Historically speaking, the housing market has been relatively resilient during market disruptions. Unfortunately, this isn’t necessarily true for short-term vacation rentals.
The COVID-19 outbreak has had a significant impact on the vacation real estate market. Facing volatility and uncertainty, property owners have been confronted by mass cancellations that have led many to make hard choices about whether to sell their properties or weather the storm.
“If you are the owner of a short-term vacation rental, your rental income is likely to fall,” said Jean Wheaton of The Wheaton Team which specializes in Monument and Colorado Springs Real Estate. “Around the country, large events are being canceled. This ranges from concerts to festivals to sporting events. People are also concerned about traveling due to the virus and uncertainty about regional government restrictions. In addition to emptying out hotels, this is going to have a long-term effect on short-term rentals like Airbnb.”
Experts say many short-term rental property investors should expect to see a drop in revenue for the next several months because the tourism industry will take time to rebound. Many people who scheduled cruises of ski trips made their plans six months ago. What’s more, a large number of people who had to cancel at the last minute were not able to get their money back. Unfortunately, many of these people will not be able to afford to go on another vacation. This could prolong a dip in the vacation real estate market even after things begin to normalize.
“The outbreak is definitely hurting the vacation real estate sector,” said Wheaton. “With so many summer and autumn vacation plans on hold, owners of short-term rental properties face a lot of uncertainty. Many use income derived from vacation rental fees to pay off debt on their investment properties. If those proprieties remain vacant, their mortgage payments could be impacted.”
This sort of uncertainty has always been one of my major concerns with short-term rental investment properties. Still, while existing property owners are grappling with uncertainty, it could lead to big opportunities for forward-thinking buyers.
“As they struggle to fill vacancies, more and more Airbnb hosts are choosing to sell their properties,” said Wheaton. “Any time you have a lot of similar inventory hitting the market, it’s going to create more options for buyers, resulting in more affordable prices. This outbreak isn’t going to last forever, and the travel industry is going to see renewed growth at some point. For buyers who are in a good financial situation, it may make a lot of sense to buy low now, so they can reap dividends when people start traveling again.”
For existing short-term rental owners who hope to weather the storm, there are some options. Many have looked into converting their properties into traditional long-term rental homes with extended leases that keep property value stable and ensure that rental income continues to come in. Still, even this option comes with a certain amount of risk.
“For long-term rental property owners, many local jurisdictions are implementing bans on no-fault evictions or even any type of eviction during the COVID-19 outbreak,” said Wheaton. “That means property owners may not be able to evict a long-term tenant who hasn’t been paying their rent for a few months. In several areas, late fees and late payment penalties are also on hold. While these measures are designed to be temporary, a second wave of COVID-19 could prolong moratoriums on evictions.”
Faced with this type of uncertainty, a growing number of vacation property owners are choosing to sell now. On the other hand, others are looking to bear down and wait things out or even purchase these properties as part of long-term investments. The choice typically boils down to whether they have the financial means to weather the outbreak until people start traveling again.
About the Wheaton Team
For nearly a quarter of a century, The Wheaton Team has specialized in residential real estate in Monument, the Tri-Lakes Area, Colorado Springs and all of El Paso County, Colorado. With six decades of combined experience, our award-winning real estate professionals have developed a streamlined, three-step system to help sellers and buyers achieve their goals.
With a seasoned staff of expert real estate professionals, The Wheaton Team is ideally positioned to guide clients through the complex home buying/selling process and help them achieve their highest goals, even during challenging market conditions.