What is happening BiggerPockets? It's Matt Faircloth. Here's the deal. I don't own any
short term rentals. I don't own any Airbnbs. I don't own any vacation homes that I get
leased out to other people or anything like that. But I've researched it quite a bit.
I've been exposed to it, and I know a lot of people that do, and I know a good bit about
that market, even though I don't own. So full disclosure, I do not own short term rentals
and Airbnbs, but I did leave it out of the last conversation. I know a lot of folks on
BiggerPockets and a lot of folks that watch our YouTube channel do own those properties,
and so I wanted to take care of you guys and cover that conversation just so we can discuss
what Matt's thoughts are on how the future of Airbnb and short term rentals are. So let's
get into the conversation.
Let's talk about what a short term rental is. All joking aside, that want a little more
clarity on what I'm talking about today, that's STR short term rental. What that is, is up
until the advent of short term rentals, when you've rented something you would typically
rent it for a longer period of time, like a year. I'm going to rent this apartment for
a year, or I'm going to rent this office space for several years. Whatever it is, the timing
on the lease contract was a long period of time, but it doesn't always have to be. There's
nothing in the law that says that leases have to be for a year or more. When you use a hotel,
you're signing a contract. You want to use the hotel room for a certain period of time.
You're going to use it for what the use was intended for.
If you look at it, it's actually like a lease contract. The hotels have been offering rented
space for very short periods of time for probably thousands of years. And in some ways, hotels
were one of the first rentals that were out there. So hotels really were the first short
term rentals that are there. Airbnb made this a big phenomenon, which made people say, "Okay,
I have access to a lot of different options. I could stay, rent a room in somebody's house,
like a true B&B, like a bed and breakfast." And so I could do that or I could rent an
entire home, a three bedroom, two bath, rent it for a day or two. That's all it is, is
just a rental of real estate for a very, very short period of time. My correlation of Airbnbs
to hotels has to do with the biggest reason why Airbnbs on the short term are going to
have short term effects.
Let's talk about short and long. Okay. The short term effects of Airbnbs are very similar
to the short term effects of hotels. Not many people are traveling. So travel is down because
of COVID, and because folks who are a little concerned about getting out there and catching
an infection or something like that. Or be around other people during social distancing,
travel is down. It's yet to be seen when travel is going to pick back up. Today is June, so
people are thinking that it's going to start open back up soon. People are already getting
out and about, but who knows if it's going to stay on for a longer period of time. And
I can tell you, all of America is not going to be okay, just jumping out and traveling
all of a sudden. So travel is going to be down for a while. Even if things start to
open back up, so Airbnbs aren't going to just snap back because travel is going to be a
little bit less.
People are going to be taking less vacations, less business trips, less all of it. And a
lot of those things, business trips, vacations, all of that consume Airbnbs for where they
want to stay, especially if a family is traveling. They're great for families or for larger groups
of people traveling. But you're not going to see as much of that because of COVID, because
of people's skeevy-ness, because of COVID, you're going to see less travel and definitely
less family traveling. And a lot of families that are traveling are going to be consuming
Airbnbs when they do.
This is again Matt's theory. There are folks that have cleanliness concerns. Okay. Now
to me, what is the difference in the cleanliness of a hotel versus a cleanliness of an Airbnb?
But I've heard people say this, that there is a perception of cleanliness in Airbnbs.
Now a lot of them are scrubbed down and really nice, and you can defend Airbnbs all you want
in the comments, but there is a mental perception of some people that if you're worried about
the spread of COVID or worried about sanitization, you might want to stay in a corporately managed
property. And I'd be willing to bet you, you're going to see these guys' hotels start pushing
back in there, "Oh, well all our hotel rooms are a hundred percent sanitized every time,
and they were sterilized by COVID approved ..." Just watch there will start to become,
there already is, COVID approved cleaning services and COVID level cleaning on properties.
I've already had people market this to me with postcards.
The biggest one out here is regulation. Okay, so let's think about government regulation
on properties. Currently, there are towns that will not allow you to have an Airbnb,
before COVID. They were saying, "Nope, we don't want your short term rental in our area.
We think that it attracts too many problems." And if you guys look online, there's some
knuckleheads out there that will go and rent an Airbnb and cause trouble. But you're going
to see more towns come out and say that you can't do it because of COVID stuff. They're
going to tighten up. And in some states, like I'm standing here in New Jersey, short term
rentals in general have been banned. I believe it's you can't rent anything for less than
a week. So government regulations is going to be a short term slowdown of COVID.
Airbnbs are going to take a hit because of these things. Even if some people start traveling,
it's not going to go back to pre COVID numbers anytime soon. So what do you do? You got two
choices. Choice number one is, and this is if you were arbitraging okay, and what arbitrage
means is, is you've got landlord A who is the owner of the property, and they lease
the property to person B. Person B is the one running the arbitrage and person B says,
"Okay, I will lease this property from you for a thousand dollars a month and what I'm
going to do," and you have to disclose this to the landlord, "I am going to short term
rent your property." And so they say, "Okay, great. You can do that." And you put it in
the contract that I'm going to make money above what your rent is.
I'll pay the utilities and I'm going to put furniture in your unit. And I'm going to have
people stay in your property, different person every night. That's what it's going to be.
And so I take that property that I'm renting a thousand dollars for. I make some investments
in sprucing it up nice furniture, and I'm going to take it. I'm going to rent it out
for a hundred bucks a night to folks that want to come to the local area. Well, if I
can get, you know, 20 people to rent that property from me for a hundred dollars a night,
that works out to be 2000 a month. Hey, I did pretty good. I made a thousand dollars
minus utilities, minus handling fees, minus Airbnb fees because these guys got to get
paid, and all of that. So that's called arbitrage. Meaning I took this, someone else's property,
and I'm subletting it to other people. It's just a sublet.
Now, if you are arbitraging and you're facing this, and your rents are way down, easiest
way to do it is to exit the property. Some would say cut and run. If this is going to
last for at least another six months, the softness of the Airbnb markets, you either
got to decide ... I mean, what do you got? You're subletting somebody else's property,
so you might be better off just exiting from the contract and reopening a contract with
somebody else when things get a little bit better. So you could just exit.
Now you do that with integrity. Call the owner and say, "Listen, I got a problem. My business
is down. This isn't working and I want to exit our contract, and maybe I can call you
back and re-up at some other point." If it's a great property in a great location and you
don't want to let that contract go, then you could try and get someone to pay you a slight
spread. Okay? So you could also still sublet longterm. You could sublet it long. You could
do that just to hold your position in the property. That's possible. That's a sublet
long.
Those are your two choices if you're arbitraging the property. But I don't recommend that you
just disappear and bounce on the owner, because that's just not good business. Call the owner,
work out a deal. Let them know that this isn't working and you want to try something different,
or you could sublet long and get somebody else in there to take it for a longer period
of time.
Option two, this is if you own the property, this is what you want to do. And there are
people that Airbnb, that bought real estate. A lot of times these are folks that own vacation
homes that maybe, "Hey, I want to Airbnb it for 11 months out of the year. So I can go
with my family and use it for one month out of the year." Here are some outs that you
got to get through the softness that Airbnb may feel right now.
Some, and this is especially true if your town, if you're facing either government regulations
or if you're facing issues on lease longevity, meaning like somebody saying you can't lease
for a day or two people. If people are saying, you got to at least for longer than a week,
then what you do is you go and negotiate with a semi long contract. So you go and get a
nurse, or a business traveler, or somebody that's in town for a little bit, that's longer
than a day or two. You go and find a longer term user of the property. If you own, try
nurse contracts, try business travelers. Okay? So you find someone who needs a short term,
furnished rental.
These are different ways to bridge. You're going to take a ding on income because traveling
nurses or someone looking to rent a furnished house for a month or two, they're not going
to pay you anywhere near what you were making on Airbnb, which is why I didn't offer up
these solutions up here on arbitrage. You arbitragers can do this stuff too, but it's
going to drop your revenue. These are strategies to keep your boat afloat, just to keep your
expenses going, to keep your property up until these things work their way out of the system.
You might just have to give up the Airbnb game for a year or so, to just lease it until
we weather the storm and you get somebody that's able to pay you.
Now, if you can cash flow that way or at least break even, that may be something you need
to doing, and that's just simply longterm lease. You have a lot of choices, but I don't
think that just trying to force a square peg into a round hole, and trying to make Airbnb
continue to work is a good idea. I think you need to pivot right now. This is not going
to go away, and Airbnb is not going to just snap back and come back.
That was all the bad news. Here's the good news. Airbnb is here to stay. Airbnb and short
term rentals is I believe, a major transition into be how America is going to start using
housing. There's been a concept that you either need to own a home or you need to lease one
on a year contract. We're starting to move towards a society where people start to just
use things. Instead of buying a case of soda, just give me one soda.
I don't want all, the whole year worth of contract, just let me use it for a week. Let
me use it for a month. Let me use it for a day. I think that once we get through this,
those that own Airbnbs and those that own short term rentals are going to be big winners.
People are going to be able to start working from home that have digital jobs, online jobs.
What's to say they can't travel while they work. You're going to see short term use contracts
on office space. There already is. This is WeWork. But you're going to see more of those
types of things evolve. You're going to see more shared office spaces. You're going to
see more companies use commercial real estate differently. They're going to start using
it maybe, again, this is big idea, maybe companies just come in and have meetings in their office
space, and they go back to working from home on other days. Maybe they use spaces differently
with regards to just coming into a physical office. One day this company uses that physical
office on Monday, and on Tuesday at different company uses it.
Again, this is all big think, but short term use contracts are here to stay. Airbnb is
the one that started it, but you're going to see it extrapolated to other industries
and other types of businesses as we grow, and as America changes the way we do a lot
of things. Okay? So longterm, those of you guys that have developed models around Airbnb,
whether that's arbitrage, ownership, whatever it is, you guys are going to be great. You're
not going to be good. You're going to be great, because you're on the curve. You're on the
curve as America changes. This COVID thing, this is a drastic change in your business.
I get it. I feel for you. Once you get through this, I think the sky's the limit in that.
There are also ways to mitigate this about developing cleanliness protocol. If you can
meet COVID standards, or if can meet standardization and sterilization standards on your rental
property or on your Airbnb, market that.
So that's what I got guys. Please argue with me. Tell me I'm wrong or tell me I'm right
and tell me some things I forgot. Whatever it is, I don't care. I just want great conversation
that we can bring the real estate industry forward and keep conversing with each other.
I'm really not about being right on this thing. I just want to generate good conversation.
This is a lot of my opinion on it, but I'd love to hear what yours is. So leave it in
the comment bar, whether you're watching this on YouTube or on BiggerPockets. Thank you
guys for watching and have a great profitable week.
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