Wall Street Investors Are Buying Up Vacation Homes

The Trend Toward Short Term Rentals

As tourists and remote workers continue to prefer the use of online listings to book vacation rentals, private investors have taken notice. The majority of homes listed on sites like Airbnb (ABNB) are still owned by smaller owners, but financial firms’ involvement is growing.

One example is Saluda Grade, a New York investment firm that recently partnered with short-term-rental company AvantStay. Together they plan to purchase around $500 million worth of homes, and Saluda Grade is raising funds by selling mortgage bonds backed by the vacation rental homes. The company calls it the first such mortgage securitization.

Why Short Term Rentals Are Attractive

Analysts say investors like vacation properties because they think nightly rentals will generate more cash than a year-long lease. Low interest rates have also fueled demand for more traditional rental real estate, meaning some institutions are now looking at more niche opportunities like Airbnb rentals to generate a desired return.

Recent trends help further explain the vacation rental preference. Throughout the pandemic, demand for rentals in traditional vacation markets has surged as people have been free to work from where they choose. Leisure travel has also been increasing over the past 12 months.

It’s Not All Sunny Vacation Days

There are a number of reasons why buying vacation homes can also be challenging for investors. One factor is getting a mortgage, which is considered more difficult for investment properties in general, including short-term rentals.

It’s also time-consuming to buy individual properties given the negotiation and closing process. Analysts say this makes it difficult to invest large sums of money into vacation rentals. In addition, many municipalities have passed new laws limiting or restricting the ability to list properties on Airbnb and other websites. Challenges aside, Wall Street is clearly betting vacation rentals will take investors on a nice trip.

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