Determinants of rental strategy: short-term vs long-term rental strategy

Abstract

PurposeShort-term rental option enabled via accommodation sharing platforms is an attractive alternative to conventional long-term rental. The purpose of this study is to compare rental strategies (short-term vs long-term) and explore the main determinants for strategy selection.Design/methodology/approachUsing logistic regression, this study predicts the rental strategy with the highest rate of return for a given property in the City of Philadelphia. The modeling result is then compared with the applied machine learning methods, including random forest, k-nearest neighbor, support vector machine, naïve Bayes and neural networks. The best model is finally selected based on different performance metrics that determine the prediction strength of underlying models.FindingsBy analyzing 2,163 properties, the results show that properties with more bedrooms, closer to the historic attractions, in neighborhoods with lower minority rates and higher nightlife vibe are more likely to have a higher return if they are rented out through short-term rental contract. Additionally, the property location is found out to have a significant impact on the selection of the rental strategy, which emphasizes the widely known term of “location, location, location” in the real estate market.Originality/valueThe findings of this study contribute to the literature by determining the neighborhood and property characteristics that make a property more suitable for the short-term rental vs the long-term one. This contribution is extremely important as it facilitates differentiating the short-term rentals from the long-term rentals and would help better understanding the supply-side in the sharing economy-based accommodation market.