Diversifying your portfolio with investments like real estate is one of the best decisions you can make. That said, real estate returns vary widely depending on what you do with the asset. Within the buy-to-let segment, short-term rental properties offer the greatest profit potential, but they present their own challenges to overcome. Even in a buoyant market, rewards aren’t guaranteed, and there are a few important factors to consider.
After a sharp drop in bookings in 2020 due to closures and travel restrictions, demand for short-term rentals surged in 2021. The trend is expected to continue in 2022. According to an Airbnb survey, more and more people are embracing long-term travel and choosing a temporary base for its lifestyle benefits, they now have the flexibility to work from anywhere. Various studies show that the UAE is one of the world’s most popular 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 checks.
Dubai has over 10,000 active vacation rental listings. Occupancy rates increased by 32% from December 2020 to last December, and ADR increased by 15-28%. The average monthly occupancy rate rose to 94%. Flexible payment terms and “move now, pay later” programs make it easier for individual investors to get into the short-term rental game. Although house prices have certainly increased over the past 12 to 18 months, there is still plenty of room for growth. In addition to a higher overall revenue potential than having long-term tenants, other benefits include adjusting your prices to meet demand and the ability to sell when the time is right.
Location: Depending on the demographic you’re targeting, consider things like employment and salary trends, popularity with tourists, and projected community growth. Ask yourself why would they choose that particular area? How accessible is it? How far is it from major attractions and convenience stores?
Different areas have different benefits and it also depends on the amount of money you want to spend. While Downtown, The Palm and Dubai Marina are gold mines, they require more capital compared to the secondary sphere of real estate further south, which has its own advantages, such as prices , payment plans and the Expo effect.
Maintenance and management: Managing a successful short-term rental takes work. If you want to manage it yourself but you live far from the property, it will be more difficult to manage the problems. It may be cheaper to handle things like customer liaison and repairs yourself, but this is only possible if you live nearby. Alternatively, you can hire a professional property management company to take care of this for you.
Marketing: Before closing the deal, think about how you will list the vacation rental property and keep it booked consistently. Will that mean using one of the major booking platforms, advertising on social media, creating your own website or having a property management company that can take care of all the marketing aspects?
Some Common Mistakes
Picking the wrong property: Long-term profitability is tied to a variety of things. Property type, location, quality of furnishings, and property features will all determine your pricing strategy and income. It is important to do a good market analysis before investing, as well as to forecast the expected expenses.
Running your business: As lucrative as a short-term rental may seem, its success hinges on providing high standards of service to customers. It’s difficult if you live in another country or don’t have enough time to devote to it. Creating the perfect experience for every customer can be demanding, involving frequent changeovers, maintenance requirements, and fast communication. Rather than viewing property as a source of passive income, you need to decide how to manage the investment effectively.
Seasonal Revenues: One point to consider is that vacation rentals in the UAE may attract fewer traditional tourist bookings during the summer. However, the remote work model has created a new pool of guests and business travelers are moving for months at a time. Consider how your guest profile might change each season and incorporate a B2B marketing strategy to get the most out of your investment throughout the year.