Investment firms bet on short-term rentals

Thanks to the pandemic, geographically distant telecommuters and locked-in travelers have boosted demand for vacation rentals. Additionally, low interest rates have made borrowing and buying traditional rental properties more attractive, increasing property values ​​and making it harder for new buyers to make a profit. As a result, several deep-pocketed investment firms are looking to break into the short-term rental market.

AvantStay Inc., a California-based property management company, has launched a venture with New York-based investment firm Saluda Grade to buy $500 million of rental housing. Ryan Craft, managing director of Saluda Grade, said Saluda Grade will buy the properties and AvantStay will manage them “for a fee”. A startup called Andes STR, which acquires and maintains short-term rental properties for its investors, will also buy $80 million of properties in the United States in conjunction with WEG Capital, a Chile-based global investment firm.

There are still many headaches that come with entering the short-term rental market, such as the fact that several major cities have clamped down on short-term rentals, rising mortgage prices for short term compared to owner-occupied homes, and the frustrating delays that come with buying a property one at a time for such a large undertaking. Despite these challenges, many investment firms are confident that the potential returns in the short-term real estate market are worth it.

At the moment, the majority of vacation rental properties are owned by “small” owners who list their properties on online marketplaces like Airbnb. However, most of us are familiar with the damaging song and dance that platforms like Airbnb have in the housing market: when landlords shift their properties from residential rentals to vacation homes, it reduces the number of permanent residents in the area, which has a detrimental effect on the existing community. Housing prices are rising, threatening the remaining members of the community who are now at risk of having their homes sold. We might expect to see the same thing now that these investment companies have entered the scene. Saluda Grade, in particular, “targets homes within driving distance of major population centers,” which looks a lot like homes in existing suburban communities.

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With the problems that most cities, especially tourist towns, have with housing affordability, the transformation of suburban homes into vacation rentals is almost certain to be pushed back. This risk is certainly not a deterrent to investors, but the future of short-term rentals depends on the response of local regulators.