Here is the problem with Airbnb investing.

When interest rates went up in early 2022, I noticed a huge influx of people coming to me wanting to invest in short-term rentals. Then all of a sudden, mid-term rentals were all the rage. I probably consulted with two people a week in 2022 and 2023 who wanted to start investing in mid-term rentals.

Why did this happen?

In early 2022, deals were looking worse and worse from a cash flow perspective. "I just can't make any of these numbers work." I heard that all day, every day. Side note—no one can ever make the numbers work. You need to write aggressive offers and add value to make deals work.

Anyways, in 2022 it got especially challenging because limited inventory was still propping up the values of a lot of these small multifamily deals. So instead of good old-fashioned hard work—construction and lowballing sellers with equity, a simple combination that works in every market—a lot of investors thought, "I'll just underwrite it as a short-term rental, and boom, cash flow." Mid-term? Even better. "It's the best of both worlds. I don't have to manage a tiny hotel, but I'll get all the extra cash flow. Sign me up."

It's not that simple. Underwriting any property that isn't sitting on a beach or a mountain as a short-term rental is a dumb idea.

I've been a mid-term rental guy since 2016. The term "mid-term rental" wasn't even really coined until around 2021, so I'm a fan of the strategy. But a smart investor doesn't count on mid-term or short-term income to make a deal work. We underwrite traditionally using long-term rents so we don't get burned, because short-term and mid-term income can be unpredictable. City ordinances can change, neighbors can get upset, and there are a host of unexpected ways for a deal to go south in that space.

If the deal works with long-term rents, great. If you can increase your returns with short-term or mid-term rentals, that's a bonus. It should never be the reason the deal works in the first place.