Is Vacation Rental by Owner (VRBO) a Profitable Alternative for San Francisco Real Estate Investors?
There’s a new buzz word around town among San Francisco agents: it’s V-R-B-O, or “Vacation Rental By Owner”. The term originated with a website of the same name, that features furnished, short-term rentals. With San Francisco the top vacation destination in the USA, the short-term rental market is a viable option for owners seeking more profit from their investment.
Visit the San Francisco section of VRBO’s website and you’ll see listings everywhere– from the Sunset District, where you can rent a 1BR/1BA ‘beach hideaway’ garden apartment for $130/night, to a Victorian 3BR flat in Pacific Heights for $2,000/week.
VRBO owners in San Francisco see three advantages to renting furnished:
1. Higher Return. Rents for VRBO units can run up to 2X more per diem than a traditional rental.
2. Lower Risk. Some see short term rentals as a higher yield, safer alternative to renting long-term in a town with one of the toughest rent control ordinances in the city.
3. Interim Strategy It’s a tidy, more profitable way for would-be sellers who are willing wait out the market until they can get the price they want.
The downside to renting furnished is that you are essentially an innkeeper. It can be a messy business where you are best off being on-site and in town to deal with tenant issues and manage frequent turnover. I have a friend who rents a garden studio on her Potrero Hill property through another furnished rental site called “AirBnB.” When she wound up with a tenant who extended her stay week-by-week over a period of two months, she wound up washing so many sheets and towels that she considered hiring a linen service. The upside is that the rent she got pretty much paid her mortgage.
You also shouldn’t count on a full, 30-day occupancy. Because I like to be conservative, I’d say a “hot” neighborhood like North Beach might enjoy a 70% occupancy rate. Less known neighborhoods are vacant more often, although those with charm (and a well-designed website) can build a reputation over time and enjoy an occupany rate comparable to those in tonier neighborhoods.
VRBO tenant profiles can vary. The tourists staying for only a week or so tend to target our Northern neighborhoods like North Beach, Russian Hill and Pacific Heights. Business travelers here on projects might choose neighborhoods in our Southern neighborhoods because of their easy freeway access to Silicon Valley. Tourists on a budget might also target outlying neighborhoods because they are less expensive.
With the VRBO concept growing in popularity, some shrewd agents and investors are calculating the rate of return on renting furnished vs unfurnished when assessing a San Francisco real estate investment. On the flip side, tenant activists are rattled by the growth of short-term rentals as each unit rented short term is one more pulled from our stock of long-term rental housing.
New York Times article about the Vacation Apartment Industry in San Francisco
AirBnB profiled in Forbes Magazine
Dreaming of San Francisco? Cece Blase offers local Advice to San Francisco Buyers, Sellers and Owners– and feeds the dreams of those who wish they could live in Tony Bennett’s ‘City by the Bay.’ Call or email at 415-577-0809 or email at [email protected] www.ceceblase.com