October 2020 – REIA of Oakland

Lady wearing a face mask — What is the new normal?

Coronavirus has affected the travel and tourism industry at an unprecedented scale. With strict stay-at-home orders and lockdowns still in place globally, online travel traffic is down by 70%, potentially accounting for up to $20B in missed revenues. In the US, bookings for short-term rentals bookings saw a 94% year-on-year decrease due to the pandemic.

As borders slowly start to reopen in the near future, what will the new normal of the short-term rental industry look like in Metro Detroit and Oakland County, in particular?

Localized Effects Will Differ

Travel restrictions have crippled the industry severely, but data suggests that the short-term rental industry is doing better than the hotel industry, which reported continuous declines, with revenues per available hotel room dropping year-on-year by as much as 94%.

Urban markets will likely suffer more than holiday or leisure destinations. In New York (where the virus hit hardest), year-on-year data indicate that the demand for short-term rental properties have decreased by 50%, and consequently, revenues have gone down by 47%, too.

What we’re currently seeing is a shift in demand from urban to remote rental locations, where there is less exposure to the virus. As these patterns carry on into the foreseeable future, we recommend STR operators to keep a closer eye on market trends and industry news. More than ever, strategic and data-driven decisions will be crucial in bouncing back from this crisis.

Assessing the Impact of COVID-19

To predict demand and gain market insights, consider using a trend analysis tool, such as MarketMinder. They provide good breakdowns of market rates and offer valuable insights on trends that can help you work out the state of your particular market, and adjust your strategy accordingly. (Note: some of their features are only available for paid subscribers, but you can do 5 basic reports a month for free).

Here are some trends to look at to gauge the stage of your market’s recovery:

How far ahead reservations are being made?
How are other hosts pricing their properties now vs. their pre-pandemic rates?
What rate do guests actually book the property for?
How far are people travelling to reach your area?
How are they getting there – by air or car?
When will business-related travel resume? Are there any conferences planned for the future in your area?
Are people booking owner-occupied rentals, or only “have the whole place to yourself” ones?

Post-pandemic, it seems very likely that travelers may opt for vacations that could be reached via land travel to mitigate risks. This may lead to an increase in demand for nearby STRs, as travelers try to find budget-friendly holidays and accommodations within easy reach of the city.

To see how these trends are developing in Metro Detroit, we used MarketMinder to conduct a comparison between Downtown Detroit and a suburban area closer to the lake, such as Saint Clair Shores.

Insights from the tool indicate a rental demand score for Saint Clair Shores of 72, in comparison to Detroit’s score of 69. Median occupancy rates (calculated over the last 12 months) in Downtown Detroit are also down, from 69% in June 2019 to 45% in April 2020. By comparison, Saint Clair Shores has a current occupancy rate of 50%, possibly showing early signs of the shift in demand from urban locations to less densely-populated areas.

Human beings have an inherent desire to travel and explore. So it’s almost certain that, once travel restrictions are lifted globally, the demand for STRs will slowly increase again. Although we don’t exactly know when this “new normal” will begin in earnest, for now, property owners and landlords can spend this time preparing for it, by implementing strict sanitation measures to reassure and attract future guests.

Image Courtesy of: Anan Shvets

Student tenants can rent anywhere. They don’t always choose to live in student housing, or even in the immediate vicinity of their school, but often rent or split a regular unit instead. That means, no matter where you are in Metro Detroit, you can end up with student applicants for your properties.

You can run into them in three situations: If you’re in or near college towns, near a university in a bigger city, or even randomly, as long as you have student-appealing amenities nearby. And though Metro Detroit isn’t a popular university area, here are some neighborhoods where you can expect student applicants:

College Towns

Landlords in college towns deal with students all the time. If you own rentals near one of the college towns in Livonia or Dearborn, there’s a high chance you’ve already run into them. A lot of these areas have vibrant downtowns, with many gyms, restaurants, and other amenities catering to the younger crowd.

University Areas

Besides college towns, there are also spots near universities like the University of Detroit Mercy and Wayne State University (both in Detroit City) and Oakland University in Rochester. These have fewer student tenants looking to rent in the immediate area, as a lot of them commute from home, but you’ll still run into student applicants here fairly regularly.

Randomly!

There’s a community college in Royal Oak, but that’s not the reason students rent there. They rent there for its trendiness and great nightlife. Students can show up in any area like this, as long as it’s young, vibrant, and appealing to them. Some students would much rather live in a great neighborhood and just commute to their university, so regardless of your proximity to a school, you can still run into them occasionally.

One of the most significant differences between student vs. non-student tenants is that they usually lack established income or credit history. But that doesn’t mean you should skip considering them altogether–you just have to know what to look out for.

How to Screen for Student Tenants

They should have a reliable source of funds, whether that be student loans or a supportive parent. Just make sure to also screen any cosigner that will be paying the rent.

Once their financials are set, use your better judgment (and their track record, if any) to see if they’ll make good tenants or not. Obviously, the number one concern with students is that they’ll throw crazy parties and treat your property like a messy dorm. However, you can’t just discriminate against students on this basis alone – you’ll need clear criteria for selecting tenants, and be able to show that a particular applicant didn’t meet those criteria.

Be careful of how you phrase things, especially when you don’t accept students and cosigners flat out as a blanket statement. You can have a policy that dictates no acceptance of cosigners, but in this case, you can never accept cosigners for anyone else without risking being accused of discrimination.

Student renters come in all forms, and they can crop up anywhere. You may not market your property to students, but if you’re near a trendy area that’s desirable amongst young people, you’ll likely get at least a few student applicants anyway. Your property doesn’t even need to be located close to one of Metro Detroit’s colleges or universities.

So be prepared to handle student applicants when they appear: conduct proper screening and don’t be discriminatory when considering them–as long as the financials make sense and they have a co-signer that can guarantee you their rent!

Have you had student tenants in Metro Detroit? What was your experience with them?

Image Courtesy of Andrew Neel