The Harsh Realities of Running an Airbnb or Short-Term Rental Business

Running an Airbnb or short-term rental business can seem like a dream - the potential for high income, flexibility, and freedom. However, as Michael from STR Wealth Academy explains, the reality is often much more challenging. Over the past six years, Michael and his wife Katrina have built a portfolio of nearly 70 short-term rental listings and hosted over 25,000 reservations. Through their extensive experience, they've encountered a number of significant downsides and difficulties that are important to understand before diving into this industry.

In this in-depth post, we'll explore the seven worst things about operating an Airbnb or short-term rental business, as outlined by Michael. From unpredictable income and constant guest turnover to liability risks and the pressure of maintaining high ratings, running a successful short-term rental is no easy feat. We'll also provide practical tips and resources to help you navigate these challenges, should you choose to pursue this business model.

1. Unpredictable Income

Unlike long-term rentals where you can count on a consistent monthly payment from a tenant, short-term rentals come with significant income variability. This is especially true in markets with strong seasonality, where the majority of your revenue may be concentrated in just a few peak months.

As Michael explains, in one of the markets they operate in - Canmore, Alberta - they generate around 70% of their entire annual revenue in just a 4-month period. The rest of the year can be "pretty humbling" in terms of income.

This unpredictability means you need to be prepared for the ebbs and flows of short-term rental income. When times are good, it's crucial to set aside cash reserves to carry you through the slower seasons. Failing to do so can leave you in a precarious financial position.

To help manage this volatility, Michael recommends:

• Identifying seasonal trends in your market and planning accordingly

• Building up substantial cash reserves during peak seasons

• Diversifying your portfolio across multiple markets to balance out seasonality

By being proactive and planning for the inevitable ups and downs, you can better weather the income fluctuations inherent in the short-term rental business.

2. Constant Guest Turnover

Unlike long-term rentals where you may only need to find a new tenant every year or two, short-term rentals require you to constantly be finding new guests - sometimes multiple times per week for a single property.

This rapid guest turnover means you need robust systems and a reliable team in place to efficiently prepare the property for each new arrival. As Michael notes, "every time someone comes in and then every time somebody leaves, there's a lot of stuff that has to happen in a very short time window."

From cleaning and maintenance to restocking supplies, the work required to transition between guests can be significant. And as Michael humorously points out, guests can sometimes leave properties in less-than-ideal condition, adding to the challenge.

To manage this constant churn, Michael emphasizes the importance of:

• Developing streamlined cleaning and changeover processes

• Building a team of reliable cleaners, maintenance workers, and other service providers

• Leveraging technology like keyless entry and automated messaging to simplify guest transitions

By having the right systems and support in place, you can ensure a smooth experience for both you and your guests, despite the frequent turnover.

3. Dealing with Guest Complaints and Issues

No matter how well you prepare and maintain your short-term rental, you're bound to encounter unhappy guests from time to time. As Michael explains, "even if the place is absolutely perfect, it's immaculately clean, everything is pristinely maintained, you're going to have guests that are just simply not going to be happy."

These complaints and issues can arise at the most inconvenient times, forcing you to drop everything and address the problem. Michael recounts having to leave family events to rush to a property and resolve a guest concern.

Effectively handling these situations requires excellent customer service skills and the ability to remain calm under pressure. You need to be prepared to:

• Respond promptly to guest inquiries and complaints

• Empathize with the guest's perspective and work to find a resolution

• Document all interactions and issues in case further escalation is required

While you can't eliminate guest complaints entirely, developing strong communication and problem-solving abilities will help you navigate these challenges with minimal disruption to your business and personal life.

4. Navigating Changing Regulations

Depending on the location of your short-term rental, you may face a complex web of local regulations and compliance requirements. As Michael shares, his team has encountered situations where there were no regulations in place initially, only to have the rules change abruptly, forcing them out of the market.

Staying on top of evolving short-term rental laws and ordinances is crucial, as non-compliance can result in hefty fines or even the complete shutdown of your business. Michael advises:

• Thoroughly researching the regulatory landscape in any market you're considering

• Prioritizing locations with stable, well-established short-term rental regulations

• Consulting with local authorities and legal experts to ensure you're operating within the rules

By proactively addressing regulatory concerns, you can avoid the heartbreak of having your business shut down unexpectedly due to shifting local policies.

5. Higher Operating Costs

Running a short-term rental comes with higher operating costs compared to a traditional long-term rental. From increased utility bills and maintenance expenses to the need to regularly replace furniture and decor, the costs of keeping your property in top shape for a constant stream of guests can add up quickly.

As Michael notes, "you're going to have wear and tear on the property...you're going to have to replace things, you're going to have higher operating costs with just running the house with that type of business plan."

While these higher costs are offset by the potential for greater income, it's important to factor them into your financial projections. Some strategies to manage these expenses include:

• Investing in durable, easy-to-clean furnishings and decor

• Negotiating discounts with service providers like cleaners and maintenance contractors

• Automating utility management to optimize energy usage

By proactively addressing the increased operating costs of short-term rentals, you can ensure your business remains profitable in the long run.

6. Heightened Liability and Risk

With a constant flow of guests coming and going, short-term rentals inherently carry more liability and risk than traditional long-term rentals. From accidents and injuries to property damage, the potential for issues is significantly higher.

As Michael emphasizes, "you just simply have higher chances that there could be issues, damages, accidents...if someone files suit against you, you don't want to be in a situation that can...take away all the hard work and rewards that can come along with this business if you're not properly protected."

To mitigate these risks, Michael recommends:

• Establishing the appropriate corporate structure to protect your personal assets

• Securing comprehensive insurance coverage tailored to short-term rental operations

• Implementing robust safety and security measures in your properties

By taking proactive steps to manage liability, you can enjoy the benefits of running a short-term rental business without exposing yourself to undue financial and legal risks.

7. The Pressure of Maintaining High Ratings

In the world of short-term rentals, your online reviews and ratings are everything. As Michael explains, "you live and die on reviews" - if you consistently fail to please your guests, your business won't last long.

Airbnb and other platforms have implemented strict policies around ratings, suspending listings that fall below a certain threshold. This means you must constantly strive to provide an exceptional guest experience and earn consistently high reviews.

To maintain a strong online reputation, Michael advises:

• Developing robust cleaning, maintenance, and guest communication processes

• Going above and beyond to deliver exceptional hospitality

• Proactively addressing any guest concerns or issues

By making customer service a top priority and doing everything in your power to earn 5-star reviews, you can ensure your short-term rental business remains competitive and sustainable over the long term.

Conclusion: Embracing the Challenges of Short-Term Rentals

While the potential rewards of running an Airbnb or short-term rental business are undeniable, the challenges outlined in this post are very real. From unpredictable income and constant guest turnover to heightened liability and the pressure of maintaining high ratings, operating a successful short-term rental requires a significant investment of time, effort, and resources.

However, as Michael and Katrina have demonstrated through their own experiences, these challenges can be overcome with the right mindset, systems, and support. By proactively addressing the potential pitfalls of the short-term rental industry, you can position your business for long-term success.

If you're interested in learning more about navigating the realities of running a short-term rental, be sure to check out the free resources available through the STR Wealth Academy community. There, you'll find a free course on building a thriving short-term rental business, as well as access to a supportive community of fellow entrepreneurs.

Additionally, you can download the STR Wealth Academy cleaning checklist, explore the must-have software they recommend, and even steal their Amazon furnishing list to get a head start on setting up your properties.

By embracing the challenges and leveraging the right tools and resources, you can build a successful and sustainable short-term rental business that provides the freedom, flexibility, and financial rewards you're seeking. The path may not be easy, but with the right mindset and preparation, the rewards can be well worth the effort.