Hotels Versus Short Term Rentals

The Real Estate Espresso Podcast

Hotels Versus Short Term Rentals

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Hotels Versus Short Term Rentals

Welcome to the Real Estate Espresso Podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show we’re taking another look at the changing landscape of hospitality. AirBnB disrupted the hotel world with the Gig Economy’s answer to short-term stays. Legions of property owners saw the potential for higher income and went all in on the rental windfall.

The hotel industry has relied on the Online Travel Agency to bring them a lot of traffic. These are folks like Booking.com and Expedia. The pricing in the hotel industry tends to follow dynamic supply and demand principles. Those coming to town for a large convention when properties are full, can expect to pay more. Coming during low season when hotels are empty, you’re likely to get a bargain.

But who wants to spend a lot of time browsing through dozens of different hotel chains in order to save a few bucks? That’s where the Online Travel Agencies can add a lot of value. In my personal experience, I’ve often booked higher-quality hotels using an online travel agent at prices that are lower than what you can find on the hotel’s website. I know it should not be possible, but I’ve lived that experience too many times to call it a coincidence.

The online travel agents responded to the threat of short-term rentals by offering to list short-term rentals on their own site as well. This offers customers the option of seeing branded hotel listings in the same research results as a short term rental. Companies like Expedia and Booking.com now carry private listings in addition to hotels. These online travel agents offer none of the safeguards of the Airbnb platform, or VRBO for that matter. Even if the same property is listed on both Airbnb and Expedia, the terms of those two contracts are vastly different.

Hotels are fighting back, though. The biggest drawback of Airbnb is the wide variation in quality. We’ve probably all experienced that really bad property that frankly, should have its occupancy permit revoked, let alone be removed from any short-term listing site. It doesn’t matter whether you disclose in the listing that the property has zero windows. It’s still not suitable for occupancy.

Long, established short-term rental owners have struggled with finding qualified staff to manage their properties. The cost of cleaning and managing has risen and individual property owners are generally not experts at quality control systems. The cleaning fee, when added to the cost of the nightly stay, is often more expensive than a hotel.

If you’re traveling with your entire family, and you’re renting say a four-bedroom house, it can absolutely make sense compared to four hotel rooms. Most new hotels are of the extended stay variety and they’re being built with small kitchens in each suite. A fridge and a microwave are the minimum and some have a more complete kitchen.

According to Boston.com, a significant 73% of the readers expressed a preference for hotels and there was an interesting nuance in their choice. Hotels, according to the respondents, are often chosen for shorter solo trips. On the flipside, for extended stays, especially those involving family and friends or pets, Airbnb emerged as the preferred choice.

The homelike ambiance, possibility of having an entire place to yourself, and the flexibility offered by many Airbnb listings seems to cater better to these longer group-oriented stays. My current trip in Panama is an excellent example of where short-term rentals make sense.

The condo building that I’m staying in recognizes that many of the units are owned by expats who only spend a few weeks a year in their unit. Units are empty the rest of the time. Monthly rentals can attract a rate of about 1,200 a month plus utilities, and short-term rentals can attract a rate of about $80 a day including utilities. There’s so much availability, of this product type, that frankly, it doesn’t make sense to even build a hotel on this strip of beautiful sand beach.

The building I’m staying in is less than five years old, it’s got great amenities and good quality finishes. A hotel in this location would probably not survive unless it was packaged in an all-inclusive resort with an airline vacation package.

When it comes to business travel, hotels are still the preferred choice. In fact, a recent survey found that 68% of business people prefer staying in hotels when traveling for work. That presents a great opportunity for hotels to capitalize on the business travel market, although that market has shrunk since the pandemic. The survey results mirror my own personal experience, in fact on Monday I’ll be traveling to Houston for business and I’ll be staying in a hotel. A short-term rental wasn’t even a consideration, it wasn’t even a thought.

For those who travel frequently, loyalty points can be a differentiator. Marriott and Hilton loyalty points offer access to properties worldwide and if you’re traveling for business, you’re probably not going to consume your Hilton honors points at Terminal 2 in O’Hare. It’s probably going to be in a lovely resort somewhere in the world. Short-term rentals don’t have a competitive loyalty point offering.

Short-term rentals have done a better job of creating the perception of a more immersive, ‘live like a local’ experience. Hotels can counter this with local concierge services that offer recommendations, though such services are not often offered by the average Airbnb host. Providing stellar face-to-face interaction is difficult for most short-term rentals. A lockbox in a back alley is not the same as a welcoming presence at a front desk with a well-trained staff member ready to greet you.

If you have an early morning flight the next day, a hotel near the airport with shuttle service started at 3 a.m. is always going to be preferred over a short-term rental because of the certainty of checking in on time.

The short-term rental market has matured to the point where it’s saturated in a lot of markets. This isn’t a growth story anymore. The competition will demand high performance. Only the strongest players delivering the highest quality product will survive.

As you think about that, have an awesome rest of your day. Go make some great things happen! We’ll talk to you again tomorrow.

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