Expedia. The DIY model gives property owners maximum revenues and maximum control, but it does mean they also retain the primary liability among other risks.

The last category, STR as an amenity, allows residents to legally sublet their units through STR platforms like Pillow, also recently acquired by Expedia, and Airbnb Friendly Building. This strategy allows multifamily operators to control the amount of subleasing allowed at their properties and also gives them a share of the revenues. The report notes this can be an attractive selling point for residents who can only afford their units if allowed to sublet a few days a month.

The D2DS report notes it’s important for multifamily owners and operators to understand the supply and demand side of the STR market to determine if it’s the right strategy for their properties and then which model might work best for them.

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