The AIRBNBUST IS HAPPENING - Here's What to Do
Summary
TLDRThe video discusses the challenges and changes in the Airbnb market, highlighting the impact of higher interest rates on cash flow, increased competition, and stricter regulations. It offers insights on why some investors are leaving and provides advice for those considering Airbnb as an investment. The speaker shares strategies for adapting to the new market realities, emphasizing the importance of thorough research, strategic reinvestment in properties, and focusing on vacation markets with unique amenities to stay competitive.
Takeaways
- 📉 The LA Times reports a decline in home prices due to a cap on Airbnb rentals, suggesting a downturn for Airbnb hosts.
- 🚫 Airbnb has made its temporary ban on parties and noisy events permanent, impacting the rental experience.
- 💰 Many hosts have invested heavily in their units, only to face financial losses due to inflation and declining bookings.
- 📈 Interest rates have risen significantly in recent years, doubling or more, affecting the cash flow of Airbnb investments.
- 🏠 Higher interest rates mean increased mortgage payments, reducing the profitability of properties compared to a few years ago.
- 💼 The market has become more competitive, with increased supply and regulations affecting the revenue potential of Airbnb rentals.
- 🛠️ Cities are imposing stricter regulations and taxes on short-term rentals, making it harder for hosts to operate profitably.
- 📉 Revenue per available rental (RevPAR) has dropped significantly in many markets, indicating oversupply and lower prices.
- 🔄 The speaker emphasizes the need for hosts to act like real estate investors, conducting thorough market research and analysis.
- 🏆 To remain competitive, hosts must invest in high-quality amenities and design, and consider direct booking strategies outside of Airbnb.
- 📚 The speaker advises new investors to focus on larger vacation markets, conduct intense deal analysis, and consider the Airbnb-BRR (Buy Rehab Rent Refinance Repeat) model for wealth building.
Q & A
What is the current situation of Airbnb rentals as reported by LA Times?
-The LA Times reports that since the city implemented a cap on Airbnb rentals, home prices have significantly dropped, suggesting a negative impact on the short-term rental market.
Why has Airbnb made its temporary ban on parties permanent?
-Airbnb has made its temporary ban on parties and large noisy events permanent, although the specific reasons are not detailed in the script, it implies a move towards maintaining a quieter and safer environment for neighbors and guests.
What financial challenges are Airbnb hosts facing due to inflation?
-Airbnb hosts are experiencing a decline in bookings due to inflation, which is causing a decrease in revenue and leading to financial losses for those who have invested heavily in their rental units.
What is the impact of higher interest rates on the profitability of Airbnb investments?
-Higher interest rates mean that the same property purchased today with a higher down payment will have a significantly higher monthly mortgage payment compared to a few years ago, resulting in less cash flow and potentially making the investment less profitable.
How has the increase in competition affected the revenue per available rental (RevPAR)?
-The increase in competition has led to a situation where supply has grown faster than revenue, causing RevPAR to drop. This means that, on average, each rental is generating less revenue, affecting the profitability of Airbnb investments.
What regulatory changes have some cities implemented that affect Airbnb operations?
-Some cities have cracked down on regulations and laws, making it more difficult for Airbnb hosts to operate. Examples include higher transient occupancy taxes in Palm Springs and outright bans in New York City, which have disrupted the business model for some hosts.
Why are some Airbnb hosts choosing to quit the platform?
-Some hosts, like Shelby Church mentioned in the script, are quitting Airbnb due to new taxes and regulatory changes that make the platform less profitable or more challenging to operate on.
What does the speaker suggest as a strategy for new Airbnb investors?
-The speaker suggests that new investors should focus on larger vacation markets rather than urban areas due to regulatory changes, invest in one big property with high-quality amenities rather than multiple smaller ones, and be prepared to conduct thorough deal analysis to ensure profitability.
How is the speaker adapting their Airbnb investment strategy in response to current challenges?
-The speaker is adapting by reinvesting into their existing properties to improve design and amenities, focusing on larger vacation markets, and considering the 'Airbnb-BURR' strategy, which involves buying undervalued properties, rehabbing them, renting them out, refinancing, and repeating the process.
What advice does the speaker give regarding the management of Airbnb properties?
-The speaker advises that hosts should treat their Airbnb operation as a business, leveraging tools and software for effective management, focusing on marketing to drive direct bookings, and being prepared to compete on value rather than price.
How does the speaker address the issue of guests seeking refunds or blackmailing hosts?
-The speaker acknowledges the issue of guests trying to exploit the system for refunds or blackmailing hosts with bad reviews. They suggest that hosts need to be vigilant, providing evidence and maintaining thorough records to protect themselves against such behavior.
Outlines
📉 Declining Home Prices and Airbnb's New Policies
The script discusses a report from LA Times that suggests home prices are falling due to a cap on Airbnb rentals. It mentions Airbnb's permanent ban on parties and noisy events, and the financial struggles of hosts who have invested heavily in their properties. The speaker reflects on the impact of inflation on bookings and cites opinions from financial experts like Dave Ramsey, who warn against Airbnb as a poor investment. The narrative includes personal anecdotes from hosts considering leaving the platform due to decreased profitability.
🏠 The Changing Landscape of Airbnb Investment
This paragraph delves into the financial challenges faced by Airbnb hosts, including higher interest rates on mortgages, increased competition, and a decrease in revenue per available rental (RevPAR). The speaker highlights the importance of understanding market dynamics and regulatory changes, especially in cities like Dallas and New York, where regulations have significantly affected short-term rentals. The paragraph also touches on the impact of higher taxes on hosts and the need for hosts to act like savvy real estate investors, conducting thorough market research and analysis.
🛠 The Importance of Property Improvement and Market Strategy
The speaker shares personal investment strategies for maintaining profitability in the face of a challenging market. They discuss reinvesting in existing properties to improve design and amenities, rather than purchasing new ones, and the rationale behind this approach. The paragraph emphasizes focusing on larger vacation markets and choosing to invest in fewer, high-quality properties with exceptional amenities to outcompete the market. The speaker also mentions the 'Airbnb-BURR' strategy, which involves buying, rehabbing, renting, refinancing, and repeating to build wealth and create cash-flowing assets.
📊 Conducting Rigorous Deal Analysis for Airbnb Investments
The final paragraph stresses the importance of conducting a thorough deal analysis when considering Airbnb investments. The speaker advises using tools like STRUB for analyzing different scenarios and ensuring a property can yield a positive cash flow even in a downturn. They caution against relying solely on recent high-performing data and recommend examining multiple years of market information to avoid overestimating potential returns. The speaker concludes by emphasizing the need for careful research, strategic investment, and active management to succeed in the short-term rental market.
Mindmap
Keywords
💡Airbnb
💡Interest Rates
💡Cash Flow
💡Regulations
💡Revenue Per Available Rental (RevPAR)
💡Investment Analysis
💡Direct Bookings
💡Amenity
💡BRRRR Strategy
💡Occupancy Rate
💡Clickbait
Highlights
Airbnb rentals are facing a decline in home prices due to city caps.
Airbnb's ban on parties and large events is now permanent.
Airbnb hosts are experiencing a decline in bookings due to inflation.
Some experts consider Airbnb to be a poor investment.
Airbnb hosts are quitting due to financial losses and regulatory changes.
Interest rates have increased, affecting the cash flow of Airbnb properties.
Competition in the Airbnb market has intensified, reducing profitability.
Revenue per available rental (RevPAR) has dropped significantly in some markets.
Cities are imposing stricter regulations on Airbnb rentals.
Higher taxes on transient occupancy are affecting the profitability of Airbnb rentals.
Investors need to conduct thorough market research to understand local regulations and tax implications.
Airbnb hosts are encouraged to act like real estate investors to compete effectively.
Airbnb is changing policies that affect host control and refund processes.
Guests are becoming savvier and exploiting Airbnb's refund policy.
Setting up an Airbnb requires more investment in design and amenities to compete.
The speaker suggests reinvesting in existing properties rather than acquiring new ones.
Investors should focus on larger vacation markets and single, high-quality properties.
The 'Airbnb-BRRR' strategy is recommended for building wealth through Airbnb rentals.
Deal analysis is crucial for new Airbnb investors to avoid regrettable investments.
Transcripts
LA Times reporting since the city put a
cap on Airbnb rentals home prices are
now in freefall the part's over for
Airbnb renters the company said
yesterday that its temporary ban on
parties and other large noisy events is
now permanent I've put all my savings
into into my unit I'm following all the
rules paying all the taxes buying the
business license simply put it the host
tell me inflation is causing a decline
in Booking I'm not going to sugar coat
it you guys it's we lost money we uh
it's not looking good is this true airb
bust people are running for the hilltops
losing money there's people like Dave
Ramsey that say this could be the worst
possible investment that you could make
have a very good life don't go screw
that up with an Airbnb there's people
like Shelby Church saying they're
quitting Airbnb for good you saw the
title right I'm quitting Airbnb no it's
not clickbait it just doesn't make sense
anymore in this video I'm going to break
down each of the reasons why some of
these headlines are valid and if you
guys are new to short-term rentals in
Airbnb and thinking about getting
started I'm going to tell you exactly
what I'm doing as an experienced
investor should I decide to continue on
investing in airbnbs the first point I
want to make is interest rates are way
higher now historically they're not
incredibly high but in terms of the past
3 to 4 years they are double triple or
quadruple what they used to be now why
is that important to you the same
$500,000 home that you may buy and put
20% down today you're probably going to
get around an 8% interest rate your
monthly principal and interest payment
on that mortgage would be
$2,935 now the same home three years ago
or even just two years ago with a 3.5%
interest rate would be$
1,79 $6 that is a difference of
$1,139 that is how much less cash flow
you're going to make per month on that
same property just in the difference in
the amount of Interest you're paying to
the bank and if you extrapolate that
over 12 months it is
$3,668 that is a lot less cash flow and
for some properties that may make or
break the deal so if you're investing
several years ago on that property you
might be able to very easily cash flow
pretty good numbers but today you know
an $100 difference is a big deal and
that may break people the other thing is
that it's gotten more competitive so
it's not as easy to make money because
your costs are higher but also it's more
competitive and in many markets and
we've seen some Twitter posts go viral
for this that Revenue has tanked by 50%
now I've done videos in the past that
debunked that video a little bit really
mainly cuz the the headlines were
misleading Revenue was not down 50% in a
lot of these big markets but rev par
looking at 1 month year-over-year
comparison from 2022 to 2023 were in
fact down 50% in many markets now revar
stands for Revenue per available rental
so that's just taking the total revenue
that a market generates and dividing it
by the number of active rentals in that
market now why is that figure important
it's because if everybody had the same
exact rental right and the same design
the same Furniture slept the same number
of people that means that supply has
gone up faster than the revenue has and
because Travelers have a greater pick of
the litter per se of what rental to
choose um they are getting you know the
better prices so it's actually good for
the traveler so it's going to cost them
less to travel to that market but it's
bad for the the average investor we'll
talk about how to combat this later on
but revpar is down so you have to pay
attention to those numbers when you're
making an investment analysis cities are
cracking down on regulations and laws
and this has actually completely pulled
the rug out from underneath people in
certain markets like Dallas Texas New
York City just to name a few and then
you also see places like Palm Springs
started to implement a higher transient
OCC occupancy tax um which equates to
like 10 to 15% and that's not uncommon
but California in general is a place you
know if you were like hey Michael out of
all 50 states which place should I not
invest California would be at the top of
my list they are not investor friendly
so when you're doing market research you
have to understand what markets are
going to be friendlier to investors and
what are probably going to be more
likely to impose crazy changes in
regulation you have people like Shelby
Church making videos which by the way I
think is a little bit more clickbait to
get views than anything but she says
that she's quitting Airbnb because of
this new tax now truth be told what I
foresee Happening Here in Palm Springs
for example people are still going to
travel there they're still going to want
homes with pools to rent with friends
everybody has to impose that new 10% tax
on guest people are just going to eat it
and it's just going to be more expensive
for travelers it's like California does
not want tourism and they don't want
people's business like it's it's pretty
sad to see but my guess is that she's
going to test it out and still rented on
Airbnb and she's still going to be
making a decent profit more so than as a
long-term rental I may be wrong
but that's my prediction there um but
you are seeing all these crazy
regulation changes like just outright
bands like New York City making it near
impossible for new investors to come in
and buy a place or rent it out and then
rent it out on Airbnb so you need to
understand local regulations um and then
any tax implications as well you have to
learn how to be an investor guys I can't
stress this enough you know you're not
just a host on Airbnb anymore if you
want to compete you have to think and
act like a real estate investor what I
mean by this is you have to go in and
look at all of the available data and
resources online you have to understand
that market a three-b property you have
to understand what ZIP code it's in what
are the comps looking like what are
places renting out per day and what does
their occupancy rate look like what are
my expenses what happened in 2010 to
probably 2020 is you could throw up
almost any property on Airbnb and you
would probably be profitable no more you
have to compete like crazy so doing a
proper investment analysis is going to
be critical cuz a lot of people out
there probably 50% of people getting
into short ter anals probably just throw
up properties as an Airbnb and hope for
the best you couldn't do anything
stupider than that it's not just a
simple investment and you're done right
because it's getting more competitive
not just on the investment side but on
the management side people are
leveraging all sorts of tools and
software out there to be more effective
managers and get better nightly rates
and get a higher occupancy than you
people are learning how to drive direct
bookings and get off of the Airbnb
platform so you have to be a marketer
and treat this as a business not just as
an investment and then Airbnb speaking
of which people are opting to try and do
direct booking strategies Airbnb is
really stripping away more and more
control from hosts it's making it harder
for you to have control over your
destiny now it's a double-edged sword
because air BNB is the place that
everyone goes when they're traveling to
find a rental property stand so getting
direct bookings is a long-term strategy
you have to get contacts you have to get
emails and have a direct email list
right direct marketing but they're
constantly changing rules as well around
how guests are able to get refunds and
override your cancellation policies like
you have very very limited control as a
host in Airbnb whether you believe me or
not they're also changing all sorts of
um policies in the future I foresee
coming like stripping away cleaning fees
to try and make it more affordable for
travelers it's probably not going to do
that but it's going to make it harder
for hosts to be as profitable as they
had in the past guests this has been a
problem for a while but guests are
getting smarter thanks to the big old
internet people are learning how to be
scumbags and get refunds from it Airbnb
this is a problem with them they allow
you like 72 hours upon check-in to see
if something's dirty or broken so we've
had that check in and 3 Days Later
they're like hey this was this was not
how it's supposed to be in the rental or
it was dirty when it was filthy when we
checked in we cleaned it ourselves by
the way but it was filthy I want a full
refund and Airbnb you have to fight
tooth and nail in order to win that so
you have to provide evidence you have to
go out of your way to have your cleaners
take photos before and after each
check-in and checkout we've even had
guests start to cancel their
reservations the last day that they can
get a full refund knowing that most
hosts will drop their prices in order to
get those dates rebooked and those same
guests will just rebook at the lower
price like I can't think of anything
like more scummy and dirt baggish is
that a word dirt baggish it is now than
a guest doing that like that is so
trashy so if you're a guest don't do
that that's garbage and we've even had a
lot of guests blackmail us or attempt to
Blackmail us saying oh we're going to
leave a bad review we're going to go
shout from the rooftops on the internet
if you don't give us a refund or a
partial refund this is after they check
out and all of a sudden all the issues
that they had during their stay come up
I don't know but it's a problem because
reviews are so critical on sites like
Airbnb and verbo you know bad reviews
can be detrimental to your listing and
people are also realizing that it's a
lot of work to set up airbnbs it's not
as easy as it was before why because you
have to invest more time and certainly
more money if you want to make a killing
on Airbnb you have to invest in
professional design you have to spend
money on proper amenities and those are
not always cheap amenities like new hot
tub building out a fire pit like Game
Room Theater room stuff like that if you
want to compete you have to spend money
so it's hard for a lot of new investors
to start when housing costs are more
interest rates are more closing costs
are more your setup costs are more
supply chain issues and then you get
into a property and if you don't have
much money left over how are you going
to compete with somebody or a company or
someone like myself who is now willing
and capable of spending tens of
thousands if not you know six figures
just to to include extra amenities that
you will never be able to compete with
me on so it has become way harder to
make really good cash flow in Airbnb now
with all that being said it's definitely
more challenging now than it was several
years ago if you are still looking to
get started in short-term rentals this
is how I am personally continuing to
operate and invest going forward because
it's not as easy as it was even when I
got started in 2019 number one instead
of investing into you know a higher
quantity of new properties I'm actually
taking large sums of money and I'm
reinvesting into the properties I
already have why is this the case some
of my properties when especially when I
started early on and I didn't go crazy
on the design or amenities they were
very basic rentals that I managed well
and made good money but I am starting to
see some diminishing returns on select
properties so instead of saying oh my
gosh these properties suck I'm going to
sell them I have a decent interest rate
locked in on them I know that it's in a
good location it's rented before I'm
going to reinvest money to completely
redo the design and add new amenities
per se in Nashville in specific I'm
doing this here in a couple of weeks to
boost my average daily rate it'll boost
my occupancy it'll help me get a better
stream of positive reviews and it'll put
me back up into that upper echelon of
the top 75 or top 90% of Performing
properties like higher ADR higher
occupancy better reviews equals what
more money and more revenue and a more
fruitful investment so I'm going to see
a higher Roi by reinvesting into
property in some cases then investing
into new property and inara is investing
into new property especially if you guys
are are newer what I'm doing is I'm
mainly focused on larger vacation
markets or mid to large size vacation
markets instead of urban areas because
of all the regulation changes um and in
the types of property I want to invest
in I would rather get one big property
than three smaller properties and I
would rather spend 3x the money on
amenities and design on one property
then go cheaper just to get three
because I know if I get a bigger one in
a vacation market and I go crazy on the
amenities I'm going to be eliminate like
99% of my compet competition and I want
to wait and be patient for Investments
because I'd rather hit home runs than
hit a bunch of little singles at this
point you know starting out it may be
different you just want to get some skin
in the game get some cash flow going but
at this point in time guys I'm just
trying to get like 8 to 10 to $15,000 a
month in cash flow per property and I
know the only way to do that is to go go
big and go all in on one property and
this is crazy amenities like adding
pickle ball courts a putt putt course
golf simulator movie theater rooms game
rooms crazy fire pits Home Gyms all that
good stuff you have to focus on selling
the experience if you want to compete in
today's market and not just today but if
you want to compete five or 10 years
from now you you have to sell and
compete on value why because if you
don't guess what you're going to compete
on price and that is a losers game in
any industry that you operate in if
you're competing on price it is what a
race to the bottom and we don't want to
be on the race to the bottom because
that's where you experience diminishing
returns especially in a rough economy if
we have a recession or another you know
Co era or whatever it may be if less
people are traveling they're going to
have more rentals to choose from they
will still pick the top rentals with the
best experience and pay for them but
they you know everyone else is going to
be can drop their pants on price and
it's it's going to be pretty brutal in
terms of your cash flow next I'm
focusing mostly and I'll call this the
airb and bur model if you guys are not
familiar with the Burr strategy it
stands for buy rehab rent refinance and
repeat you can leverage other people's
money or private money to fund the deal
and the rehab and basically what your
goal here is is to buy a property at
undervalued price that needs a lot of
work so most investors will shy away
from it and then you're going to spend a
lot of money to rehab it and increase
the value of that property once you
rehab it you're going to go to the bank
and say please I would like to
reappraise this property and they're
going to get it appraise at a higher
value and then you're able to take out
you know a large portion of that money
back out of the deal and in a lot of
cases you can take out 100% of that
money invested back out this is what the
you know traditional bird investors are
doing they're leveraging private or hard
money they're funding this deal they
increase the value they pull out all
that money pay back that investor off
they now have 20% of created equity in
the deal and a cash flowing asset now if
you do that with the airbn uh Airbnb
model the airbn bur method this is like
bur on steroids because you're going to
get crazy revenue and crazy cash flow um
this is also a better way to build
serious wealth long term because if
you're constantly rinsing the same money
and pulling it back out of the deal you
can reinvest into the next deal faster
versus just buying a turnkey property
and then waiting to save up another 15
or 20% down uh for down payment intense
deal analysis so this is something I've
always done but I've gotten more strict
on my criteria and you should do this
too if you are not doing a deal analysis
go to
stub. so
stub. and create a free account this is
a totally free website that you guys can
do deal analysis it's very plug-and-play
and what's great about this is you can
run you need to run multiple scenarios
so run your most likely Everyone likes
to run a high scenario oh if I if I
really just knock it out of the park we
could be renting for $500 a night and
we'll be 90% occupied but what happens
if you don't what happens if you come up
short or there's a bad economy for a
year what does your lowside forecast
look like look at the different
scenarios and on the low side you want
to see like a 7 to 10% cash on cash
return conservatively you want an 18 to
20% cash and cash return and then high
side it doesn't really matter at that
point but upside I usually look for 30%
plus so go to strub do a free count I
also recommend using airdna or another
site where you can grab data in a market
now here's the kicker this is where a
lot of people made a huge mistake over
the past few years they jumped on the
Airbnb wave and they were only looking
at the trailing 12 months worth of data
why is that a really awful decision um
is because postco when travel went crazy
especially in the rural markets there
was a huge spike in demand and a lot of
people stopped investing the year prior
or got rid of their short-term rental so
there was limited Supply what happens
when there's crazy demand and low Supply
average daily rates Skyrocket occupancy
skyrockets revenue and cash flow
Skyrocket so what new investors were
doing is they were looking at 2021
information saying oh my gosh I'm going
to rent for this daily rate and this
occupancy meanwhile in 2022 and now 2023
and going to 2024 while demand is still
good and up from preo levels it is not
at the same Heights as it was in 2021 so
that is how you guys can get really in a
hard place is when you over forecast and
then all of a sudden you're struggling
especially with an increased purchase
PRI and higher interest rate so make
sure you're looking at multiple years
worth of information so those are the
things I'm focused on just to recap this
video I don't think Airbnb and
short-term rentals are dead I think a
lot of people are posting these types of
videos and articles cuz it's clickbait
and people you know bad news sells
people want to click on and be told
horror news so they can just stress and
be anxious about it for the next day it
is not you know super easy anymore you
have to do the research you have to set
it up the correct way you have to spend
money on the right things and you have
to manage and compete you know it's not
a it's not 100% a passive investment
it's not so those are the things I would
do be careful who you listen to and who
you take advice from but definitely do
your research and don't just blindly
invest in a deal because that is a quick
way to really regret investing in
short-term rentals in Airbnb if you want
to learn how to be successful and still
have the opportunity to cash flow
thousands of dollars on short-term
rental properties make sure to follow
this page
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