Real Estate Marketing – REIA of Oakland

As the months of uncertainty go on, one thing that keeps Airbnb owners up at night is the potential for a looming recession. And it’s not a questionable concern, especially when Americans have been constantly told since mid-2022 that a recession is just around the corner.

In fact, as of May 2023, the New York Fed recession probability indicator suggests a 68.2% chance of a recession happening in the US in the next 12 months—the highest reading in over four decades. That in itself is already a great reason for distress.

So, before you frantically search for a panic room, let’s navigate how you can best leverage your property investments and make them recession-proof.

Airbnb in a Recession

During a recession, it’s common for travel patterns to shift as people adjust their spending habits. While luxury travel may experience a decline, the short-term rental industry, including Airbnb, has shown some resilience in previous economic downturns. For example:

In the travel industry’s post-2020 recovery, big hotel chains, like Hilton, only started to see positive earnings in the fourth quarter, with revenue per room increasing by 60.4% from the previous year—still nowhere near pre-pandemic levels. In contrast, Airbnb exceeded pre-pandemic sales with a fourth-quarter revenue of $1.5 billion, a 38% increase from the same period in 2019.
A report by Airbnb showed that long-term stays of 28 days or more have become more popular as it doubled in the first quarter of 2022 compared to the same period of 2019. The reason cited was growing work flexibility and the rise of remote working.

While short-term rentals may demonstrate relative resilience during recessions, market dynamics can vary based on location, local regulations, and individual property factors.

For instance, short-term rental investors must be informed about the local market during an economic downturn, because some travel destinations may experience an unwelcome shock from traveler elasticity.

How to Recession-Proof Your Airbnb

If your property is in a tourism destination, you will likely stay profitable during an economic downturn. But, if you’re located in an area saturated with STRs and limited tourism attractions, staycationers are spoilt for choice—making staying afloat challenging.

But worry not. You’re not alone. After all, no company or industry is 100% safe from an economic recession.

Here are five ways you can navigate a recession:

1. Accept Medium and Longer-Term Guests

Think about embracing monthly and extended stays to maintain high occupancy and a steady flow of income. Doing so prevents you from keeping your calendar empty for days and keeping your property consistently booked.

Plus, you can encourage more guests to book longer stays if you offer a discount on monthly bookings—it’s always good to strive for customer retention.

2. Offer Flexible Pricing Options

In an economic recession, you have to factor in that demand might become more price-sensitive, and competition within the short-term rental market could intensify. Often, most property owners will bring prices down, and you can also do that and see if it brings you good results. If not, you can do the exact opposite by charging higher than your local competition. A bit ironic, but this capitalizes on the concept of “perceived value.”

You have to let your customers recognize your property’s value so they’ll be more willing to pay your asking price. On top of exceptional property and service, you can add a few more amenities, like:

Bikes or scooters if your property is in the suburbs
Dog-walking services for pet-friendly places
Fast and reliable wifi to attract co-working

Just to name a few.

3. Focus on Exceptional Guest Experiences

Delight your guests with experiences they’ll remember. As we mentioned earlier, adding amenities that guests want will help you capture more customers. According to Airbnb, most travelers say amenities are their top priority for a great trip—which is more crucial if you want guests to stay longer.

So, pay attention to interior design & cleanliness, provide essential amenities, and add thoughtful touches that make your guests feel special. Word-of-mouth and positive reviews are priceless. In fact, 88% of consumers trust online reviews as much as personal recommendations.

4. Build Relationships with Local Businesses

Form alliances like the Avengers!

Partner with local attractions, restaurants, and shops to offer exclusive deals to your guests. This will enhance your customers’ experience and strengthen your ties within the community.

Remember, collaboration is vital in tough times.

5. Leverage the Power of Social Media

Maximize the power of social media to boost your property’s visibility, engage with potential guests, and drive bookings. Here are three ways social media can help you recession-proof your Airbnb:

Showcase your property: Use platforms like Instagram, Facebook, and Pinterest to visually highlight your Airbnb property’s unique aspects. Share high-quality photos and videos that show your amenities, decor, and local attractions to entice potential guests.
Engage with followers: Respond promptly to comments, messages, and inquiries on your social media platforms. Engage in conversations, provide helpful information, and address potential guests’ concerns. Active engagement builds trust and shows your commitment to providing an exceptional guest experience.
Provide local insights: Share tips, recommendations, and insights about your location. Be a valuable resource for travelers and staycationers by sharing information about local attractions, events, restaurants, and hidden gems that potential guests might appreciate. Position yourself as a trusted source of local knowledge and build customer relationships to get repeat bookings.

Thriving Beyond A Recession

No one can predict the future with certainty, but historical data and trends indicate that the short-term rental industry, including Airbnb, has shown resilience during previous recessions. As travelers seek cost-effective options and prioritize domestic leisure travel, STRs offer an attractive alternative.

However, staying informed, monitoring market conditions, and adjusting your approach to cater to evolving guest demands is vital to stay afloat.

Remember, it’s crucial to remain prepared and proactive to navigate any economic climate successfully. So, keep a positive mindset and adapt your Airbnb business to thrive even during challenging times.

Join a REIA of Oakland meeting for more tips on managing your property investments.

Beautifully decorated short-term rental studio unit — *Source:* *Andrea Davis* on Unsplash

What accommodation did you book for your last vacation?

We’ll bet $100 that you Googled something like “tiny home” or “farm stay” instead of the usual hotel room!

The US real estate market is filled with short-term rental market opportunities, where people gravitate towards cozy, picturesque rentals instead of cold, clinical hotel rooms. Millions of listings sell an excellent guest experience, and the market for unusual Airbnbs grew tenfold during the pandemic.

Still, some hotspot, short-term housing markets like the City of Detroit remain overlooked. Many investors focus on the likes of San Francisco, California, and miss out on the goldmine that’s largely still untapped in Michigan.

So, in this article, we’ll go through market trends and statistics that prove the potential of the Detroit short-term rental property market in 2023 and beyond.

Short-Term Property Statistics in the City of Detroit

Let’s start with the numbers. How is the Detroit real estate market performing in 2022?

Understanding the data behind the average Detroit property investment will give you an idea of the city’s short-term rental capabilities, so you’ll know what returns to expect. Besides handling renters and maintaining the property, financial viability will always be the driving factor in every good investment.

So, here’s a snapshot:

Affordable properties: The median price is $85,000 with 7.6% increases year-over-year, making it an affordable city. And with a price per square foot of $75 (less than half of the $222 national average), you’ll easily find Detroit properties that fit your investment budget.
Excellent cash flow: The rent-to-price ratio is roughly 1% to 1.5%, depending on which Detroit neighborhood you choose to invest in. With this range of ratios, you’ll easily generate strong cash flows that’ll help pay off the initial investment and start pocketing returns.
Profitability with short-term rentals: The average rental income for short-term rental investing is $2,246, which is a huge difference from the already-profitable traditional Detroit investing where rental income is around $979.
High occupancy rate: Average Airbnb occupancy rate is 50%, whereas most US markets have an average of roughly 20% to 40%.

Still, be aware that the City of Detroit only allows short-term rentals in your primary residence or owner-occupied properties with two to four units. You can read more about this rule from the local government’s website to ensure that you comply accordingly.

2023 Forecast for Short-Term Rentals in the City of Detroit

As an investor, looking at market forecasts is almost as crucial as checking historical trends. So let’s take a closer look at the forecast for short-term rental properties in the City of Detroit, to help you decide if renting a Detroit home in 2023 is worth your time and money.

According to Zumper, 302 short-term rental properties are currently listed in the city. This figure may seem small compared to the literal thousands of long-term rentals you’ll see on Zillow, but it still indicates a growing short-term rental market in Detroit neighborhoods, as we’ll see in the statistics below.

1. Growing Average Rent Prices

Average rents dipped in major cities across the nation recently. But Metro Detroit as a whole is faring well, where the fastest growing rent year-on-year in the area is in Ann Arbor, where average rent has gone up 23.5% since last year—that’s a 16.1% rent increase.

The chart below shows a 20% rent increase for three-bedroom rentals in the past year:

Increasing rent means increasing cash flow for you as the investor. Combine rent increases with the impressive 50% average occupancy rate we mentioned, and you’re looking at excellent returns in the City of Detroit.

2. Increasing Property Values and Appreciation Rates

Detroit properties are increasing in value, which means you’ll get to reap excellent equity gains if you hold onto them for the long haul. Zillow reported that Detroit home values are is at $69,330 (very affordable), and Norada said the values increased by 23.7% in the past year (very valuable):

The latest forecast announces that Detroit median home prices will rise by 2.1% from 2022 to 2023.

The city’s real estate also appreciated 89.7% in the past decade, placing it in the top 30% of all cities nationwide for property appreciation. In the last 12 months, its rates have remained among the highest in the country, which explains why short-term rental investors continue to find success in the city.

3. Improving Tourism in the City of Detroit

Michigan’s Motor City has had a unique culture, distinctive architecture, and revitalization renewal efforts for the past years The city is now a prominent tourist destination, called by Time Magazine a “newfound glory,” where travelers are playing a role in its vibrant economic growth.

Eating alone is becoming a real treat in the city, where one can experience Indian cuisine in the Midnight Temple near the Eastern market, immerse themself in Chef Maxel Hardy’s rosemary-filled Rosemary cafe then stray into the adjacent cigar lounge, Byrd. Or, chow down fresh seafood boils straight from the Great Lakes at What’s Crackin’.

The city has dramatically been revitalized from “dangerous” to vibrant and impressive. Today, people are saying, “I didn’t expect the city to be like it is, it’s really amazing!” and “We got the chance to see the city and I really would recommend [coming] here.”

Owner of Multilingual Detroit Motown Tour, Dildora Damisch, shares, “This year, I cannot believe, I am booked every single day! And people coming from all over the world! Unbelievable.” And why wouldn’t she, with more than 2 million international visitors in one year alone?

Accommodations are wildly increasing in the City of Detroit to serve the influx of travelers. There are over 500 new hotel rooms currently in development, including the 158-room Cambria Hotel opening in late 2022 (with golf simulators, Bluetooth mirrors, and the Detroit Taco Company Bodega), and ROOST Apartment Hotel is set to open in early 2023 in Book Tower, a restored iconic Detroit building.

Your short-term rental could easily leverage the city’s growing tourism industry.

2023 is a Great Year for Detroit Short-Term Rentals

Without a doubt, 2023 is an excellent year to either expand your portfolio or start investing in the City of Detroit’s short-term rental property market. With growing average rent prices, increasing property values, and improving tourism in the city, impressive historical trends will likely continue their upwards direction for years to come.

Want to learn more about Detroit real estate? Join as a member, subscribe to our newsletter, and attend our upcoming meetings! We’re doing everything we can to ensure that you’re prepared, equipped, and confident enough to reap great returns from Metro Detroit.