Getting started in the Short Term Rental Industry can be quite daunting, especially if you have no prior experience in real estate. You may be trying to understand this industry better, but blogs and podcasts are filled with terminology and abbreviations that can quickly leave a person’s head spinning; trust us, we have ALL been there! That is why we have created the ultimate guide on STR or Short Term Rental lingo for beginners! This is an ongoing list that will need updating as new terms come about, so if there are any we have missed please let us know in the comments!
Let’s start with the basic acronyms that get thrown around every minute in the industry…
Short Term Rental Lingo Basics
- STR – Short Term Rental
- This one is pretty self explanatory and is used DAILY
- VR – Vacation Rental
- An acronym that you can use to abbreviate the name of your vacation rentals! Also is seen in big companies like VRMA (Vacation Rental Management Association)
- VRM – Vacation Rental Management
- Just tack on the word ‘Management!’ Simple and easy…
- ADR – Average Daily Rate
- This is calculated by dividing the total revenue earned for the entire reservation by the number of booked nights
- PMS – Property Management System
- This is a suite of tools that work together to help manage bookings, communication and payment processing across multiple rental platforms like AirBNB and VRBO
- NOO – Non-Owner Occupied
- The property is not your primary residence, aka you do not live there
- OO – Owner Occupied
- The property is your primary residence aka you do live there
- HOA – HomeOwners Association
- The HOA can either be your best friend or your worst nightmare. If your property is under the jurisdiction of an HOA, it’s important to check whether they prohibit short-term or even long-term rentals or have other rules that need to be communicated to your guests (such as quiet hours, rules about hours amenities can be used, etc.)
Signing the Lease Lingo
Above are the basics that are vital to success in the STR industry. From here the terms are no longer acronyms and can get a bit trickier, but nonetheless easy to learn over time! Let’s start with how to get a lease by doing Lease Arbitrage. This is when you are leasing a space, furnishing it, and releasing it on Airbnb (VRBO, Homestay, Onefinestay etc.) for more. Your profit is the difference (the arb) between what your expenses are and what you can generate at a short term rental (STR). We have a blog written entirely about this subject which you can read here that covers the 3 Essential Clauses all short term rental hosts should include to be safe in their lease.
Furthermore, when finding your future STR, be sure to think about the Seasonality of the property. STR Seasonality is the cyclical variance in traveler demand throughout the year that’s unique to each vacation rental market. For example, mountain towns tend to experience high demand every winter and low demand every summer. Hosts often adapt to these fluctuations in demand by, for instance, increasing the price of units in a college town during graduation when they know it can book for twice the usual price, or dropping the price during off-seasons to keep bookings coming. Once you have used lease arbitrage to obtain an STR (if that’s the route you go) and determined seasonality, it’s time to take the Hero Shot; this is the award winning shot of your STR and the first thing guests see when viewing your listing. It should showcase the best aspect of your listing and be something that makes you stand out from the crowd. Ask yourself, would I click on this? Would I want to stay here based on this one image?
Pricing & Booking Lingo
From here we move onto Dynamic Pricing, which may be one of the most important aspects of running your STR business. A lot of STR hosts have set prices for their rentals, but this is not optimal because supply and demand is always changing. Dynamic pricing is when you continuously adjust the price of your STR based on supply and demand. This will help increase your bookings and leads to a higher overall Occupancy Rate. According to AllTheRoom.Analytics, “The average Airbnb occupancy rate across the country is 48%. On the other hand, full-time properties with anything less than 50% are considered to be on the lower end of the spectrum. Some cities have average occupancy rates as low as 10% and even below.” This shows how occupancy rates are relative and based primarily on where your STR is located, seasonality etc. Sometimes bookings may be on fire for your STR, but there may be lone days left behind in the midst. These random days are known as Orphan Nights. Sometimes they are unavoidable, especially when the bookings around them are long and optimal. For instance, if one guest books Friday through Sunday nights, and another books Tuesday through Thursday night, it may be impossible or undesirable to book that Monday night. The best way to minimize orphan nights is by making sure you have a minimum number of nights set for each booking so that guests cannot book for short amounts of time.
Furthermore on bookings, the Booking Window is another term you’ll hear a lot and it refers to the period of time between when a reservation is made by the guest and their check-in date. In this time period guests could cancel or reschedule their booking, so remember to have cancellation periods in place! Now bookings tie in directly with PMS (Property Management System) and API’s. API Integration is the communication protocol that allows your technology systems to connect and interact with each other. Using an API, your PMS will be able to accurately book your rentals so there is no overlap between bookings and it will charge the correct amount per night.
To wrap things up let’s discuss Yield. Yield is a measure of how much cash your STR produces each year as a percentage of that asset’s value. For real estate, it is the rental income as a percentage of the property’s value. There are two types of Yield; Gross and Net. An article by Landlord Studio covers these topics best, “Gross Yield is the income return on your investment before any expenses, outgoings or possible rental vacancies are taken into account. Gross yield also does not take interest rates into account.” Net Yield, “takes into account any expenses or other outgoings, such as maintenance costs, mortgage payments, and insurance. Net yield is sometimes referred to as ‘rate of return’.” These are both incredibly important numbers to know for your business to thrive. It takes little math to calculate and shows your profits.
We hope that this helps better your understanding of the lingo that is used in the STR world and if there is anything we missed please mention it in the comments below!