Airbnb won’t report its third quarter results until Nov. 1, but some hosts have been noticing a sharp fall in bookings over the last few months. If short-term bookings dry up, it could mean trouble for anyone relying on Airbnb income to defray the costs of owning a second home.
Even so, there are at least four major risks any Airbnb host has to consider if they still expect to earn money from their property as the economy slows down.
First, there’s the risk of making overly optimistic financial assumptions. Turnover costs, unexpected cancellations, and dead times during seasons that aren’t popular would lower revenue forecasts. A host might only be able to rent a property out for, say, 100 days a year. Projected costs must also include hiring a professional property management costs fees of say 15% if you won’t manage the rental yourself and Airbnb’s fee of roughly 14%. It’s also easy to underestimate property maintenance costs. Being a top host means furnishing the space like a corporate hotel, with new linens, furniture, and fancy coffee makers. Short-term guests are hard on a property, generating higher-than-usual maintenance expenses.
The second risk is a sudden drop in demand. Tourism is particularly vulnerable to disaster events like hurricanes, wildfires and even algal blooms. Tourists have lots of choices; if a destination is suddenly less attractive, they can easily cancel their trip or shorten their stay.
This brings me to risk number three: political risk. As short-term rental platforms have experienced rapid growth, local governments have been pushed by hotels and housing advocates to impose limits. For example, New York has passed laws restricting short-term rentals, making it harder for hosts to rent out rooms in apartment buildings. Other cities have followed suit.
Finally, there’s oversupply. You might have a great place in an attractive location; but if the supply has outgrown demand, there could be a nosedive in rents or a lack of bookings. In large cities with high housing costs, lots of hotels, and lots of other Airbnb hosts, it is tougher to command a price premium.
Smaller cities may not necessarily be a better bet. In late January 2020, I remember visiting Sedona, Arizona, and chatting with a New Jersey couple who had also been enchanted by the red rock wonderland. They were sorely tempted to buy a house and rent it out on Airbnb for the weeks they wouldn’t be there. But Sedona is one of the worst places to be an Airbnb host, according to AirDNA, an analytics firm that ranks the best places to invest in short-term rentals. It rates Sedona poorly due to high housing prices, low demand and a large number of listings on the market already.
Hosts looking to get out of the business have three options: sell, rent to a long-term tenant, or move in.
Housing prices are falling, but supply is still tight, so depending on how much the property has appreciated, selling might not be a bad option. Leasing the property long-term might be the best choice in some markets, especially where rental prices are high. Moving in is a very personal choice with a lot of accompanying costs.
Of course, not every Airbnb host is renting out their vacation home. Some are renting out their only home and using the extra income to balance their budgets. I know an LA family — two adults and two teens — who move in with friends and rent out their home when they need back-to-school clothes or a car repair. A more predictable source of income might be a long-term roommate, but that comes with legal complications — long-term renters have more rights — as well as privacy considerations.
Even if Airbnb itself reports another quarter of impressive earnings, if the hosting math isn’t working for you, it may be time to cut your losses.
https://worldnewsera.com/news/entrepreneurs/analysis-money-losing-airbnb-hosts-have-three-options/
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