Interesting Take on Airbnb

7 Replies

Just stumbled upon this article that I think others in this thread would appreciate. It makes some interesting points about the common opinions on "disruption", how people use Airbnb, and really the good/bad of the app since it's inception. 

It also offers some valuable statistics they may help other BPers hone in on their short term rental strategy!

https://www.theatlantic.com/business/archive/2018/...

Would be curious to hear other members take on it...

Definitely interesting, but the article contradicts its own thesis - in the same paragraph!  It states that AirBNB "doesn't account for enough downtown housing to be the major driver of rising rents in major metro areas. But [it pushed down hotel prices and raised rents on residents]" (emphasis added)  

I appreciate what they're trying to communicate here - that the "disruptions" caused by popular tech startups are often not the predicted ones.  And certainly AirBNB's impact on the housing market is not invisible, but it seems to exist only on a micro scale (so far).  Thus, I think the author would've had a more compelling argument if he'd picked a different company to focus on (e.g. Uber, whose existence has unintentionally but substantially increased traffic in NYC).  

Personally, my three properties are all in destination towns where there's a significant percentage of second homes, with longstanding vacation rental markets.  I do have an interest in urban markets, but so far haven't found something that's both cost-effective and without onerous regulations.  As a traveler, though, I love AirBNB's disruption!

Interesting article, thanks for sharing! The impact on rents in Chicago is low - only 4.9% of active listings are commercial according to the fivethirtyeight article that's linked. A majority of landlords here, big and small, prohibit the use of AirBnb as part of their lease terms, and the Chicago Association of Realtors has included the option to do so in their standard lease. Additionally, many condo associations, especially high rises, ban AirBnb outright or stipulate that the minimum length for leases is 12 months which effectively acts as a ban. Of course we still have plenty of AirBnb listings and not all landlords who ban its use monitor their tenants, but I think it's enough of a deterrent to prevent AirBnb from taking too many available units from locals. I've had a few clients try to find condos to buy and rent exclusively on AirBnb and it can be done, but I warn them to prepare for long tedious process of finding listings in buildings that don't have restrictions.

Very interesting article.....Good points all around. Thanks @Dave Van Horn .  I agree with @Gloria Wiekert  Regarding Chicago.  I don't see locals struggling to find housing due to airbnb, if anything I would think that helps us all as landlords if rents increase.  Although, I have seen some investors buying properties solely for the use of airbnb particularly with in the 2-4 unit buildings, using one unit solely for airbnb.

@Julie McCoy  

Thanks for commenting. I love the disruption as a traveler too! And good point about the contradiction, they are kinda speaking out of both sides of their mouth with that one. 

The same goes for when the article states Airbnb's success encourages commercial users but then they also say they've "worked with several cities to write rules that crack down on commercial users who try to turn their secondary residences into ersatz hotel rooms." I was wondering what the investor's take should be on that....even in terms of a risk management point of view. I think in your case with the destination towns you're safe either way but if they crack down on commercial users who've bought for the purpose of Airbnb-ing, I could see that being a major issue.

Originally posted by @Dave Van Horn :

@Julie McCoy 

Thanks for commenting. I love the disruption as a traveler too! And good point about the contradiction, they are kinda speaking out of both sides of their mouth with that one. 

The same goes for when the article states Airbnb's success encourages commercial users but then they also say they've "worked with several cities to write rules that crack down on commercial users who try to turn their secondary residences into ersatz hotel rooms." I was wondering what the investor's take should be on that....even in terms of a risk management point of view. I think in your case with the destination towns you're safe either way but if they crack down on commercial users who've bought for the purpose of Airbnb-ing, I could see that being a major issue.

Oh, it's certainly a major issue! And the primary one that keeps me out of urban markets. Researching the local legislation regarding STRs - both existing and potential - is probably THE biggest thing I advise people considering STRs to do. Before you even crunch the numbers, you want to know the potential obstacles in a given market. There are markets I won't even think about because I know the regulation is too unfavorable or too onerous to work around (e.g. Las Vegas). I do hope that eventually I will find a more urban market that I like - one that will be a solid LTR venture if/when the STR market there gets too regulated. However, that's some ways down the road for me at this point.

For what it's worth, I'm of the school of thought that some regulation is a good thing for the STR market. It means this new business model is legitimized by doing something as simple as paying tax to the local government. For my California house in particular, I LOVE that there's a tax I pay because it means the local government (which is a fairly rural area) is kept fat and happy by mine and others' contributions - they aren't going to WANT to hinder our business, because they profit from it! And I feel it also encourages an acceptable minimum standard for doing business. Sure, there are always going to be some bad actors out there, but the regulation allows those bad actors to be penalized and forced to improve or leave more easily than if it was just a free-for-all.

Finally, I also don't mind regulation designed to impede a large-scale commercialization of STRs.  This may be somewhat hypocritical of me, as I'm clearly investing for commercial purposes and scaling my business, and where is the line between a small-scale investor and large-scale investor?  However, for the AirBNB model in particular (and, less directly, vacation rentals in general) there's a big emphasis on the personal touch/live-like-a-local experience.  If some REIT decided to go buy an apartment building and make most/all the units STRs because the margins are awesome, well, I feel like that really DOES introduce the issues the Atlantic article was addressing.  And, it shifts that personal experience into something a lot more commercial like a hotel - which could be damaging to the industry as a whole.

To conclude, I don't view regulation as uniformly bad - in fact, I believe it can have a lot of benefits to investors as well as the general public (of course, this depends on the regulation!).  However, it does need to be carefully considered before investing in a given area, and has successfully kept me out of urban areas thus far.

(thanks for bringing this to the forum, by the way - it's fun to see you over here in our little corner, I've had an eye on your company for awhile and I like the model you've created re: note funds)

Create Lasting Wealth Through Real Estate

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

Start here