Diversifying your portfolio with investments like real estate is one of the best decisions you can make. That said, real estate returns vary significantly depending on what you do with the asset. In the buy-to-let segment, short-term rental properties offer the biggest potential for profits, but they come with their own challenges to navigate. Even in a buoyant market, rewards aren’t guaranteed, and there are some important factors to consider.
After a steep decline in reservations during 2020 due to lockdowns and travel restrictions, short-term rental demand surged in 2021. The trend is predicted to continue in 2022. According to a survey by Airbnb, more people are embracing long-stay travel and choosing a temporary base for its lifestyle benefits now they have the flexibility to work from anywhere. Various studies show that the UAE is one of the world’s most preferred destinations to live and work, and even permanent residents are turning away from annual rental contracts that come with the hassle of upfront commissions and post-dated cheques.
Dubai has over 10,000 active vacation rental listings. Occupancy rates increased 32 per cent from December 2020 to December last, plus ADR increased by 15-28 per cent. The average month-on-month occupancy grew to 94 per cent. Flexi-payment terms and ‘move now pay later’ schemes are making it easier for individual investors to get into the short-term rental game. While property prices have certainly risen in the last 12 to 18 months, there’s still plenty of room for growth. Along with higher overall income potential compared to having long-term tenants, other benefits include adjusting your pricing to meet demand, and having the flexibility to sell when the time is right.
Location: Depending on what demographic you’re targeting, factor in things like job and salary trends, popularity among tourists, and whether the community is expected to grow. Ask yourself, why would they choose that particular area? How accessible is it? How far is it from the main attractions and convenience stores?
Different areas have different advantages and it also comes down to the amount of money you want to spend. While Downtown, the Palm and Dubai Marina are goldmines, they require more capital compared to the secondary sphere of real estate further south, which come with their own advantages, such as price points, payment plans, and the Expo effect.
Maintenance and management: Running a successful short-term rental requires work. If you want to manage it yourself but live far away from the property, it will be harder to deal with any issues. It might be cheaper to handle things like guest liaison and repairs yourself, but that’s only possible if you live close by. Alternatively, you may want to hire a professional property management firm to take care of it for you.
Marketing: Before closing the deal, think about how you’re going to list the vacation rental property and keep it booked on a consistent basis. Will it mean utilising one of the major booking platforms, advertising on social media, creating an own website, or having a property management company that can take care of all the marketing aspects?
Some common mistakes
Choosing the wrong property: Long-term profitability is related to a variety of elements. The type of property, location, furnishing quality, and property features will all determine your pricing strategy and revenue. It is important to do a proper market analysis before investing, as well as projecting anticipated expenses.
Managing your business: As lucrative as a short-term rental sounds, it’s success relies on providing high standards of service to guests. This is difficult if you live in a different country or you do not have sufficient time to spend on it. Creating the perfect experience for every guest can be demanding, involving frequent changeovers, maintenance requirements, and prompt communication. Rather than seeing the property as a source of passive income, you need to decide how to manage the investment effectively.
Seasonal income: A point to consider is that UAE holiday lets can attract fewer traditional tourist bookings during the summer. However, the remote working model has created a new guest pool and corporate travellers are relocating for months at a time. Think about how your guest profile might change each season and incorporate a B2B marketing strategy to make the most of your investment throughout the year.