We have been inundated with calls from Pensacola short-term rental property owners over the last two months. Most of these property owners have seen a drastic slowdown in AirBnB bookings and are realizing their Pensacola area STR property is not performing as successfully as they had expected. After a successful spring and summer for many short-term rental landlords, vacation rental bookings have seemingly dropped off, nationally and locally. Because of these reasons, property owners want to convert them to medium-term and long-term rental properties. Unfortunately for many, the Pensacola rental market is oversaturated with furnished rental properties. It’s hard to find reliable statistics on short-term rentals, however, we’ve seen an astronomical increase in the number of short-term rentals since the beginning of COVID. The number one rule when purchasing a short-term rental is to make sure it makes financial sense as a long term rental. Unfortunately, many owners only used potential income when doing their income analysis and are seeing these properties significantly underperform.
There are so many reasons for the slowdown in bookings, and we’ll cover a few of them here:
- The real estate market is rapidly changing. After a crazy year of low inventory on both the residential sales and rental market, inventory is building and demand is falling off. STR owners were able to capitalize on the chaotic real estate market as many short-term rental occupants were relocating, searching for a long term rental, battling it out with other buyers for a home purchase, or waiting out construction delays for a new construction property. With record high home prices and interest rates soaring above 7%, less buyers are making moves and long-term rentals are once again abundant and easy to find.
- AirBnB’s popularity soared, with more people in need of housing using the platform than ever before, making it more appealing to vacationers, renters and landlords. 2021 was wildly successful for AirBnB as travel picked up after the COVID pandemic. Pent up travel demand skyrocketed during this time and inflated demand and rental income projections. Likewise, both the Pensacola area and the state of Florida experienced record travel numbers during 2022.
- The market for short-term rentals is smaller due to drastic changes in economy happening this year alone. While employment remains strong, the U.S. is in a technical recession. Record inflation is affecting everyones’ budget, and luxury expenses will be the first to be cut.
- With record home prices and rapidly increasing interest rates, investors were unable to purchase a cash-flowing, long-term investment. Because of these reasons, a significantly larger percentage of investors chose to invest in short-term rentals instead. With the lure of record rents and high income projections, this led to an over saturation of vacation rentals. Additionally, more homeowners decided to utilize their extra space to bring in income.
So what should you do if you own a Pensacola short-term rental that is underperforming? Let’s talk through a few options.
- Some owners are simply waiting it out. You shouldn’t panic over one or two months of low income, as seasonality is a big factor when operating a short-term rental. Historically, short-term rentals produced 2-3x the income in spring and summer as opposed to fall and winter. Seasonality should be considered in your income projections. Nobody knows what next year will bring.
- Convert your short-term rental to a medium term rental. Many owners are choosing this route. You can opt for a monthly corporate style rental, or offer a 6-7 month lease to make it through the fall and winter months. If you opt for a 6-7 month rental, we recommend timing this right and converting from daily or weekly to monthly in August or September to capitalize on the busy tourism season which runs from March to August. The problem with offering a 6-7 month lease is that few Pensacola area renters are seeking furnished properties for this length of time.
- Convert your property to a long-term rental. Unfortunately, to choose this option means ditching the STR approach for good as it most always performs better unfurnished. You’ll also have to get realistic with rental rates. We find many owners transitioning from a STR program want about $500 over the monthly market rent. If you don’t price your home according to market rents and remove the furniture, you’ll find your home vacant for extended periods of time and you will most certainly see significant turnover with tenants breaking their leases. We are happy to evaluate each property individually because in some cases there is value in keeping the unit furnished, however, most often we recommend that the owner remove the furniture and rent the properties vacant.
What factors should you use to evaluate your property to see if it makes better sense as a short, medium, or long-term rental? One of the main factors we recommend considering is the location of your property. Historically, short-term rentals in Pensacola were limited to beach areas like Pensacola Beach and Perdido Key. Now, you’ll find short-term, vacation rentals in practically every neighborhood in Pensacola. We find that short-term rental properties do better in the coastal areas such as Perdido Key and Pensacola Beach, and areas like Downtown, East Hill, and North Hill. These locations offer historic value and proximity to events and nightlife. Other considerations include amenities like pool access, tennis courts, and deeded waterfront access. As the number of available short-term rentals increases, these amenities are more important than ever in attracting and retaining guests. Try improving your property's accommodations to make the property more appealing. You can also make small changes to cater and stand out to groups of people that are often left out, like travelers with young children or business professionals.
Look at the success of your property in terms of income and bookings. How has the rental been performing? How are bookings now and into the future? With an overabundance of properties to choose from and reduced demand, not all STR’s in the Pensacola area will be successful. As of today, there are 115 active furnished rentals available on Zillow in Pensacola alone, with another 300 properties active on the long-term rental market. With nearly 25% of our available homes furnished, these numbers are shocking as we’ve never seen this many furnished rentals on the medium and long term rental market. On FurnishedFinder, you’ll find over 350 furnished rentals in the area seeking a medium-term lease. There is simply not enough demand for furnished housing to fill all of these rentals, and affordability remains an issue at these rates. Traveling nurses & business professionals are the main audience for furnished long term rentals, but these are few and far between compared to the number of available properties.
Given all of this information, it may be best to convert your property to a long-term rental now or in the future. Our team specializes in long-term rentals in the Pensacola area, and our agents are happy to evaluate your property to help you determine your best chance of success. Request your Pensacola area free rental analysis today https://www.pensacolarealtymasters.com/pensacola-property-management