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How vacation rental data can help assess real estate investment opportunities

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How can you use rental vacation revenues to guide your real estate investment decisions? This was a great conversation topic last night at the entrepreneur retreat that I am currently attending. To support my opinion, I quoted 3 informative pieces that I had recently come across : A study by agency Villa-Bali.com on where to buy a rental property in Bali to get the best return on investment,  a blog post by Airbnb data and analytics company AirDNA and an episode of Ryan Moran’s financial freedom podcast show.
Real estate companies have only started changing the way they value a property to take into account the Airbnb phenomenon. It used to be that a property was just seen as a house by real estate companies, not as a business.
But as more and more people rent out their vacations homes and family homes, real estate companies have been trying to incorporate vacation rental revenues data in their valuation models.
To put it another way: Can revenues from vacation rentals in one area inform you into whether you should be investing in a property there?
I found 3 ways to say: YES.

1/ Villa-Bali.com’s study on Bali villa rental revenues

Leading villa rental agency Villa-Bali.com recently released a very compelling study and a revealing infographic about rental revenues on the island of Bali.

bali villa buying guide

Bali is a big villa rental market. I was keen on reading this study, as I own 2 properties on this island. Villa-Bali.com is one of the largest players on the market. The company gathered 1 year of rental data to determine what parts of the island were the best to enjoy the fastest return on real estate investment (or: Where to buy Bali villa rentals whose payback time is the fastest?).
It is an interesting study, with a surprise finding: the north of Bali is clearly undervalued. As a new international airport is bound to open in a few years, it could be a great investment opportunity.
Seminyak is in high demand and offer great returns, while Ubud is clogged with villas that have lower occupancy and lower night rates.
How does this study stack up with my own experience? First, I agree that people who want to stay in Seminyak, but cannot afford it, stay in surrounding places like Canggu and Umalas. My villa Adagian is in Umalas 1, and this is exactly the type of guests that I am getting.
Now, according to this study, the West of Bali is the worst place to invest: For instance, occupancy rates there are in the low 40% . Yet, this is where my Bali beach retreat, Bulung Daya, is located. My own occupancy rate is close to 75%, while the villa is one the most expensive places in the area. Maybe I am doing a great job with a fantastic property? 😉
True, it is hard to get guests to commit to West Bali, but this is why 95% of my bookings are directly made through me, not through agents who have a hard time booking such remote properties. Maybe it means that most guests using agencies such as Villa-Bali.com are not the type of people who would stay at a secluded place in West Bali. Some do, but most do not.

2. AirDNA uses Airbnb data to show where real estate investment opportunities reside

AirDNA is company that relies on hard data to help property owners and managers increase their rental revenues, discover spikes in demand and optimize their Airbnb listings.
But the data gathered by AirDNA, on more than 4,000 US neighborhoods and internationals cities such as Paris and Milan, can also help target real estate investments.
Here’s what its official website has to say:

2022 vacation rental conference

Many savvy real-estate entrepreneurs are buying up homes and condos in prime tourist locations to rent them full-time as vacation rentals. Verify how much short-term rentals are earning in over 4,000 neighborhoods across the globe and calculate how much profit they can generate over the course of a year. Property managers stand to gain with greater income and more reliable bookings.

In a recent post about international Airbnb cities, the AirDNA team compared the number of listings in top Airbnb cities and the top occupancy rates around the world. Outside of the US, Paris, London and Rome had the most listings, while the occupancy rates were the highest in Tokyo, Melbourne and Osaka. However, London, Dubai and Cabo San Lucas were the locations where you could earn the most money per night.

3. Vacation Rentals as overlooked real investment opportunities (Ryan Moran)

Ryan Moran has a great podcast called Freedom Fast Lane. His goal is to help his listeners achieve financial freedom. Ryan invests a lot into real estate. He had his advisor, Bill Tierney, come on his show to share his way of selecting investment opportunities.
Vacation rentals came high on his list. As quoted in the show notes :

No one is really talking about vacation rentals, and Bill believes they should be as it is the Holy Grail! (…)  
Bill says it will take more legwork and patience to invest in vacation rentals. Ideally, you want to rent by the month to keep the revolving door limited. Remember, when you rent weekly, you’re sending in the maid service more often and other associated costs.
When it comes to sourcing properties and investment locations, look online as a guide to what is already renting in the popular markets and at what price. Also find out as much as you can about that real estate market. As far as returns go, you want to be in an area you know people are always going to go to, like Florida.
 

As a conclusion, there is a demand for using vacation rental data to finetune real estate valuations. The data is not available for all the markets, but just doing some research online, on Airbnb, Homeaway and Flipkey, may yield very interesting trends that you want to take into account.
 

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Thibault is the founder of Rental Scale-Up. He owns vacation rentals in St. Barths and Bali. He also leads innovative projects for companies within the vacation rental industry. Feel free to reach out to Thibaut Masson on Linkedin.

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