Just yesterday, Pillow Homes released a white paper I authored, “Allowing Short-term Rentals in Multi-family Buildings: The Benefits and the Risks Based on Real-world Data.” Though in full disclosure I was compensated for my work, I am particularly proud of this piece of analysis as it’s the first time I’m aware of any comprehensive case study of what really happens when buildings actively allow residents to sublet their homes out for short-term rentals (STRs).

The paper was made possible by data collected on the Pillow Homes platform and the courtesy of two management teams of Denver multi-family communities allowing me to interview them to bring their experiences into the analysis along with the “hard” numbers. The study was made all the more interesting as one of the communities was a stabilized property and the other is going through lease-up, thus giving different perspectives from different operating imperatives.

The findings were fascinating, and I hope will contribute positively to the ongoing debate over the pros and cons of allowing STR rentals. Key highlights of the study include:

• The communities experienced participation rates from 19% to 32% of their residents

• Those residents participating saw net average income of $835 and $1,075 per month which helped them offset the growing cost of rent in an urban environment

• The communities received a monthly revenue share of $112 and $144 per participating resident which went right to the bottom line

• Through Craigslist advertising promoting the communities’ STR-friendly policies, they received a combined 16 incremental leases (the stabilized community was on the platform for 17 months and the lease-up had only its first 50 units available over 6 months)

• Using a 6% cap rate, we estimated the stabilized community’s value increased $1.3M from the incremental leasing and revenue while the lease-up increased its value just over $450K (on its first 50 units)

The experience was not completely without some challenges. As noted in the interviews, it was important to invest time to train the teams, and there is an increase in requests from guests who are less familiar with the building and neighborhood. The stabilized community’s manager indicated the extra work wasn’t too much, “I log in every morning and we can see who’s checking in today, who’s on property, where they are. It’s a win/win for residents and as it can reduce their cost while it gives us another option for them.”

The benefits were clearly compelling, as a leasing manager noted, “We’ve secured leases of [our STR-friendly policies] because we have a lot of young adults who travel. We can tell them they can offset rent while they travel. It’s a really good motivator because we’re among the only ones in Denver allowing it.”

Overall, I can’t help but be reminded of the pet rent debate in the early ‘00s. Pet-friendly communities are now so ubiquitous that it’s hard to remember that, 15 years ago, many communities didn’t allow pets, particularly dogs. Worries about upsetting neighbors and vicarious liability echo many of the concerns about STRs today. Those who changed their policies in the early to mid-2000s received two benefits: 1) direct revenue from pet rent charges and 2) increased leasing as prospects searched for pet friendly communities. In many cases, competitors who didn’t allow dogs referred prospects to communities who did!

Whether or not allowing STRs becomes as ubiquitous as pet-friendly communities remains to be seen, but I certainly believe it will become much more widespread than it is today!