Hey folks – Walker here, Nectar’s Head of Growth.
Last week, I was fortunate enough to attend the (first ever!) IMN Short Term Rental Forum in Austin.
Hosted by Information Management Network, this new conference is a testament to the explosive growth we’re seeing in the short-term rental market — and the attractive opportunity that it represents for investors.
For Nectar, it was the perfect forum to engage with investors, developers, lenders, property managers and fellow vendors in the short-term rental space. And suffice it to say, we’ll definitely be back!
Between the panels full of industry expertise and (especially) a few riveting conversations at the hotel bar, I learned quite a bit about major trends and issues in the industry.
Here are our top takeaways from the event, in no particular order:
1. We’re in the very early stages of STRs as an asset class.
It’s an exciting time to be in the STR game. In some ways, it’s a land grab — no pun intended. There’s so much opportunity because the big-time players really haven’t entered the market in full force (yet). We’ll see how this upcoming recession plays out, but at least in the next couple years, I expect to see the industry take a large shift toward institutionalization. it will be a totally different story.
2. The STR industry isn’t just fragmented; it’s granular.
Nobody has emerged as the dominant player. Vacasa, one of the biggest operators, only has about ~1% of market share in the U.S. It’s almost a guarantee that today’s big players will continue to buy up the smaller operators as they push hard for more market share.
3.Underwriting short-term rentals is no small task.
When it comes to underwriting short-term rentals, there’s simply no one-size-fits-all solution. There’s always going to be a push for automation and improved data, but when it comes to underwriting today, it’s still more art than science. Data like AirDNA is incredibly helpful — but it’s just one input. You still need to draw your own insights and conclusions and really dig deep into every deal.
As the top operators in the space, along with Airbnb, push toward unique experiences, I expect we will never fully reach the formulaic underwriting you see for many other asset classes. At least for the higher end assets. There will always be a need to underwrite each deal on it’s own merits.
4. LP investors share the same questions.
LP investors are going to ask questions. Lots of them. Here are a few question themes I heard repeatedly at the conference:
- How will you scale? You need to be able to explain to investors what your plan for growth looks like, particularly when it comes to operations. If you’re seeking investors beyond friends and family, they will expect you to have a plan to scale.
- What’s your thesis? Are you focused on a single market because you’re prioritizing efficiency, or are you straddling multiple markets because you believe diversification is key? Investors want to know your strategy and the rationale behind it. They likely have their own perspective, so it’s good to be aligned on key strategic elements.
- What’s your financial strategy? This needs to be clear and thorough, unpacking your plan for leveraging debt, equity and cash flow. Depending on the experience of your LP, they may be able to help here as well.
5. Regulation is a big question mark.
Industry regulation is by far the biggest unknown for anyone in the short-term rental space. There’s a push toward increased regulation, especially in urban markets. At the same time, companies and industry associations are throwing major resources toward lobbying initiatives to block these regulations.
My personal thoughts about STR regulation and investment:
- Some regulation is good, and can make sense depending on the market. In some markets, STRs do impact the neighborhood, housing affordability, and standard of living. We’re better off as an industry acknowledging that and working toward common ground solutions in those areas. It’s better to have a defined law in place than the threat of strict legislation hanging over our head.
- The best way to de-risk a short-term rental investment: stick to traditional leisure markets. That’s the best bet to avoid any big surprises with detrimental legislation in the future.
- If you are in a more regulated market, but hold a permit – you hit the jackpot. Access to supply in a supply constrained market is incredibly valuable. Hold on to it.
Did you attend the IMN Short Term Rental Form? What were your takeaways? Share with me here on Twitter!
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