Airbnb going the way of the dinosaur?

29 Replies

I have been exploring the possibility of Airbnb and short term rentals, but lately there has been a lot of discouraging news about cities really cracking down on Airbnb's short term rental model. San Francisco and Paris most recently, I think. It seems as if the powers that be, not only here in the US but worldwide really have a disdain for Airbnb. Might it not really be worth it to even hunt for a property for Airbnb seeing as the model may become a dinosaur in the not so distant future? Or am I misinterpreting the latest news about the business?

John -- The general mindset of a lot of these tourism focused areas is that air bnb is hurting the hotel industry (and presumably has more money/lobbying to throw at the issue).  Here in denver we have a tax that is little over 10% for air bnb short term rentals.  Additionally, your rental must be your primary residence.  I assume cities don't like that they aren't seeing much of this/any revenue from these rentals as well.

I personally see airbnb as continuing to grow significantly, but with the normal obstacles of any major shift in an industry.  I would think of uber/lyft as a comparison, over time I imagine a happy medium will be found!

@John Park

It’s actually quite interesting to watch. Cities are going in completely different directions, some choosing to capitalize on tax revenue others are limiting rentals. I also don’t think Airbnb is going anywhere, this as yet another city looking to limit STR.

http://m.mynews13.com/content/mobile/news/cfnews13/news/article.touch.html/content/news/articles/cfn/2018/1/22/orlando_city_ordinan.html

But you even have markets like New York City where 90% of listings are illegal but are home to 55,000 active rentals. It’s transitioning and will look very different in 5 years but not going anywhere.

@John Park cities are starting to recognize that Airbnb hosts in some cases are running a full time businesses, which means they are essentially operating a hotel business. Residential neighborhoods were not planned or zoned for this type of use, so residents of a neighborhood naturally don't appreciate it. There is also the tax issue. Some cities are collecting taxes, but even in those cities, some hosts don't pay the taxes. Hotels have licenses and oversight, something Airbnb hosts have largely escaped.  

This isn't a matter of "people in power" not liking a service, but rather new services trying to find ways around existing regulations. It is not fair to existing businesses who have to register, pay taxes and follow specific regulations. Of course there is going to be push back.

I don't see Airbnb going away, but regulations will continue to catch up with them. It will take time to evolve, so I see no harm getting in the business. Just stay current on regulations and you will be fine.

@John Park These news stories are definitely painting a bad picture of Airbnb and it is causing cities to crack down on them. I know recently here in Arlington there were 4 town hall meetings regarding it but we found out that all the people complaining about Airbnb were complaining about one host in the area. To answer your question people shouldn't be looking at properties for Airbnb use unless you are in a true vacation market. You should look at a property for corporate rental use. Airbnb is great but it's also taking some of your profits every time someone stays. I personally only use Airbnb during vacancies that usually last two weeks and the majority of the time I'm putting corporate renters into my places. They will pay you the Airbnb money for way less work. I don't think Airbnb will go away but they will continue to come up with regulations for it and for us investors ain't nobody got time for that. I see you are just north of me in Lewisville. Are you looking in the DFW area for properties? 

Originally posted by @Myka Artis :

@John Park These news stories are definitely painting a bad picture of Airbnb and it is causing cities to crack down on them. I know recently here in Arlington there were 4 town hall meetings regarding it but we found out that all the people complaining about Airbnb were complaining about one host in the area. To answer your question people shouldn't be looking at properties for Airbnb use unless you are in a true vacation market. You should look at a property for corporate rental use. Airbnb is great but it's also taking some of your profits every time someone stays. I personally only use Airbnb during vacancies that usually last two weeks and the majority of the time I'm putting corporate renters into my places. They will pay you the Airbnb money for way less work. I don't think Airbnb will go away but they will continue to come up with regulations for it and for us investors ain't nobody got time for that. I see you are just north of me in Lewisville. Are you looking in the DFW area for properties? 

 Myka—How do you connect with corporate renters?  

This post has been removed.

@John Park - I would suggest you have multiple strategies for your Airbnb property in case the local government cracks down:

  • Make sure you buy right and have enough equity to simply sell the property if needed.  Don't pay retail.
  • Buy a property that you can also turn into a long-term rental if needed.
  • I am not familiar with Myka's corporate strategy, but it sounds like an option if you already have a fully furnished place.

@Myka Artis - I did not hear the outcome of the most recent Arlington board meeting.  Any changes there or is Airbnb still in play in Arlington?

Andy

In my opinion, AirBNB is too volatile of a market in terms of future possible regulations by city, county, state and even federal government. As some have mentioned, you're seeing some places crack down on AirBNB's and others embrace them. I personally don't own anything that AirBNB's, and I've researched it a lot, but I don't think I'd ever buy a short-term rental that would not be a good long-term rental as well.

Originally posted by @Joe Splitrock :

@John Park cities are starting to recognize that Airbnb hosts in some cases are running a full time businesses, which means they are essentially operating a hotel business. Residential neighborhoods were not planned or zoned for this type of use, so residents of a neighborhood naturally don't appreciate it. There is also the tax issue. Some cities are collecting taxes, but even in those cities, some hosts don't pay the taxes. Hotels have licenses and oversight, something Airbnb hosts have largely escaped.  

This isn't a matter of "people in power" not liking a service, but rather new services trying to find ways around existing regulations. It is not fair to existing businesses who have to register, pay taxes and follow specific regulations. Of course there is going to be push back.

I don't see Airbnb going away, but regulations will continue to catch up with them. It will take time to evolve, so I see no harm getting in the business. Just stay current on regulations and you will be fine.

The easiest way around these regulations is to simply not do business in those cities, and that is exactly what a lot of people do. One city may ban AirBnB, but every suburb around it still allows it, and they get all of the benefits while that one city is still spinning it's wheels lost in old regulations.

When it comes down to it short term rentals have existed for a very long time. I remember being a kid back in the 1980's and my family rented a fully furnished house at the Lake of the Ozarks. That was a long time before any of these services. All cities that are vacation spots have had them for a long time before online services. They aren't going anywhere.

@Kim Becker There are many channels to advertise through. You can get in touch with traveling nurse companies or insurance companies directly or you can look at CHBO, furnished finder, or Gypsy Travel Nurse. 

@Andy Webb Yeah it's still in play but they may be looking to put some rules on it in the near future. I have moved all of my Arlington places out of Airbnb anyway. Good thing I did. It seemed to be more people against Airbnb in those town hall meetings than people for it.

Like the others I would encourage a deal that takes advantage of many possible exits. But it's important to remember that AirBNB is a vendor, not a strategy. I know it's pedantic, but AirBnB is only one outlet for your short-term rentals. If you have a working short-term rental in a high traffic tourist area, you also likely have a valid vacation rental (which as @Anthony Gayden said, have been around forever) and a likely long-term rental. As long as you're buying right and not counting on what seems to be the higher intrinsic cash flow of a STR you should be good.

In terms of long-term strategy and buying right, you can also run the deal in stages. Think about the likelihood of changes to the STR space in your market. What is likely to change immediately, within one year, within three years, etc. If you can buy as an STR and be well positioned in one year to weather any changes (because you've captured cash flow and paid down the property's debt, for example) to the codes, your longer-term strategy could end up being your competitive advantage in the space.

@John Park

Interesting thread. In general, it seems the bigger the city, the less-friendly it is toward Airbnb, but that's not universally true. (I think Chicago is actually pretty open.) 

There are still smaller cities that are totally open. For instance, here in Colorado, Colorado Springs is totally open to short-term rentals and Airbnb. 

Either way, like @Andy Webb , we tell our clients to have two back-up plan possibilities. 

  1. If Airbnb regulations in your city change, then you can switch to a corporate traveler/traveling nurse model. Like @Myka Artis  , My wife and I only do the medium-term furnished model now because Denver is so strict with their Airbnb laws. This works well for us and our pocketbooks.
  2. If all else fails, you should be able to long-term rent the place and cover yourself. Always run the long-term rental numbers on a place before buying, even if you intend it for an Airbnb or medium-term furnished rental.

@Nick P.

A lot of cities are acting to protect the hotels, but not Denver. The hotel industry had very little presence during the drafting of and the town halls for Denver's Airbnb law. That's because Denver hotels have made record profits for years now. It was really the neighborhood associations and fears about affordable housing that drove the city council to act.

And even then, that 10.75% tax paid by Denver Airbnb hosts is the same tax paid by Denver hotel guests. So they're just on a level playing field.

James -- super interesting, the affordable housing aspects totally makes sense.  If AirBnb is insanely lucrative, there would be a significant shortage on available rentals

@Nick P.

I'm a little torn about this issue. On the one hand, I think Airbnb is awesome. I love staying in them whenever my wife and I travel, and I think the Airbnb platform allows creative entrepreneurs to hustle for dollars, which I totally support. 

On the other hand, I'm a self-labeled liberal who, while enjoying the free market, also thinks the free market leaves some people behind. Because of that, I'm open to safeguards that try to mitigate the consequences to those people.

 On the third hand, if there is a third hand, the number of Airbnb units in Denver is a fraction of a drop in the bucket of total housing supply, so does it actually affect affordable housing? Not yet. Could it? Yes, I think opening up Airbnb to any investor to buy up anything they want could affect affordable housing.

While the business side of me would love to see Denver embrace this new technology and reap the tax benefits, the civic-minded side of me thinks they struck a nice balance with the primary residence rule. It will be interesting to see how all this plays out in Denver, in other Colorado cities and around the country. 

@James Carlson @Nick P. even in urban markets I don't really see a housing crisis happening due to Airbnb.  There are ~4000 STRs here in Denver and the market is already getting saturated.  Unless tons more people start using homeshare sites I think we can expect a revenue decline this year.  If I was an investor I would not be gobbling up properties in Denver even if it was 100% legal - the margins just aren't good enough. 

Many people think you make money "hand over fist" by renting on Airbnb, but when you add in PM fees, expenses, and taxes, there are lots of (usually 1 BR) properties that have better cash flow if you rent long term *gasp*!  There are of course exceptions and plenty of properties that crush it but I think there is a bit of a misconception.  

In cities like SF & NYC - there is already zero affordable housing there, so it makes total sense those cities are cracking down.  

@Tyler Work I live in Nashville, which is one of the major Airbnb crackdown cities.  I have a long term here, but all my short terms are in the Smoky Mountains, a market where the local economy has depended on vacation rentals for decades, long before the dawn of Airbnb.  So if you are ok with investing in short term outside of the area that you live, there are numerous vacation rental areas similar to mine throughout the country that present significant opportunities for short term rental investments with little fear of the Airbnb crackdown.

You can get a fair idea of how powerful entrenched interests are in cities by how the cities react to things like uber / airBNB, (or how beholden the politicians are).  Basically, cities that want small businesses and individuals to thrive will let people experiment with new ways of doing business.  The moderate ones just want a little tax revenue and a few mild regulations like no hosting wild orgies after 10 pm. The ones that are beholden to the hotels and hotel workers unions, like Anaheim and Santa Monica, here in California will ban citizens from using their home to make a few extra bucks. 

So have a back out plan if your city is not supportive of homeowners.  Can the property be resold easily? Can it be used for a medium term rental to traveling nurses or business people? Can you convert to a long term rental? If the back up plan is OK and the city is not too bad then go for it. 

@John Park I think it just depends on your city and how aggressive your short term rental owners are. I live in North Charleston, SC and our Mayor and City Council are not opposed to them. However, they do want them to be measured and safe. I don't blame them at all. There is a laundry list of regulations being passed here in the coming months, but they are all reasonable in my opinion. We have an airbnb in a guest house at our house, so I'm trying to follow the rules and stay compliant as much as possible without any published rules just yet. We have a serious problem with affordable housing here due to wages staying so terribly stagnant and our lawmakers are claiming that they want to regulate STRs to make sure the affordability doesn't continue to get harder for middle class residents of Charleston.

Love the thread. We moved to Colorado Springs from Houston last year and still own a vacation rental in Galveston, Texas. That rental (Casa Sea Spell) was a run down LTR with great bones when we bought it, so we fixed it up and will double our money when ready to flip out in the longterm. Meanwhile, we've enjoyed staying in it, and it was a great earner when we self-managed it for the first three years. Now, living a long distance away, we've had to take on a PM and have seen bookings drop off (in part, perhaps, due to Hurricane Harvey, although it did result in some displaced residents as longterm guests).

We may find it's time to get out of that unit after running last year's numbers and visiting to see what shape the management company is keeping it in. On the other hand, we have a big un-finished basement beneath our historic (1901) home here in Colorado Springs, so we might roll our profits into finishing out a rental suite here. As a small part of our investment portfolio, the vacation rental market has provided great diversity.

On the other side of the equation, we love staying in owner-occupied Air BnBs when traveling. Read the owner profiles and find quirky homes in fun neighborhoods with interesting hosts who can provide local insights to the community. Much cooler than just another generic hotel room.

Great thread and thanks all for sharing your cities' positions.

Agree with a lot of what's been said.  Being nimble is key, and having a strategy in place in the event of adverse regulations is important.

on the front end:  

1) figure out your risk tolerance.  Are you OK operating in a city like Miami beach or NYC where it's illegal but you'll get higher returns but also face fines?  If so, pick a good unit, have a great team in place to watch over it, and you should likely be nearby in case anything happens.  If not, Colorodo Springs, Jersey City, North Charleston, ... Feel free to add others.  Sounds like Chicago could be a middle ground.  And then you have the 'permit cities': New Orleans, Nashville, Denver, Indianapolis seems to be going this way.  I think I'll start a document keeping track of all of these cities and their regulations.  PM if interested in helping out.

For example, I operate 6 in NYC and I can tell you, it's extremely profitable, but also extremely risky.  I'm dealing with a Landlord right now who's trying to bully me and you have to have the stamina and resolve to hold your ground and know your rights.  This is NOT for everyone and can be highly stressful.  That said, I think i'll always have a least a few in NYC to funnel those cash flows into other legal markets.  That's the strategy I'm going for right now.

2) Now you decide whether you want to buy or lease.  What's your long-term goal? Own property or be nimble and generate high returns? I think many think that buying is the obvious choice, but leasing has its advantages if you can find an agreeable landlord.  Just look at companies like Sonder, which is executing on this model incredibly well.  Look and see how many positions they're hiring in 10 cities!

3) start scouring the market.  Be bold and dont suffer analysis paralysis.  Get into a unit and try it out.   This stage should be about collecting data by looking at AirBNB (which should also figure into step 1), finding comparable properties, talking to people, forecasting occupancy rates and returns (I'm building a model to do this).  read local regulations, go to the city and talk to people, knock on your neighbors door before buying... be bold, friendly, positive, and curious.

4) execute perfectly and keep great records and data.  

5) repeat in same city, or try a new market and see how they compare.

Ideally, you would have set up a system and get people in place to manage your properties/ cleaning crews/ handymen and you just deal with the occasional emergency.  That's the position i've gotten to, but I know there is a ton more to do....

I'm actually thinking of starting a boutique hotel chain around this concept, and have been pitching friends of mine and people on BP to see how they can join/ collaborate. This is a great time to be a STR entrepreneur, but to truly do it well, it requires a lot of different skillsets, tremendous amount of work, and a brilliant strategy that's executed perfectly.

Reach out if interested and Good Luck!

I agree with @Andy Webb 's three bullet points. Smart. I just passed on a property because it didn't meet that criteria. It should work as a long-term rental financially, then upgrade to a short term rental as long as the situation allows.

@James Carlson I like your phrase "medium term" for corporate rentals. :) I have been stumbling on how to describe rentals between 30 days and a year so I'm going to use that. 

In terms of appealing to travel nurses, I am on a Facebook group with many and have gotten a ton (like 176 comments last count) of feedback on what kind of housing is best for them, and basically the criteria is this: 1 br, pet friendly, wifi, washer/dryer. Larger spaces (3br+) are tough for travel nurses because they usually require more rent than nurses would like to spend given the choice of smaller more affordable places. 

@Troy Gandee hey buddy what regulations are you seeing? I’ve seen the recommendations from the task force for Chs cnty that I would say some are out of touch (ie home must be at least 50 years old). 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here