STR Hosting vs Long Term Renting

Tue, May 04, 2021 1:46 PM | Jill Palamountain (Administrator)

Written by Anthony Rallo, Member of the H2H Meet-up Team, Host2Host member and host of vacation properties on Fire Island NY, Poconos Pa, Gatlinburg TN, Outerbanks NC and more - A+W Projects

In the world of real estate, there are many use variations that have continued to evolve over the last 100+ years. A traditional owner that offered their dwelling for rent would typically provide a lease for the tenant and become a landlord. This has been the common, known terminology that long-term rental owners have become accustomed to. It remains common practice for long-term rental owners to work with a realtor or real-estate leasing agent to help assist with the process of marketing the owner’s home as well as the paperwork associated with creating a lease for the tenant. A fee ranging from 10-15% of the annual lease is industry standard for the professional help associated with these duties. 

When Airbnb came onto the scene, circa 2008, the traditional model for owners offering their dwelling had already begun to evolve and has since been adopted by many more people as the barrier to entry has been lowered and dramatically changed. Owners who never wished to be “landlords” discovered they could be “hosts” part or full-time, and people who wanted to visit (but not live) in a town/city discovered they could be “guests” in a home (versus a hotel). Realtors, previously shepherds of the long-term leasing of a property, were soon subjugated by faceless platforms like Airbnb and Vrbo when owners decided they wished to host on a short-term perspective. Along the way, owners that chose to offer their homes on a short-term basis discovered that the revenue they could collect was exponentially above what they’d receive renting long-term and the conditions of offering their home was infinitely elastic.  

While this hands-on approach combined with technology was an evolution of sorts, short-term rentals have been around for a long time too. The vacation rental industry had existed for a long time. Typically they were operated by “mom & pop” types that would offer their home for rent or sometimes by professional property management companies. Property management companies grew as managers realized Jane Homeowner had a home in a great destination which she didn’t live full-time in and was okay letting others rent it to help cover costs of owning and maintaining the home. Paying a moderate fee of 15-30% while collecting sizable short-term rental payments still seemed like a win for owners.

Today, the choice to be a Host or a Landlord isn’t one to be taken lightly and has varying benefits and compromises. While there isn’t an official definition yet, it has become more adopted in the industry to refer to STR owners that provide their home, or room to people on a less than 28 day basis as “hosts” and those that pay to stay in these homes, or rooms as “guests.” As a result, hosts wouldn’t create leases, though they MAY have rental agreements. Hosts wouldn’t run credit checks or take payment in person; they would use platforms known as an Online Travel Agency (OTAs) and processors (Stripe/Square). Guests wouldn’t pay for utilities or “move in” they’d pay a nightly rate, a cleaning fee and appropriate occupancy taxes and “check-in” - similar to the way they would at a hotel. This time-based definition of less than 28 days, accompanied by the lack of transferring any ancillary utility charges also seemingly offers an STR host some protection from getting stuck with issues surrounding squatters and evictions.

On the converse side, STR hosts often must charge/collect/remit Sales, Use and Occupancy Hotel taxes that would be eliminated should they be renting their home on a long-term basis. STR hosts must furnish and decorate the home they are hosting in versus offering a property completely vacant. Hosts must provide cleaning of the home after a guest departs and often provides linens for bedrooms and bathrooms. Additionally, without realtors or leasing agents, hosts also pay to list and market their homes on the OTAs with nominal fees of 3-8% of the total.  Even with all of these incremental costs and responsibilities short-term rentals still have proven to be lucrative choices. It appeared that a short-term rental revolution had begun giving power back to the homeowner and providing tools that made offering one’s home easier, with less operational overhead, higher profitability and greater flexibility. 

Making the decision to be a host can be rewarding in many ways beyond just fiscally. As travel rebounds from lows we’ve seen at the start of the pandemic, many more homeowners are likely to be drawn in, creating an even larger ecosystem of hosts and guests enjoying short-term rentals.

It's hard to quantify just how gratifying it is when a guest loves a host's space. But current hosts know this may be the most important measurement of all to their success and happiness in the STR business.  

-anthony rallo

Managing Partner | A+W Projects

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