A Year in Review of Arrived Vacation Rental Investments

Arrived Team
Arrived Team

Jan 29, 2024

A Year in Review of Arrived Vacation Rental Investments

In Q4 2023, we celebrated the one-year anniversary of launching vacation rentals on Arrived. To mark this milestone, we wanted to reflect on our progress over the past year, the lessons we've learned, and our plans for the future.

Quick Recap of Vacation Rental Progress

The vacation rental business of Arrived has made significant progress in the last year. We started with only a handful of properties, but now we have expanded to 38, with 36 of them currently in operation. We have worked hard to build an efficient operation to give our guests a five-star experience. As a result, we have received over 496 traveler reviews, and the average Airbnb rating across our properties is 4.86, which is above the high benchmark Airbnb sets to qualify as a Superhost. Our focus on providing an exceptional experience to our guests has helped us generate over $1.5M in gross bookings across all our vacation rentals.

During our journey, we learned much about the vacation rental business and wanted to share some of our significant insights.

Ramp Time Realities

One of the major learnings has been the extended ramp-up time associated with this industry. Unlike traditional single family residences that often start producing income within 45 days, vacation rentals can require 3-5 months before becoming booking-ready. During this time, the property needs to be designed, furnished, and sometimes renovated. Additionally, staff recruitment and training (cleaning, repair and maintenance, photography, etc.) are required to prepare a property for operations. 

Once the property is ready to be booked, it also takes time to climb Airbnb search rankings, optimize dynamic pricing, and maximize the occupancy rate. During this phase, it's critical to quickly build a velocity of positive reviews to affect the cash flow for the property in the long term. Therefore, occupancy (which drives ratings) is prioritized over revenue optimization in the initial months. Superhost and Guest Favorite tags are also critical for Airbnb placements. These improvements drive faster revenue stabilization, enabling them to hit their forecasted revenue sooner.

Ramp time delays and the higher initial fixed costs for vacation rentals lead to a steeper version of the typical investment J-Curve. As a result, the initial phases of vacation rentals often experience a much higher initial decline in share price performance than single family residential properties. While share prices react to the current market in the short term to show a rough valuation of the property's value, the expected hold time for vacation rentals is five to fifteen years, compared to the estimated five to seven years for single family residences.   

Property Managers

Quality Over Quantity: We discovered that the vacation rental property management industry is not as well-developed as the single family residential market. Initially, we launched with six vacation rental property managers. However, we soon identified a select group of our best-performing property managers and consolidated our properties with them. Understanding how crucial property management is to monetization, we strategically launched Arrived Property Management and brought several properties in-house. As a result, we have observed strong initial outcomes for our investors in the properties we chose to manage ourselves. Within the first month of operation, we achieved Superhost status and have over one hundred reviews across eleven listings with an average rating of 4.94. We will continue to build out our property management operation and plan to continue expanding with our select trusted third-party property managers. 

Mitigating Variability Renovations

We've gained an important understanding of the timing variability of property renovations, which can cause unexpected issues and delays. Whether it's difficulties with acquiring city permits or finding dependable general contractors, larger buildouts have too many potential points of failure that put the monetization timeline at risk. To address this, we've temporarily stopped acquiring properties that require extensive renovations and have instead focused on properties that allow us to emphasize design value-add with the support of vetted general contractors.

Next Steps and Future Outlook 

We are dedicated to minimizing the time required to achieve maximum monetization of our properties, enhancing our property management capabilities, and strengthening our property management partnerships. 

Based on our recent experience, we have decided to make some changes to our upcoming vacation rentals. Firstly, new vacation rentals added to the platform will not pay dividends until they have been operational for several months and generate revenue effectively. We anticipate this to happen around the six-month mark, but it could be sooner or later, depending on the property.

Secondly, we will closely monitor the short-term rental market dynamics in 2024. In 2023, the demand for short-term rentals was strong, reflecting the evolving preferences of travelers seeking unique and personalized accommodations. However, we also observed rapid growth on the supply side, indicating a surge in property owners and investors entering the vacation rental arena. Therefore, we will pay close attention to the marketplace balance in 2024 and how it may affect our growth plans.

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Webinar: Investing In Arrived

Ryan Frazier, Arrived CEO, and Cameron Wu, VP of Investments, will be hosting webinars to talk about how to get started with rental property investing. Sessions are held on Tuesdays at 9am PST and Fridays at 1pm PST each week (unless otherwise posted).