Airbnbust
The easy money is over
Boomtime
2022 was amazing for Airbnb hosts. The pandemic was over, people had tons of excess savings (from stimulus checks and staying home) and were itching to travel again.
And travel they did. In just a year we went from just “essential” travel to pre-pandemic levels.
At the same time, there was an explosion in Airbnb hosts. It had a few causes:
In 2022 Airbnb spent $1.5 billion 😲 on tv commercials, online ads and billboards.
We do love this one Social media was flooded with gurus who preached Airbnb “arbitrage”. They’d sell you a course for $499 and show you all the tricks. The way it pretty much worked is you would rent the property from the owner, furnish it, post it on Airbnb and voila! you’re rich now.
Everyone knew a friend running an Airbnb business that bragged about how much money they were making.
Interest rates were low and lending standards were lax so even unqualified buyers could buy multiple Airbnb properties. Side note: these mortgages contributed to Swiss bank Credit Suisse’s collapse in March.
FOMO crept in and the Airbnb frenzy kept getting hotter. Everyone looked like geniuses as nightly rates just kept going up and travel was booming.
Looking Deeper
Why should 2023 be any different?
There is now more supply than demand. Let’s break it down:
Supply grew 23% in one year: In September 2022, available short-term U.S. listings on Airbnb and Vrbo climbed to 1.38 million, up 23.2% year over year, according to AirDNA. That means 1% of all US homes are now listed on Airbnb.
Demand is slowing fast: There’s no simple demand stats so we should look at the drivers. The big ones are crazy inflation, high interest rates, resumption of student loan payments and mass layoffs. Consumer confidence is shaken so they’re traveling less and have less money to spend.
So if supply exceeds demand, prices have to go down. In a neighborhood it starts with one host who notices her vacancy is higher than the same time last year. She lowers the nightly rate by 10% to increase bookings. Soon her neighbor realizes that his vacancy is high AND he’s losing bookings to his neighbor’s lower rates. So he lowers his rate too. Before they know it, every host is dropping their rates and it’s become a race to the bottom.
The result is that you can now get a 2 bed luxury condo in Brickell for $143/night - on a weekend! Meanwhile a standard queen room at the Brickell Hyatt costs $187/night. Great for the customer, really bad for the owner.
Running the numbers
Let’s see if Airbnb is still the best choice for your property.
Calculating your monthly cashflow looks like this:
(average nightly rate X occupied nights/month) - utilities - management fees - Airbnb fees
Let’s look at this 2 bed/2 bath condo in Wynwood
This is listed for $160/night on a June weekend so let’s assume the average nightly rate is $190/night (to account for higher winter and event rates).
Expected monthly cashflow = $2,947
Calculation: $190 nightly rate x 21 rented nights per month (Miami average, less in summer) - 20% management fee (Miami standard) - 3% Airbnb host fee - tas
Now what if we compared that to a traditional rental?
According to Zillow, a similar 2 bed/2 bath (unfurnished) condo next door in a similar building rents for $3,499/month (linked here).
Expected monthly cashflow = $3,149
Calculation: $3,499 monthly rate - 10% property management fee (includes leasing commission).
You would lose $202/month by listing on Airbnb 💸
And that’s before you factor in furniture, higher maintenance costs with Airbnb and the damages caused by Airbnb guests (you can’t charge a security deposit and their Aircover insurance is notorious for not compensating owners).
Use our calculator to see for yourself here 👇
https://app.thsld.com/public/str-ltr-comp
What now?
There are still many times when Airbnb make sense:
You have a large property (3+ bedrooms) that caters to large groups so that you’re not competing against hotel inventory.
You have multiple Airbnb properties nearby (4+) that you’re self-managing. This lets you keep your costs low and get economies of scale. But be careful that you haven’t just created a low-paid job for yourself.
Your property is truly one-of-a-kind. That could be architecture, a rare amenity or historical significance. Be honest with yourself. Chances are a 2 bed/1 bath apartment in Downtown Miami is not one-of-a-kind.
In pretty much every other case you’re just competing on price.
Ok so what should I do?
Mid-term and long-term leases. You’ll cashflow more and the income is WAY more stable. Because everyone flocked to Airbnb we have a shortage of good traditional rental units. This is your opportunity to capitalize. Check us out at www.thsld.com
And please let us know if you agree: