The short-term rental market is booming – and attracting investment. According to Bloomberg, almost 30 cents of every dollar spent in hospitality goes toward the alternative accommodations sector, and demand has increased by more than 60%.
In the United States alone, the short-term rental market is expected to generate $17.66 billion in 2022, up from $15.1 billion in 2020.
To capitalize on investor interest, new short-term rental marketplaces have launched to help simplify the process and lower barriers to entry.
Below, the models of three such options – Triangle Luxury, Here and Nectar – are explained.
Switzerland-based Triangle Luxury is a closed marketplace that allows private investors, family offices and real estate funds to browse, inquire about and invest in luxury vacation rentals.
Property managers sit at the core of this model: Properties for sale are published directly on the Triangle Luxury digital platform by vacation rental property managers. The properties are primarily off-market, as the property manager is typically the first to know when a property goes on sale.
Investors have access to the yield of each property, based on the property management’s history of bookings, as well as photos, floor plans and drone videos. Essentially, they’re able to perform a lifestyle search and compare different markets in various countries.
Once they decide to move into the sales process, Triangle Luxury gives investors access to in-destination experts on taxes, legal and financing strategy. Prior to the sale, investors also have the option to stay in the property to gain a better feel of the guest’s perspective.
“Until now, property managers had no easy way to participate in real estate deals. Yet they have always been the first to know when an owner decided to sell and this usually resulted in loss of business,” says Moriya Rockman, founder and chief of marketing at Smiling House Group, which created Triangle Luxury.
“On the other hand, investors buying vacation rental real estate need to search for local property managers to operate their new acquisitions, a process that takes time and is challenging in terms of who to trust. This is an even greater challenge when buying property internationally.
“With Triangle Luxury, the property manager is at the core of the real estate deal: it is the first real estate marketplace based on the trust between property managers and property owners, a unique connection which can be ‘sold on’ to the new owners. This trust is backed by hard facts in terms of the proven yield records of each asset.
Triangle Luxury’s search functionalities have been devised with two types of investors in mind: For lifestyle private investors, search is based on activities and dream locations. For family offices and real estate funds, search serves as a financial tool to secure the best investment opportunities.
The platform is also a screening tool, ensuring all players can trust one another. According to Rockman, Triangle Luxury is currently building connections to vacation rental property management system, which would allow the company to import all past bookings into the platform as an extra due diligence feature.
“We have seen an increase in the interest of institutional investors to diversify their portfolio with luxury rentals, including witnessing a fund recently investing $500 million in a property management company,” Rockman says.
“Luxury short-term rentals specifically are pandemic-resistant, and with inflation rising, consumers may be priced out of buying homes and turn to longer stays in short-term rentals instead.
“Our own network of property managers has reported a sharp increase in guests, real estate investors and real estate agencies approaching them to buy properties in their collection. Properties which they saw were generating constant cash flow. What was missing was the bridge between the vacation rental industry and the real estate world. This is why they are welcoming our solution, and in a few short months we have amassed $700 million worth of vacation rentals for sale.”
Miami-based Here is a financial technology company operating at the nexus of hospitality, real estate and investing. For non-accredited investors, it provides access to invest in luxury homes and vacation rentals.
Those interested in investing can browse properties, purchase shares in SEC securitized properties and earn quarterly income and potential property appreciation.
It works like this: Users browse the Here marketplace for available properties that fit their investment criteria. Once they determine how much they’d like to invest, they review the terms, sign electronically and fund the investment. From there, Here takes care of the day-to-day responsibilities.
“We believe the average person needs a better way to invest in real estate – one that’s built on inclusivity, easy barriers to enter and stability,” says Here founder and CEO Corey Ashton Walters.
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“Vacation rentals properties are very costly endeavors, both in terms of time and money. Here streamlines this process for investors by pooling their investments together to acquire and maintain market-leading vacation rentals.”
Shares are on offer as low as $1 with a $100 minimum investment. By handling all of the property management, Here allows for a lower barrier to entry to invest in the vacation rental asset class, resulting in a lower cost of diversification.
Here recently raised a $5 million seed round led by Fiat Ventures, with participation from Joe Montana’s Liquid 2 Ventures, Mucker Capital, Basecamp Ventures and Cooley. It plans to expand into 20 new top travel destinations over the next 18 months.
“Vacation rentals are the highest yielding real estate asset class and people are scared to park their money in the market right now, and savings don’t help because they don’t beat inflation, so a guaranteed quarterly dividend on the rental income is a less risky destination for capital,” Walters says.
“Here sees this trend continuing as returns in the stock market and crypto shrink, and the risk to invest in those assets increases.”
Atlanta-based Nectar allows short-term rental owners and operators to sell cash flow generated by their properties. It combines multiple income streams into a single diversified security for passive investors.
The model rewards the top-performing short-term rental owners and operators in the United States, says Nectar co-founder Derrick Barker. Nectar analyzes the past financial performance of a short-term rental business and pairs it with market and economic data to create forward-looking projections and provides a cash flow advance based on those projections.
“Growing a real estate portfolio is very capital intensive and people want to grow without having to sell off all of their upside. There are some really solid hospitality companies in the space who have a tough time with traditional debt because lenders are tied to traditional business models (long-term leases),” says Barker.
“Because of this, their properties have low leverage and very strong and consistent cash flow. Previously, the only real way to continue to finance renovations and down payments was to bring on equity investors, who take a vast amount of the value created by the operator.
“We’re providing a solution that is more flexible than debt, and unlike equity, we have a capped upside. So operators can get the capital that they need but keep more of the upside that they are creating. And investors can get what they really want which is fully passive income that is managed by an experienced real estate vet.”
Nectar is specifically structured to work with mortgage lenders and be flexible in ways mortgage lenders are not. The company says it is also cheaper than equity investors, positioning Nectar as an attractive solution to even the best operators.
And its ambitions are big: “Our model doesn’t just work for short term rentals. We believe our approach works for any cash flowing asset,” Barker says.
“In five years we would have normalized cash flow based financing and investing. Our goal is for professional owners/operators in every real estate asset class to be able to sell their cash flow as an income stream to passive investors. We will be the marketplace for all real estate cash flows.”