Why Should Property Management
Companies Transition to a Hybrid Stay Model in 2021?
The residential real estate market is showing clear signs of recovery after a downfall due to the pandemic. The market value is projected to reach $12.182 billion by 2027, with major developments expected in Europe and Asia.
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Deloitte Property Index 2020 highlights that while the impact of COVID-19 has been significant, the housing market in Europe is growing, with cities like Lisbon showing a whopping 164% increase in housing prices. The story is the same in the Asia Pacific, as the region’s housing economy is expected to grow by 7.2% in 2021.
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While this is good news for property management companies, things aren’t the same. Property managers are generally inclined towards short-term rentals, considering their high profit and revenue potential. But while COVID-19 continues to cripple the travel sector, property managers are incurring property-related expenses.
This requires a hybrid rental model that enables property management companies to leverage both short-term accommodation and long-term rentals at the same time.
Long-Term Rentals: Pros and Cons
Renting out properties on a long-term basis has some clear advantages. These include:
- Consistent Income: Long-term rentals produce consistent rental income irrespective of whether the season is busy or slow.
- Easy Management: Managing a long-term rental property is easier, as you don’t have to look for new tenants at short intervals. Also, there’s no need to advertise the property frequently, ensure that it’s ready for rent, or handle tenant turnover.
- Paid Utilities: In general, long-term tenants pay their electricity bills, and in many cases, the cost of water and sewer as well.
- Effortless Maintenance: Long-term tenants tend to oversee various maintenance issues such as cleaning, yard maintenance, etc., thereby lifting the burden off the property manager’s shoulders.
However, long-term rentals come with some drawbacks as well. These include:
- Locked In: The real estate sector can take twists and turns. Rental prices might suddenly spike, but being locked into a one-year contract doesn’t allow you to make changes about price and occupancy. This lack of flexibility can provide challenges.
- Lack of Control: When you have long-term tenants, it’s not possible to closely monitor and manage your property. How your apartment is cared for is at the mercy of the tenants.
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Short-Term Accommodation: Pros and Cons
While long-term rentals are great to generate consistent income, short-term accommodation properties also have some tempting advantages.
- Higher Income Potential: Short-term rental properties can be more profitable. If the property is located in a popular vacation area, you can increase the prices in peak seasons and generate more profits.
- Adjust Pricing: Since there are no long-term contracts, you can adjust pricing as you see fit. If the demand is high, you can increase the prices to maximize your profits.
- Better Maintenance: Short-term rentals allow for close monitoring and maintenance of properties. Once a guest checks out, you can clean and repair the property and make it ready for the next tenant.
However, the short-term accommodation model has some drawbacks.
- Constant Maintenance: Having new tenants every week means you’ll have to constantly clean and maintain the property for the next guest. This can be costly and time-consuming.
- Consistent Marketing: A short-term accommodation model requires you to find new customers every week. You have to keep promoting your property and keep looking for new guests.
- Dry Seasons: While peak seasons can be extremely profitable, low seasons can be dry. Short-term rentals don’t guarantee consistent income, and your revenue may fluctuate every month.
Hybrid Property Management: The Best of Both Worlds
Choosing between short-term accommodation and long-term rentals can be difficult for property management companies. While long-term rentals can generate consistent income, you might miss out on potential opportunities to increase your revenue and profits.
On the other hand, short-term rental properties are at risk of not attracting any guests during low seasons. For instance, Airbnb’s booking rates dropped 85% in 2020 due to the pandemic.
To overcome this uncertainty, property management companies are moving towards a hybrid property management model. By transitioning to a hybrid model, you can get the best of both worlds.
Hybrid Rental Model
A hybrid model is a combination of short-term accommodation and long-term rentals. The focus of this model is to allow property managers to maximize profitability while minimizing risks.
Depending on the type and number of properties you own, you can take two approaches to hybrid property management.
Approach-1 – Diversifying Your Property Portfolio
This approach works best for large property management companies with properties in various locations. Let’s say you have ten properties in England. Six of them are located in urban areas like London, Birmingham, and Manchester, and the remaining four are located in tourist destinations like Bath, Cornwall, and York.
You can use your properties in urban areas as long-term rentals, as it’ll be easy to find tenants looking to stay for 6 or 12 months. As for the properties in popular tourist destinations, you can turn them into short-term rentals and maximize your profits during peak seasons.
Hence, even if the tourist volume is low and your short-term rentals don’t generate enough income, your long-term rentals will act as a consistent source of revenue.
Approach-2 – Rental Model Transformation
This approach is ideal for small property managers who have a handful of properties in a city or region. For instance, let’s say you have two properties in Istanbul, Turkey. While the city is one of the most popular tourist destinations in Asia, it’s also the most populous urban area in Turkey.
The peak tourist seasons in Turkey are Spring and Fall (mid-April through September). Tourist visits are comparatively low from October through March. So, you can use the property as a long-term rental in October-March and rent it out on contracts of 6-8 months. And during the peak season, you can transform it into a short-term accommodation property and invite new guests every week.
While managing a hybrid property can be associated with high maintenance and marketing expenses, the profit potential is massive, with relatively low risks.
Conclusion
The travel sector continues to be mercurial, with some destinations experiencing all-time high tourist volumes and others being completely shut down. In such uncertain times, property management companies can ensure consistent revenue, profitability, and business survival by transitioning to a hybrid property management model.
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