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The State of Flexible Rentals Mid-COVID

The State of Flexible Rentals Mid-COVID and Post-Election Update on STR Business Models and Revenue Impacts

It’s important to know that while many in the apartment industry will lump short-term rentals (STR) into one big category, not all business models being used by operators to generate revenue through this strategy are the same.

That was a key message delivered in “The State of Flexible Rentals Mid-Covid and Post-Election Update on STR Business Models and Revenue Impacts,” part of the Flexible Rentals Investment Conference, sponsored by Cort, that included panelists Amy Johnson, Director of Marketing, Roers Companies and Core Living, and Kenda Hartmann, Director of Revenue Management, AMLI, with moderator Donald Davidoff, D2Demand Solutions.

The STR playing field over the past year has changed significantly. Some of the larger companies leveraged themselves a bit too much through their master-leasing approaches are no longer in business. Some smaller and more nimble companies have entered the space and are offering new twists on traditional operations methods. Companies exist that offer full-service daily management, while others provide software that enable owners and management companies to manage STRs in the way that makes most sense for them.

The pandemic era has brought operators falling rents, rising evictions and vacancy rates and increases in unconventional resident moveout patterns that have seen reliable markets fail while others thrive. Some apartment operators are looking to fill revenue gaps through STRs. They have adjusted their STR service companies and the number of units they allow for short-term renting, looking for the best mix.

“We’re using STRs to account for a 3 percent to 5 percent vacancy in our properties,” Johnson says. “It’s been really profitable for us, even during the downturn.”

Johnson operates about 60 STR units, using three different STR service providers, with traditional, revenue sharing and a flexible method to create revenue.

“When our properties at 97 percent occupancy, there’s really no downside risk to doing STRs,” she says. “The revenue margins ebb and flow, but overall, they are where we’d hope them to be.”

Johnson says she’s had residents ask if they can sublet their apartments “but that wouldn’t really help us to fill our vacant units” so she doesn’t allow it. She also wonders: Would prospective residents really choose her community because we offer the opportunity to sublet their apartments? “We don’t believe so, so we’re not really missing a big opportunity in doing so,” she says.

Hartmann says AMLI does not allow its residents to sublet their apartments and has no intention of changing that position, especially given the increase in resident complaints she’s hearing about “too much coming-and-going traffic” within her communities.

Davidoff noted that given that so many apartment residents are working all day from home, they are better able to notice who is walking around on their communities’ property.

“You really need to know who’s living in your apartments,” says Hartmann, who adds that AMLI is not getting more requests from its residents who want to be allowed to sublet their apartments.

Hartmann says she’s discouraged by what she’s seen from larger STR service providers who, about a year ago, spread themselves too thin while in hyper business-growth mode – leading to their downfall.

“This has really affected how management companies think when deciding which service partner to choose,” she says.

AMLI presently is using STRs on longer-term leases, helping to fill revenue gaps during 2020, and Hartmann expects rates to return to normal levels in 2021. “We’re managing the risk,” she says. “We’re thinking about what could happen next in this economy and what we’d do if there is another downturn. You have to adjust your pricing for this to account for your own risk.”

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