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There are increasing reports of the “Airbnbust”. Thousands of wealthy and upper middle class people that purchased properties for short term rental purposes over the last couple years can no longer keep them occupied on a regular basis.
Airbnbust: Supply and Demand
The first principal of real estate is the main principle of economics, supply and demand. When something is in short supply and demand is high, then the cost of that item skyrockets. This is a big reason why housing many parts of the country are so expensive, there are not enough of them. Therefore when supply is high and demand low, clearly the value goes down. This is exactly what is happening to Airbnb’s.
The overall supply of short term rentals in the US shot up over 23% in the last year. Too much too fast. People saw YouTubes on the “easy passive income” from short term rentals and went in.
Airbnbust: The Pandemic is Over
The Pandemic era is pretty much over. Sure, many of us will get vaccinations on an annual basis and some of us will sometimes wear masks, but beyond this, it is over. And thank goodness, because that whole situation sucked.
With the pandemic came a huge demand for short term single rental units. People were frankly scared to stay in big hotels and others could work from anywhere over long stretches of time. So why not Airbnb in a new city or remote location with wifi? Because of the airbnbust!
Now that people are gathering again and carrying on with their lives, there is less demand for this type of accommodation.
Airbnbust: Airbnb Hosts Got Obnoxious
Sorry, but I stayed in a few Airbnb’s over the last year and was required to practically clean the damn place after spending money on a cleaning fee and spending an outrageous amount for a nights stay. It did not feel right getting squeezed and taken advantage of. Check out this YouTube overview of the situation:
Real Estate is a Business & Product
New landlords can get into a mentality that real estate is an easy passive income machine. It is not. Running, managing and renting out real estate is like operating a small business. Sure, there will be times when things go pretty smooth and the owner simply collects a check. BUT, there are also times that require a number of financial, project management and people skills.
Not For Everyone
Managing and operating properties is not for everyone. One needs to know if this business is right for them. I can imagine that many people flooded into Airbnb and short term rentals thinking it was an easy way to collect passive income with little effort on their part. Wrong – airbnbust!
Fundamentals of Real Estate Investing
As a real estate veteran of over 20 years, I understand what it takes to succeed. Real estate investing takes time and is not a get rich quick process. It takes a certain set of skills and discipline to pull off. Here are some of the principles of real estate investing no matter the chosen path
Real estate investing involves an ownership stake of some kind in properties with the intention of generating income and/or appreciation over time. Here are some basics of real estate investing:
- Research and analysis: Before investing in real estate, it is important to do thorough research on the property market, the location, and the potential return on investment (ROI). Analyzing factors such as rental income, property taxes, and vacancy rates can help determine the potential profitability of a property. Some of those rushing into the Airbnb gold rush failed to adequate research.
- Financing: Real estate investments often require significant amounts of capital. Investors can finance their purchase through traditional lenders such as banks or through alternative financing methods such as private lenders or crowdfunding. Many of those new to Airbnb are probably over leveraged and cannot afford the mortgages, taxes and maintenance on properties without adequate cash flow. Many of these may be sold or rented out long term, which will help ease housing costs and supply issues.
- Property management: Real estate investors are responsible for managing their properties, which can include tasks such as finding tenants, handling maintenance and repairs, and collecting rent.
- Real estate strategies: Real estate investing can be done through a variety of strategies, such as purchasing rental properties, flipping houses, or investing in real estate investment trusts (REITs).
- Risks: Real estate investing carries risks, including market volatility, tenant vacancies, and unexpected maintenance costs. It is important to understand and manage these risks to minimize potential losses. All investing involves risk, but real estate investing requires a keen eye on risk management.
- Tax implications: Real estate investors need to be aware of the tax implications of their investments, such as capital gains taxes and property taxes.
Overall, real estate investing requires a lot of research, analysis, and careful planning. It can be a profitable investment if done correctly, but it also carries risks (i.e. airbnbust) that investors need to be aware of.