Coronavirus & Short-Term Rentals: How I Made Up for Lost Profits (& How My Numbers Were Impacted)
Times are changing, and they are changing fast. A couple months ago, the world was in a relatively normal state. But as of this writing, it is frowned upon if I leave my 1,100-square-foot living quarters.
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COVID-19 and the resulting economic fallout are things no one alive today have experienced before. All major events have been cancelled, bars have been shut down, restaurants are takeout only, travel is strongly discouraged, schools and offices are closed, and people are expected to learn and work from home. In many areas of the country, people are only leaving their houses for outdoor exercise, to get groceries, or to go to the hospital.
Because of this lockdown, there is very little industry happening. Employers are being forced to lay off their employees. Unfortunately, many of those employees are our tenants and Airbnb guests, who would be paying us rent in exchange for a nice place to live or stay. But those who found themselves out of a job may also no longer have the ability to pay rent—which makes it significantly more difficult for us landlords to pay our mortgage.
This article is not going to be a huge, “I told you so.” That benefits no one.
Instead, I am going to show you the actions I took to combat the threat coronavirus inflicted on my real estate investments, as well as the results of said actions and how you can likely do something similar.
Rentals in the Wake of Coronavirus
How to Handle Long-Term Tenants
Not to sound like Captain Obvious, but your tenant’s ability to pay rent is directly correlated to the success you will have and the degree to which you’ll enjoy investing in real estate. With COVID-19 and lots of people losing jobs, some of your tenants may no longer be able to pay.
What do you do? Do you evict? Work with them? Let them off?
I don’t want to dive too deeply into managing your tenants in this article, because it’s already been done. In fact, BiggerPockets’ own Brandon Turner wrote a great article on what to do if your current tenants can’t make rent. All I will say is that I followed the steps he outlined completely, and luckily, none of my tenants stopped paying rent.
So, we are continuing business as usual.
How to Handle Short-Term Tenants
Before COVID-19, two of my units in the greater Denver area were short-term rentals. With travel screeching to a halt and every city across the nation shut down for a time, my Airbnbs were highly impacted.
Here at BiggerPockets, we talk relentlessly about making sure your property works in multiple ways. This is exactly why!
Could anyone have predicted a worldwide pandemic? Most certainly not!
Could we have predicted that some force will have a negative impact on discretionary spending (aka travel)? Absolutely!
This is exactly why you need to have multiple strategies that work for each property that you own.
I turned my Airbnbs into month-to-month rentals with a traditional lease. I did not solicit to travelling nurses. However, if one finds my place, I would be happy to rent to them.
Why did I go this route? Here are my reasons.
- Lower Risk of Getting COVID-19
First and foremost, the more people that you interact with, the higher the odds are you’re going to catch this highly contagious virus. Having people coming in and out of my Airbnb every couple days or weeks exponentially increases those odds. Not to mention, I am also exposing my cleaning crew, who also cleans my other unit AND the house I live in myself.
No thanks! I am trying to stay clean and healthy.
- Fewer People Are Vacationing or Traveling for Other Reasons
Airbnb is one of the strategies most impacted by the COVID breakout. The Department of State has issued a Global Level 4 Health Advisory for travel. In other words, they are highly suggesting no one travels—particularly internationally.
It makes perfect sense. Under normal circumstances, tens of thousands of people from all over the world are stepping in and out of airports each day. Therefore, the airport is infested with germs that can lead to all types of diseases.
As we continue to bring public places back into commission, I am confident that airports, travel, and large events will be the last to return to normalcy. These are HUGE reasons why I believe that Airbnb will be suffering the longest due to this virus.
On top of Airbnb directly being affected, COVID will have a lasting impact that spans much further than travel. Like mentioned, travelling or vacationing is a discretionary spend. People are going to be financially burdened after being out of work for months.
Do you think they will be gung-ho about further draining their bank accounts AND increasing their odds of getting COVID? I doubt it.
- More Financial Security for the Foreseeable Future
Recently, I quit my W-2 job at BiggerPockets. The biggest thing any W-2 job provides is security. At this point, I do not have a steady paycheck coming in. That is why I decided to turn my rental properties into a steady paycheck.
Airbnb is very volatile. In the Denver market, Airbnb hosts feast in the summer and starve in the winter.
(OK, starve may be an exaggeration. But you know what I mean!)
With a traditional rental, I lose the lucrative summers but have security in uncertain times. When things get back to normal, I can still turn these properties back into Airbnbs and earn the profits I was before.
What if your tenants are unable to pay rent? These days, nothing is secure because we are uncertain whether tenants will be able to pay rent. I have already addressed my current tenant situation above. With my new tenants, I know the current state of the world and have the ability to decline people who are out of jobs or are likely to lose their job in the next 30-plus days.
How My Properties Are Performing
Here is a brief overview of my numbers after converting properties from Airbnbs to full-time rentals.
You will notice that the “after” numbers are certainly worse, but they are still pretty darn good given the situation. That is because when I buy a property, I put a very high value on flexibility. If it can work as a short-term rental, it better also work as a long-term rental.
It seems to me that things will not be totally normal again for a very long time—if ever. To use a cliché, we should all be preparing for the worst but expecting the best.
How do you do that?
Make sure you are able to easily adjust with any property purchase. If plan A is to AirBnb, plan B should be to rent it out full-time.
If the property doesn’t currently pass that test, what changes can you make so that it can be rented out full-time? Perhaps adding a kitchen? A bathroom?
Whatever it is, do it if you’re able. If not, try to find the next deal.
When all is said and done, there will be two types of real estate investors remaining: the COVID-19 real estate survivors and the casualties. Which one are you going to be? The choice is yours!
Good luck, and stay sanitized!
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