Thoughts on Buying homes for their AirBnB value?

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Thoughts on Buying homes for their AirBnB value?

Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes

Hey BP, I have been talking to a lot of investors purchasing for AirBnB and even headed out west to see some new construction being valued for its AirBnB potential. Do you guys think this kind of investing (STR) is sustainable.

Couple thoughts of mine of why I think it could be volatile: 

1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month

2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. 

3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. 

4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. 

Would love to hear what people have to say!

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David Ramirez
Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes
3y

While I don't currently own any STR, I understand your perspective. From my own experience, I believe that having a solid exit strategy is critical. Ensuring that you at least break even as a long term rental can be a wise decision in the long run

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  • David Ramirez
    Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes
    3y

    While I don't currently own any STR, I understand your perspective. From my own experience, I believe that having a solid exit strategy is critical. Ensuring that you at least break even as a long term rental can be a wise decision in the long run

    5Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    Bolded your comments and added my commentary...

    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month - Traveling is not a trend. It always has and always will be popular. Even with a looming recession, most surveys indicate people plan to travel more in the coming years than they did the past couple of years.

    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. - This is definitely a factor currently impacting airbnb hosts. Cities like where I live are cracking down on short term rentals and putting in place more regulation. I think this will be a net positive long term. It will weed out the aspiring hosts with "get rich quick" intentions, and leave room for hosts who treat this as a real business.

    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. - Airbnb is justified more for a longer stay as you said, or for larger groups. 

    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. - There are a lot of investors in my area who buy these $1M+ properties solely for the purpose of converting to a short term rental. I've personally participated in the madness by selling a few of my house flips to these "investors" just baffled by how they are underwriting the deal. I'm currently seeing a slowdown with prices down 10-15% in the neighborhoods that were formally red hot for airbnb hosts. I think the prices will stabilize after an additional 5-10% drop from here. These properties are still cash cows as short term rentals, but you can't pay the higher prices anymore when rates are ~8%.

    4Reply
  • Kenny Smith
    Real Estate Agent · Denver, CO · Member since 2022 · 356 posts · 228 votes
    3y

    @Alan Asriants

    All great points! What I always tell my clients is to have a plan A, B, and C. Plan A being the most profitable (STR), Plan B being a medium term rental (if laws change, STR market saturation occurs), and of course plan C being an LTR.

    If you are buying in this market today, LTR's are very hard to cash flow.  At least in my market of Denver, CO.  However, even buying at a higher rate, when rates drop (eventually), you can always refinance into a lower rate at that point.  If the numbers work as an LTR at a lower rate, say 4.5.-5%, I'd say you have a good deal.

    Leading with Plan A, but knowing if all goes to you know what, you have that plan C available and you aren't hemorrhaging money.

    IF only plan A works for a property, personally, I will not take that risk.  I'm sure people will argue they will and that's fine, but seems too risky for me.

    Best of luck!

    2Reply
  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    3y
    Quote from @Alan Asriants:

    Hey BP, I have been talking to a lot of investors purchasing for AirBnB and even headed out west to see some new construction being valued for its AirBnB potential. Do you guys think this kind of investing (STR) is sustainable.

    No. People are going back to hotels, etc due to fees, cleaning bs, and more. Plus a lot of places have been oversaturated with it. 
    2Reply
  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y

    @Scott E.

    Love this reply, thank you for the details. I think the short term rental market (large single families/condos) will have to go down as well

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    Alan Asriants - New Century Real Estate 590 Reviews
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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y

    @Kenny Smith

    Good point. If it doesn’t make any sense as a LTR, avoid it. I would follow this piece of advice

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    Alan Asriants - New Century Real Estate 590 Reviews
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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y

    @Matt M.

    Seems like it got hot too quick. Won't deny that I think people made good money, but long term might be difficult to maintain. I think it will eventually turn into an investing strategy but your CoC won't be these insane figures but will still be more profitable than LTR. If 10% CoC is normal for LTR, this would be like 20%. More risk more reward.

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    Alan Asriants - New Century Real Estate 590 Reviews
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  • Frank Patalano
    Rental Property Investor · East Providence, RI · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    Overall buying based on "AirBnb potential" sounds like a terrible concept. 1 excited municipality can wipe out your profit with the swipe of a pen.


    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month     - Traveling is a trend? Nah. But today's technology and culture does allow more people than ever to work from anywhere.

    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. - Hotels have been on there for a while. I'm more worried about municipalities cracking down with regulations. Airbnb.com is actually aggressive watched by some towns and you can get fined if it is in an area not allowed by zoning.

    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. - Are you talking for a hotel? Airbnb does a good job persuading hosts to discount long stays.

    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. I'm seeing some slowdown because with more new people during short term rentals there has been an increase in supply.

    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Airbnb numbers do not affect a properties value, especially single family. Do not ever over pay for a single family because it generates good income. When you are left with no bookings you are in a bad situation. 

    3Reply
  • Patrick DruryBusiness Member
    Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
    3y

    @Alan Asriants
    I think 2 is one of the biggest ones. If you buy an Airbnb and that property can't perform at all unless you run it as an STR that puts you in a bind if the city puts limits on STRs to where you can't do them anymore. Short-term rentals should be able to operate as long-term rentals so that if that happens you aren't left holding the bag.

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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Patrick Drury:

    @Alan Asriants
    I think 2 is one of the biggest ones. If you buy an Airbnb and that property can't perform at all unless you run it as an STR that puts you in a bind if the city puts limits on STRs to where you can't do them anymore. Short-term rentals should be able to operate as long-term rentals so that if that happens you aren't left holding the bag.


     Agreed! Safe play

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Eliott Elias:

    Airbnb numbers do not affect a properties value, especially single family. Do not ever over pay for a single family because it generates good income. When you are left with no bookings you are in a bad situation. 


     What I was thinking as well. When I was out in colorado all the new construction listings were giving AirBnB projections and selling for 20%+ more YoY. Dangerous game... Hope not many people got burned

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    Alan Asriants - New Century Real Estate 590 Reviews
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  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    3y
    Quote from @Frank Patalano:

    Overall buying based on "AirBnb potential" sounds like a terrible concept. 1 excited municipality can wipe out your profit with the swipe of a pen.


    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month     - Traveling is a trend? Nah. But today's technology and culture does allow more people than ever to work from anywhere.

    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. - Hotels have been on there for a while. I'm more worried about municipalities cracking down with regulations. Airbnb.com is actually aggressive watched by some towns and you can get fined if it is in an area not allowed by zoning.

    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. - Are you talking for a hotel? Airbnb does a good job persuading hosts to discount long stays.

    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. I'm seeing some slowdown because with more new people during short term rentals there has been an increase in supply.


     I think I might've not said my point well about the traveling. I guess what I was trying to say is that certain areas have been cool to travel to only because of social media and in some time might not be as popular travel destination hurting investors bottom line. 

    appreciate the breakdown. Seems like we are all in consensus - I just didnt fully trust these crazy returns some people were mentioning. Maybe at first but not now I guess. 

    Still seems like a good way business if you have the proper safety nets. 

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
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  • Frank Patalano
    Rental Property Investor · East Providence, RI · Member since 2018 · 1k+ posts · 1k+ votes
    3y
    Quote from @Alan Asriants:
    Quote from @Frank Patalano:

    Overall buying based on "AirBnb potential" sounds like a terrible concept. 1 excited municipality can wipe out your profit with the swipe of a pen.


    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month     - Traveling is a trend? Nah. But today's technology and culture does allow more people than ever to work from anywhere.

    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. - Hotels have been on there for a while. I'm more worried about municipalities cracking down with regulations. Airbnb.com is actually aggressive watched by some towns and you can get fined if it is in an area not allowed by zoning.

    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. - Are you talking for a hotel? Airbnb does a good job persuading hosts to discount long stays.

    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. I'm seeing some slowdown because with more new people during short term rentals there has been an increase in supply.


     I think I might've not said my point well about the traveling. I guess what I was trying to say is that certain areas have been cool to travel to only because of social media and in some time might not be as popular travel destination hurting investors bottom line. 

    appreciate the breakdown. Seems like we are all in consensus - I just didnt fully trust these crazy returns some people were mentioning. Maybe at first but not now I guess. 

    Still seems like a good way business if you have the proper safety nets. 


     Thank God we did not buy our boutique hotel last year based on AirBnb proforma. We are performing at less than 50% of what the fake proforma numbers If we had told us.

    1Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    3y

    @Eliott Elias That depends on the market. In the Smokies, for example, the price of a cabin is based on the short term rental revenue it is likely to bring. Probably not a factor in markets that are not primarily vacation destinations.

    2Reply
  • Bob Willis
    Investor · Curtis, NE · Member since 2019 · 231 posts · 140 votes
    3y

    Location, location, location... As @Scott E. mentioned above the market is saturated in some places (like the Phoenix metro where he is located). I believe AirBnb and its ilk will be the go to platform for families traveling in the future. Those who say they would rather just go to a hotel are people who have not traveled with kids for an extended stay at a destination (imo). I recently changed co-hosts on my STR and that made a big difference. I had been with the same PM for six years and they had grown too big too fast. I found someone smaller and hungrier, my monthly revenues have seen significant improvement. Families are traveling, there is a business case to be made for investing in STR, but you got to buy right.

    2Reply
  • Chris Schwagerl
    Rental Property Investor · Minneapolis, MN · Member since 2016 · 34 posts · 22 votes
    3y
    Quote from @Alan Asriants:

    Hey BP, I have been talking to a lot of investors purchasing for AirBnB and even headed out west to see some new construction being valued for its AirBnB potential. Do you guys think this kind of investing (STR) is sustainable.

    Couple thoughts of mine of why I think it could be volatile: 

    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month

    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. 

    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. 

    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. 

    Would love to hear what people have to say!


     Hey Alan,

    Great question!

    Two thoughts here:

    1) I buy STRs, and one of my criteria for underwriting is that they have positive cashflow as a long-term rental as well. Play offense (STR) AND defense (LTR)

    2) Regulations are either in place or aren't. If regulations aren't in place, then they're coming. And they won't be pretty. You want to do a STR in a location with pre-determined regulations so you know what to expect. Check the zoning, city regs, and county regs.

    2Reply
  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Alan Asriants absolutely not. If you base it on the AirBnB potential, you will overpay for sure. In addition, you limit yourself in the back end when you go to sell to just an STR buyer. STR is a great strategy, but you want to keep in mind you exit strategy and have several operational strategies as well in case the STR trends don't work out. If it doesn't pencil out as a long term rental too, I wouldn't do it.

    [email protected]512-674-5478
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  • Frank Patalano
    Rental Property Investor · East Providence, RI · Member since 2018 · 1k+ posts · 1k+ votes
    3y
    Quote from @Chris Schwagerl:
    Quote from @Alan Asriants:

    Hey BP, I have been talking to a lot of investors purchasing for AirBnB and even headed out west to see some new construction being valued for its AirBnB potential. Do you guys think this kind of investing (STR) is sustainable.

    Couple thoughts of mine of why I think it could be volatile: 

    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month

    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. 

    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. 

    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. 

    Would love to hear what people have to say!


     Hey Alan,

    Great question!

    Two thoughts here:

    1) I buy STRs, and one of my criteria for underwriting is that they have positive cashflow as a long-term rental as well. Play offense (STR) AND defense (LTR)

    2) Regulations are either in place or aren't. If regulations aren't in place, then they're coming. And they won't be pretty. You want to do a STR in a location with pre-determined regulations so you know what to expect. Check the zoning, city regs, and county regs.

    I agree on both counts.
    #1 I always tell people to buy based on standard month to month income.
    And #2, its not a question of if but a question of when with regulations.
    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y

    @Mark S.

    I own a house in the smokies.

    A residential property will only appraise based on comparable sales, not on what it's potential STR income is.

    1Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    3y

    @John Underwood I understand that. The comment was about price, not appraisal amount, and in a market like the Smokies, which is driven by STRs, the price purchasers are willing to pay is driven by the revenue they expect the cabin to deliver. The property may or may not appraise at that price, which for some buyers doesn’t matter if they are paying cash or build a substantial appraisal gap contingency in their offer. I own in a number of vacation markets and am quite familiar with this situation. And keep in mind, when similar properties have sold based on the revenue they drive, appraisals for future sales will be based on those prices.

    All that said, I think some of the prices people have paid are crazy and they will experience some pain because of it, unfortunately.

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @Mark S.:

    @John Underwood I understand that. The comment was about price, not appraisal amount, and in a market like the Smokies, which is driven by STRs, the price purchasers are willing to pay is driven by the revenue they expect the cabin to deliver. The property may or may not appraise at that price, which for some buyers doesn’t matter if they are paying cash or build a substantial appraisal gap contingency in their offer. I own in a number of vacation markets and am quite familiar with this situation. And keep in mind, when similar properties have sold based on the revenue they drive, appraisals for future sales will be based on those prices.

    All that said, I think some of the prices people have paid are crazy and they will experience some pain because of it, unfortunately.


     I agree!

    It is not smart to pay more than something is worth. People were also waiving contengies to have a competitive offer. 

    I just kept making offers with full contingencies last year on a cabin until we were successful. So the cabin had to appraise and we had everything inspected.

    Some of those people who overpaid in areas where it was already saturated will likely be feeling some pain in the near future.

    0Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    3y

    @John Underwood Which will create opportunities for others. I really do feel bad for people who have gotten sucked into the STR fad and spent way more than they could or should have.

    1Reply
  • January Johnson
    Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
    3y

    Unless you're paying cash and don't care, properties still have to appraise, and appraisers don't take "Airbnb income potential" into account unless it's a DSCR loan, and most of them use LTR income as far as I'm aware.

    1Reply
  • Brad S.
    Investor · Pasadena, CA · Member since 2017 · 612 posts · 523 votes
    3y
    Quote from @Alan Asriants:

    Hey BP, I have been talking to a lot of investors purchasing for AirBnB and even headed out west to see some new construction being valued for its AirBnB potential. Do you guys think this kind of investing (STR) is sustainable.

    Couple thoughts of mine of why I think it could be volatile: 
    1. Traveling is sometimes a trend. Tiktok has made it cool to go to one place one month and then another next month
    2. Heard AirBnb is getting more strict with their regulations - larger companies/hotels are now listing their properties there. 
    3. AirBnb is getting more expensive. Recently found that it was $200 cheaper to use Booking.com than AirBnB. The nightly cost was the same. After all the taxes and fees being charged on AirBnb it didn't make sense for a short trip. Possibly for a longer stay it could be justified. 
    4. People are buying very expensive homes (1M and up) and hoping to get crazy returns - recession could impact how nice of a place people would rent. I hear lots of people who own airbnbs are getting most of their requests from 20 year olds looking to party in their mansion. 

    Would love to hear what people have to say!

    ****************************************

    Sure, it's sustainable, str has already been around for many decades, before Mr. Gore created the internet. But it seems obvious that most people consider it a pure real estate investment, instead of what it really is. It's a business investment or opportunity, with real estate being a main asset of the business.  It's a hospitality business. The online platforms are just the newer shiny, bright objects putting the business in the spotlight. This creates a new cycle in the business, exposing it to more people. 

    Now, that said, many str's are in traditional neighborhoods and some in vacation destinations. Those in more vacation areas will typically have more business risk, but owners sometimes equate that to real estate values. it seems that many people conflate the two.

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