By Strategic Passive Investments
When Airbnb launched in 2008 as an air mattress on a floor and a crazy dream, it was probably difficult for anyone other than maybe its founders to imagine that one day the company would be publicly traded, have nearly 3 million hosts, and boast more than 7 million global listings. In fact, most people probably would have simply said they preferred to stay in a trusted location like a known hotel rather than in someone else’s home. My, how things have changed.
Today, in 2022, Airbnb is one of the biggest success stories of the pandemic era. Company stock held its own during the 2021 technology-stock sell-offs, losing only about 1 percent in early 2022 for a net year-over-year gain of 10 percent in early February. Analysts credit “revenge travel” for much of the short-term rental boom, but also predict that pent-up demand will not ease much, if at all, in 2022 and beyond the initial post-COVID travel explosion.
While it might feel to many travelers as if every vacation destination has skyrocketed in cost lately – not to mention being fully booked – real estate investors will benefit from a more careful evaluation of short-term rental markets before acquiring an asset. Short-term vacation rentals, sometimes referred to as STVRs, come with a unique set of complicating factors that make them very different from traditional rentals. In Savannah, Georgia, one of the top coastal vacation destinations in Georgia, and adjacent Tybee Island, there are five things real estate investors should know about STVRs before buying.
#1: Savannah has a (relatively) long history of STVR regulation.
While this might not seem like a good thing at first, the reality is that Savannah and Tybee are tourist destinations and the towns are very aware of this fact. As a result, although short-term rentals have been regulated for years now, those regulations are not as stringent as many newer regulations in other cities where residents have only recently convinced municipal governments to “crack down” on vacation rentals. Furthermore, Savannah permits a degree of short-term rental activity in the city’s famous Historic District, Victorian District, and Mid-City District despite a prevalence of hotels in these areas as well. The city requires short-term rentals to be certified in a variety of ways to confirm that owners have met all zoning and ordinance requirements.
#2: Bed-and-Breakfast venues are not STVRs.
If you have always dreamed of operating a bed-and-breakfast on or near the beach, then Savannah is a great place for this. The area is full of romantic couples vacationing and seeking unique experiences. Do not, however, confuse a bed-and-breakfast with a short-term vacation rental! The city does not consider these two things to be the same thing at all. Savannah defines a bed-and-breakfast as a rental of between two and five rooms and, furthermore, distinguishes between STVRs and “bed-and-breakfast homestays,” which it defines as “short-term rental of a room within a dwelling unit.” The latter is often confusing to Airbnb hosts who live in their properties and rent out portions of those properties.
#3: Savannah limits occupancy and volume of STVRs in certain areas of the city.
If you have spotted a great deal on a potential short-term vacation rental in the Historic District of Savannah, make sure you will be able to operate your asset once it is acquired. The city has placed a 20 percent cap for new STVRs in most of its wards, historic divisions in the municipal area. If your area has already been filled up with STVRs, you will only be able to operate the short-term rental if you also live in the property. Savannah also requires that properties with two or fewer bedrooms cannot have more than four adult guests and those with three bedrooms (or more) cannot host more than two adults per bedroom.
#4 Monthly Airbnb rental income can easily exceed $3,400.
According to Mashvisor, Savannah, Georgia, short-term rentals are extremely lucrative, generating more than $3,400 a month. This is even better than the state of Georgia’s statistics; statewide Airbnb properties tend to generate in excess of $2,200 a month. This is why even though Savannah property values are appreciating, most investors are holding onto their assets in this city for now. Furthermore, recent data indicates that Airbnb rates are often more than double local hotel rates and that travelers still prefer STVRs to hotel rooms.
#5: Tybee Island owners face unique responsibilities when it comes to utilities.
Along with Savannah, Tybee Island has become a top vacation destination in the southeast in the past few years, and its popularity has only risen with the onset of the COVID-19 pandemic. As a result, STVR owners on the island now face a few unusual responsibilities when it comes to management of their assets. One of the most unexpected responsibilities for most new owners in the area is that the island is dealing with water-usage issues that could lead to difficult-to-enforce regulations on STVRs.
The city is currently in the process of trying to reduce municipal water usage by 38 percent. This could result in residents pushing local politicians and policy makers to place heavy usage restrictions on STVRs in order to avoid punishing local, full-time residents for excessive water usage that is largely due to the roughly 14,000 visitors flooding the island most weekends during peak tourist season.
Some residents have requested the Tybee government actually eliminate STVRs in primarily residential areas of the island, but it seems unlikely that this change will go through. After all, taxes from STVRs contribute to the expected $4 million in hotel/motel taxes the city expects to bring in during 2022.
Investors looking to acquire short-term Tybee rentals should not give up on this idea, but they should make sure they understand how the local government might require them to enforce water-usage restrictions in the future. A local contact is your best resource.
The Key to STVR Success is Education & Personal Contact
While it is true that many short-term rental investors acquire and operate STVRs without ever setting foot in them, the South is a very personal place. The actual owner of the STVR does not necessarily need to be physically present in order to experience the benefits of owning these coveted rentals in Savannah, but it is important to have someone who is on your side working “on location” during the acquisition and operation of these properties. With an informed guide to STVRs helping with acquisition and operations, the potential returns on a short-term vacation rental in Savannah, Georgia, are nearly limitless over time.