Worldwide: Steve Marcinuk, co-founder and managing partner at KeyCrew, explains why many short-term rental investments fail in the first year and details his own experiences.
The promise of passive income has driven countless investors to dive into the short-term rental market, with platforms like Airbnb offering what appears to be a straightforward deal. On the surface, it seems simple: purchase a property in a popular location, list it on Airbnb, then sit back and relax as the bookings and revenue roll in effortlessly.
The reality is far more complicated. Many first-time hosts quickly discover that generating consistent bookings and maintaining profitability requires more than just owning a property and posting a listing. From platform challenges and guest management issues to pricing missteps, the challenges can pile up fast. For many, these obstacles become too much to handle, leading them to abandon their short-term rental venture within the first year.
I know this firsthand. Back in 2016, I bought my first short-term rental property, drawn by the promise of passive income and financial freedom. But within months, I was caught up in a maze of daily tasks – marketing, bookings, guest issues, and platform updates. While I was ultimately able to make these investments work, the experience was a humbling one that revealed just how much commitment and strategy are needed to succeed in short-term rentals.
From that experience, I identified what I believe are the biggest challenges that often catch new hosts off guard.
Platform struggles
With over five million hosts, it’s fair to say that Airbnb is a pretty crowded marketplace. New hosts often find themselves lost in the noise, especially in highly saturated markets where even seasoned hosts have been forced to slash their prices by 50 per cent just to stay competitive. Where does that leave new hosts who lack established review scores and a history of successful bookings? Not a good place, that’s where.
Adding to the pressure, an increasingly stringent regulatory environment is disrupting the short-term rental market across major US cities. For instance, New York has effectively erased short-term rentals as a viable investment, while other cities like San Francisco have introduced severe restrictions, only allowing permanent residents to list properties for fewer than 30 days. While such regulations are well-intentioned – mostly aimed at alleviating housing shortages – they also tend to be short-sighted and introduce a lot of difficulties for investors.
As a result, a growing number of investors are exiting the short-term rental market altogether, or completely pivoting their investing strategy such as fractionalising ownership using platforms like Plum or Pacaso. While such approaches require a different mindset, they are becoming increasingly attractive to those seeking a lower risk entry point into owning a vacation home. It’s a reminder that this is a rapidly changing market where adaptability is a mandatory trait for survival.
Guest troubles
Managing guests can be one of the most challenging aspects of running a short-term rental. Unlike long-term tenants, short-term guests often come with high expectations, frequently treating minor issues – like a slight hiccup with wifi connection or a request for extra towels – as urgent emergencies. Other times, you’ll have to deal with actual emergencies, like a late-night lockout or a malfunctioning air-con unit that require prompt action to keep guests satisfied and maintain positive reviews.
Even when you do everything you can to make your guests comfortable, you can still get burned by bad reviews. Guests may focus on the smallest inconveniences, overlooking the many positives of their stay. Just one negative review can overshadow numerous positive experiences, leading to a tarnished reputation that can take a lot of time and effort to recover from.
To manage these issues, I started keeping a notepad of common guest issues and how to deal with them. That notepad is now almost full and I’m still adding new entries as I encounter different scenarios. Suffice to say, managing guests takes a proactive approach that goes well beyond the “set it and forget it” mindset that many first-timers expect.
Pricing pitfalls
Pricing strategy is complex enough to warrant its own article. Get it wrong, and you’ll either scare away potential guests with rates that are too high or find yourself unable to cover property expenses with rates that are too low. This task can become even more complicated in competitive markets, where prices fluctuate rapidly. Using a dynamic or “smart” pricing software that autonomously adjusts your rates based on real-time market data can be a big help, but it shouldn’t be your only strategy.
Regularly monitoring competitor listings, local trends, and seasonal fluctuations should become a routine part of your management process. You’ll also need to maintain meticulous bookkeeping to ensure your profits aren’t being eaten for lunch. This can be a lot to handle for someone who’s new to managing rentals or navigating the intricacies of running a small business.
For me, I’ve always likened it to running my own decentralised hotel. You need to wear a lot of different hats, from marketing and customer service to finance and maintenance. Juggling these responsibilities on your own can lead to despair and burnout, so don’t be afraid to seek outside help through a management company. From what I’ve seen, the quickest failures in short-term rentals often come from those who recognise this need for help too late.
Final thoughts
Okay, I know that was a bit of a downer, but this is the reality of being a short-term rental host. Too many people underestimate the level of work that goes into making these investments a success. That said, when they are a success, it can be an incredibly rewarding and lucrative experience. Just make sure you have the right experience and the right team to support you along the way. Take the time to educate yourself about the challenges and develop a solid strategy for managing your property.
With the right approach, your short-term rental journey can be a fulfilling and profitable venture.
Steve Marcinuk is co-founder and managing partner at KeyCrew, a platform that connects home buyers, sellers and investors with local real estate pros.
