The (Overdue) Collapse Of Short Term Rentals

short-term rentals are a $100 billion Market  that have reshaped Global tourism accelerated a   nationwide housing crisis and created fortunes for  early adopters but now customers the government   the public and the host themselves are turning  their back on a concept that started out as a   fun alternative to stuffy hotel chains but became  everything wrong with modern real estate all right   the parties over for Airbnb renters the company  said yesterday that it's temporary ban on parties   and other LGE 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 ultimately our goal is to get   more housing back into the housing market for  people to be able to rent I just uncovered a   massive amount of debt that Airbnb hasn't paid  on the books that they're hiding tens of millions   hundreds of millions possibly even a billion  dollars plus of debt that they have not paid   so we are looking around and are saying what can  we do right away that makes more homes available   short-term rental market took off when Brian  chesky and Joe gbia tried to rent out a spare room   with an air mattress to attendees of a conference  because they realized all of the hotel rooms had   been booked out they called their service air  bed and breakfast which was later shortened to   the short stay app that you know and love or hate  today Airbnb is now worth more than hotel chains   like Hilton and Windam combined the company is by  far the largest short-term rental company and it   has achieved excellent penetration into markets  around the world where other similar peer-to-peer   or network Market apps like uber door Dash lift  and even Amazon have failed to take share away   from local competition it was a good idea  customers loved it for giving them a cheaper   alternative to outdated hotels and host like  the opportunity to earn extra income on a spare   bedroom or even an entire separate property but  the four parties that make the short-term rental   market work the customers the hosts the public  and the platforms are all now dealing with four   unique problems that are threatening to undo this  market and take out a lot of other real estate   invest Investments with it the first problem lies  with the people who it's hardest to feel sorry for   the hosts Airbnb and other short-term rental  platforms provided a unique opportunity for   people to profit off real estate in a totally new  way having a roommate existed long before Airbnb   but the platform let homeowners offer their spare  rooms to Travelers who could pay up to Triple what   a long-term roommate would pay since budget was  the reason that they were looking for a roommate   instead of a place of their own the extra income  was nice but the added flexibility of a short-term   roommate was the biggest appeal to most people  if you had an extra bedroom to rent out in your   apartment you could find a long-term roommate but  then you run the risk that they are the type of   person who is messy loud doesn't pay the rent on  time or is just a clash with your own personality   with a short-term tenant any problems are only  going to last as long as their short stay other   advantages are that payments are handled through  the Airbnb platform there was a rating system that   controlled bad behaviour and if you ever wanted  the house to yourself because family was coming   over or just wanted a quiet week to yourself  it was as easy as blocking out those dates on   the app that was the early value proposition of  Airbnb but sharing a spare room and staying with   a random person while on vacation only appealed  to a certain type of alternative traveller most   people who Airbnb are putting up entire properties  for guests to use as exclusive accommodations   instead of a short-term alternative to a roommate  the market became a short-term higher yielding   alternative to Conventional long-term tenants in  an investment property property owners could make   as much as double the rent from short-term stays  after paying Airbnb fees than they could from   long-term rentals even if their property was only  rented out for half the year the downside was that   short-term rentals required more effort because  the property needed constant cleaning between   stays and there was less guarantee of consistent  income but Financial benefits were still clearly   in favour of short-term rentals for properties  close to cities and tourist hotspots large scale   Airbnb landlords the Airbnb Barons if you will  designed properties with the express intention   of cutting down on the effort required from them  they fitted doors with keypad locks that could be   changed remotely between guests easily cleanable  surfaces inexpensive but fashionable fittings and   preferred properties with minimal Landscaping all  of this cut down on the additional efforts host   needed to put into managing a property but like  all good things it didn't last forever Airbnb   advertised its platform just as hard to new hosts  as it did to guests and investors started buying   multiple homes to turn them into airbnbs some  hosts turned managing their Airbnb properties   into a full-time job effectively purchasing a  job as a hotel general manager other hosts took   an easier approach realtors in high tourist areas  started offering short-term Property Management   Services where just like they would manage  traditional long-term tenants the realtors   would instead manage the short-term rentals with  some Services even handling the listing on Airbnb   their fee was higher but the higher short-term  rental price meant owners still came out ahead   the additional cash flows from higher yielding  short-term rentals also made it easier to qualify   for more more Home Loans because the additional  income could be used to pay for the loan on the   next property and the next property the inevitable  result was clear for little additional effort host   could make more money from their properties so  the market became oversaturated and host started   to struggle to rent out their properties enough  to make it worthwhile short-term rentals also   made long-term rentals more expensive so the gap  between what someone can make from a short-term   rental versus what they can make from a long-term  rental is narrowing for many hosts it's no longer   worth the additional risk and effort to rent out  property short-term and for the others that could   only afford their loans because of the higher rent  they got from the short-term rental yields they   might be forced to sell that's just the first  group in the collapsing market for short-term   rentals and they were one of only two that were in  any way responsible for the [ __ ] storm to begin   with so it's time to learn how money Works to find  out why short-term rentals got so big and failed   so quickly this 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manscape today short-term  rentals were a good solution to a real problem   traditional hotels had become overpriced and  didn't cater to what a lot of people really   wanted when they went away on vacation hotels  provide a lot of amenities like housekeeping room   service restaurants concierge desks meeting rooms  gyms Spas pools valet parking and 24-hour security   these services are nice but they come at a price  which is either directly baked into the price of a   room or charged separately at a significant markup  these Services also don't always align with what   the vacation goers really want when traveling  which is a place that just feels like home in a   different city Airbnb cut out a lot of amenities  that catered more towards business Travelers and   offered vacationers their own kitchen multiple  bedrooms for their children and an element of   privacy that couldn't be purchased at any Hotel  chain it felt like a home away from home because   in many cases it was just someone's home Airbnb's  were also much cheaper especially when sharing a   larger home between multiple friends or family  members who would all need to book their own   separate rooms if they were staying at a hotel  a study conducted by the University of water and   Daniel guten talk Hospitality research serving  customers booking Airbnb's in traditional hotels   the study found that 61% % of all correspondents  said that they chose the Airbnb as a budget   friendly alternative to even budget hotel chains  despite the company's marketing as a way to share   the vacation experience with the Local Host that  can show you around a city most respondents said   that they did not care about this aspect of the  service and 70% stayed in a home that they had all   to themselves so they didn't have to share space  with a random stranger despite people actually   preferring not to share their short-term rental  with a host Airbnb still spends billions every   year promoting this aspect of their service  for a really important reason that will come   up later get an Airbnb and get a place to yourself  anyway the things that made Airbnb are now either   being lost or offered by competitors in three  areas the first is price Airbnb is no longer   an affordable alternative to Budget Hotels it  is now a premium option competing with premium   five-star chains according to the company's own  data even though the number of bookings has only   increased 70% since 2019 the gross value of  all bookings worldwide has increased by 67%   % Airbnb is just not cheap anymore the second  area where the platform is losing out is its   Monopoly on homes away from home hotel chains  have significantly increased their offerings of   apartment style accommodations that do away with  typical Hotel services in exchange for larger   rooms with multiple sleeping areas and kitchens  to many customers these semi- service departments   offer a better value because they combine the  known consistency of a hotel chain with the   space and price of an Airbnb the third area that  turned customers against Airbnb was service hosts   wanted to cut down on the work they needed to put  into managing their properties so they started   putting more unrealistic expectations on guests  about cleaning up before they leave exorbitant   cleaning fee that will irk people especially if  you the person staying there has to pretty much   clean the house themselves overall this is just  a few bad hosts but it has given the platform   a bad reputation amongst customers who expect  to be charged cleaning fees on top of already   high rates compared to a hotel where as long as  there is not permanent damage housekeeping will   handle everything free of of charge if airbnb's  business was being a middleman platform between   hosts and guests then both of these groups having  a bad experience is not a good direction for the   company but there is another group that has had  it worst and who are involved in the app whether   they like it or not and that's a third reason for  the airbnb bust the public is sick of it customers   can choose to stay wherever they want and the  threat posed by Airbnb and other short-term   rental options has forced existing hotels to  improve their offerings host were investors who   need to accept that all investing carries risk  most of them still own a home or multiple homes   that they can now lease out in an overpriced  rental market or sell likely for a profit   neither of these groups have lost unless they were  really stupid the people who did lose though were   priced out of their homes because it became more  profitable to rent to vacationers than long-term   residents who needed a place to live poor renters  don't have any power over the platform itself but   the problem of unaffordable homes in certain  cities is becoming so bad that politicians   are introducing new policies that will limit how  many short-term rentals are allowed to exist and   charging ing hosts additional taxes for running  unregistered hotels if hosts are not playing by   the rules this legislation will require platforms  to take down those listings other cities have just   made short-term rentals illegal without the same  licensing as a normal Hotel making it so expensive   that it's not worth it for the host to bother the  other group cracking down on short-term rentals   are the people who you would least expect to be  the heroes in a story about housing homeowners   associations owners associations and apartments  and suburbs that have them are blocking owners   from renting out their homes to short-term stays  because residents who live in their homes don't   like loud parties and additional security risks  that come with the short-term guests some hosts   are simply ignoring these laws and taking the  fines into account as a cost of doing business   a report from Mill University's urban planning  Professor David wsmith found that 45% of all   short-term rental listings in Los Angeles are  legal in one way or another and that the city   could have levied between 56.8 million and 32.2  million in fines in 2022 alone the semi-legal   approach to rentals is still working for some host  but it's creating problems for the platform Airbnb   is spending hundreds of millions of dollars across  the world fighting legal battles for the right to   operate and that's why they still spend so much  on Advertising their service as a way to see a   new city with a local host even though most of  their properties are rented out as whole new   homes where a guest will never even see the person  that owns their home it's much harder to regulate   shared short-term stays because it's harder to  distinguish them from someone just staying with   their friend the folksy image of someone sharing  their bedroom with curious Travelers who want   to see a new city with a local is much better PR  than a multi-millionaire or institutional property   investor who has just listed their 10th home with  a tech company worth 80 billion and that's the   fourth cause of the Airbnb bust the platform  is losing its control on guests hosts and the   general public Airbnb has always had competitors  like VRBO but now incumbent traveller sites like   Trip Advisor booking.com and Expedia are launching  their own short-term rental platforms like Turn   Key or incorporating them into existing sites  that already aggregate listings from multiple   Hotel ad advisors Airbnb charges a host fee of  3% to the people listing their properties and   a service fee of 14% to guests some hosts have  found it cheaper to advertise their properties   through local agencies and split these savings  with guests Airbnb has about the same amount of   technical overhead for a vacation stay as Uber  has for food delivery or ride share but Uber   can only make a few dollars off a small charge  where Airbnb can make hundreds of dollars from   their 17% cut of every transaction this has made  the platform profitable where other peer-to-peer   platforms have struggled to turn a profit which  is a great advantage in today's high interest rate   environment but it is also painted a Target on  the back of the company that has no competitive Mo   around their business model apart from their brand  name and recognition there is nothing to stop   these new entrance entering the marketplace from  taking market share away from Airbnb by offering   a better service or charging lower fees the bonus  fifth reason behind the airbnb bust was that the   platform was never set up with longevity in mind  it has made billions in just a few years and for   its Founders and early investors everything else  is just a bonus that's not a bad thing but if   you're interested in businesses that have a bit  more staying power go and watch my video over on   how history Works to find out what it takes for a  company to last 1,000 years if you want to watch   these 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Channel: How Money Works

Views: 3,022,751

Keywords: airbnb, short term rentals, real estate, investing in airbnb, airbnb vs hotels, airbnbust, real estate investing, business, real estate crash, unaffordable homes, how history works, is airbnb profitable, vrbo, property management, investment property, housing market, mortgage rates, airbnb bust, holiday rentals, tourism, finance, hotel booking companies, property, mortgage, home loan, housing crisis, blackrock housing, blackstone housing, how to afford a house, reit

Id: vT6qh72wCZk

Length: 14min 20sec (860 seconds)

Published: Fri Oct 27 2023