short-term rentals are a $100 billion Market that have reshaped Global tourism accelerated a
nationwide housing crisis and created fortunes for early adopters but now customers the government
the public and the host themselves are turning their back on a concept that started out as a
fun alternative to stuffy hotel chains but became everything wrong with modern real estate all right
the parties over for Airbnb renters the company said yesterday that it's temporary ban on parties
and other LGE noisy events is now permanent I've put all my savings into into my unit I'm following
all the rules paying all the taxes buying the business license ultimately our goal is to get
more housing back into the housing market for people to be able to rent I just uncovered a
massive amount of debt that Airbnb hasn't paid on the books that they're hiding tens of millions
hundreds of millions possibly even a billion dollars plus of debt that they have not paid
so we are looking around and are saying what can we do right away that makes more homes available
short-term rental market took off when Brian chesky and Joe gbia tried to rent out a spare room
with an air mattress to attendees of a conference because they realized all of the hotel rooms had
been booked out they called their service air bed and breakfast which was later shortened to
the short stay app that you know and love or hate today Airbnb is now worth more than hotel chains
like Hilton and Windam combined the company is by far the largest short-term rental company and it
has achieved excellent penetration into markets around the world where other similar peer-to-peer
or network Market apps like uber door Dash lift and even Amazon have failed to take share away
from local competition it was a good idea customers loved it for giving them a cheaper
alternative to outdated hotels and host like the opportunity to earn extra income on a spare
bedroom or even an entire separate property but the four parties that make the short-term rental
market work the customers the hosts the public and the platforms are all now dealing with four
unique problems that are threatening to undo this market and take out a lot of other real estate
invest Investments with it the first problem lies with the people who it's hardest to feel sorry for
the hosts Airbnb and other short-term rental platforms provided a unique opportunity for
people to profit off real estate in a totally new way having a roommate existed long before Airbnb
but the platform let homeowners offer their spare rooms to Travelers who could pay up to Triple what
a long-term roommate would pay since budget was the reason that they were looking for a roommate
instead of a place of their own the extra income was nice but the added flexibility of a short-term
roommate was the biggest appeal to most people if you had an extra bedroom to rent out in your
apartment you could find a long-term roommate but then you run the risk that they are the type of
person who is messy loud doesn't pay the rent on time or is just a clash with your own personality
with a short-term tenant any problems are only going to last as long as their short stay other
advantages are that payments are handled through the Airbnb platform there was a rating system that
controlled bad behaviour and if you ever wanted the house to yourself because family was coming
over or just wanted a quiet week to yourself it was as easy as blocking out those dates on
the app that was the early value proposition of Airbnb but sharing a spare room and staying with
a random person while on vacation only appealed to a certain type of alternative traveller most
people who Airbnb are putting up entire properties for guests to use as exclusive accommodations
instead of a short-term alternative to a roommate the market became a short-term higher yielding
alternative to Conventional long-term tenants in an investment property property owners could make
as much as double the rent from short-term stays after paying Airbnb fees than they could from
long-term rentals even if their property was only rented out for half the year the downside was that
short-term rentals required more effort because the property needed constant cleaning between
stays and there was less guarantee of consistent income but Financial benefits were still clearly
in favour of short-term rentals for properties close to cities and tourist hotspots large scale
Airbnb landlords the Airbnb Barons if you will designed properties with the express intention
of cutting down on the effort required from them they fitted doors with keypad locks that could be
changed remotely between guests easily cleanable surfaces inexpensive but fashionable fittings and
preferred properties with minimal Landscaping all of this cut down on the additional efforts host
needed to put into managing a property but like all good things it didn't last forever Airbnb
advertised its platform just as hard to new hosts as it did to guests and investors started buying
multiple homes to turn them into airbnbs some hosts turned managing their Airbnb properties
into a full-time job effectively purchasing a job as a hotel general manager other hosts took
an easier approach realtors in high tourist areas started offering short-term Property Management
Services where just like they would manage traditional long-term tenants the realtors
would instead manage the short-term rentals with some Services even handling the listing on Airbnb
their fee was higher but the higher short-term rental price meant owners still came out ahead
the additional cash flows from higher yielding short-term rentals also made it easier to qualify
for more more Home Loans because the additional income could be used to pay for the loan on the
next property and the next property the inevitable result was clear for little additional effort host
could make more money from their properties so the market became oversaturated and host started
to struggle to rent out their properties enough to make it worthwhile short-term rentals also
made long-term rentals more expensive so the gap between what someone can make from a short-term
rental versus what they can make from a long-term rental is narrowing for many hosts it's no longer
worth the additional risk and effort to rent out property short-term and for the others that could
only afford their loans because of the higher rent they got from the short-term rental yields they
might be forced to sell that's just the first group in the collapsing market for short-term
rentals and they were one of only two that were in any way responsible for the [ __ ] storm to begin
with so it's time to learn how money Works to find out why short-term rentals got so big and failed
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worldwide who trust manscape today short-term rentals were a good solution to a real problem
traditional hotels had become overpriced and didn't cater to what a lot of people really
wanted when they went away on vacation hotels provide a lot of amenities like housekeeping room
service restaurants concierge desks meeting rooms gyms Spas pools valet parking and 24-hour security
these services are nice but they come at a price which is either directly baked into the price of a
room or charged separately at a significant markup these Services also don't always align with what
the vacation goers really want when traveling which is a place that just feels like home in a
different city Airbnb cut out a lot of amenities that catered more towards business Travelers and
offered vacationers their own kitchen multiple bedrooms for their children and an element of
privacy that couldn't be purchased at any Hotel chain it felt like a home away from home because
in many cases it was just someone's home Airbnb's were also much cheaper especially when sharing a
larger home between multiple friends or family members who would all need to book their own
separate rooms if they were staying at a hotel a study conducted by the University of water and
Daniel guten talk Hospitality research serving customers booking Airbnb's in traditional hotels
the study found that 61% % of all correspondents said that they chose the Airbnb as a budget
friendly alternative to even budget hotel chains despite the company's marketing as a way to share
the vacation experience with the Local Host that can show you around a city most respondents said
that they did not care about this aspect of the service and 70% stayed in a home that they had all
to themselves so they didn't have to share space with a random stranger despite people actually
preferring not to share their short-term rental with a host Airbnb still spends billions every
year promoting this aspect of their service for a really important reason that will come
up later get an Airbnb and get a place to yourself anyway the things that made Airbnb are now either
being lost or offered by competitors in three areas the first is price Airbnb is no longer
an affordable alternative to Budget Hotels it is now a premium option competing with premium
five-star chains according to the company's own data even though the number of bookings has only
increased 70% since 2019 the gross value of all bookings worldwide has increased by 67%
% Airbnb is just not cheap anymore the second area where the platform is losing out is its
Monopoly on homes away from home hotel chains have significantly increased their offerings of
apartment style accommodations that do away with typical Hotel services in exchange for larger
rooms with multiple sleeping areas and kitchens to many customers these semi- service departments
offer a better value because they combine the known consistency of a hotel chain with the
space and price of an Airbnb the third area that turned customers against Airbnb was service hosts
wanted to cut down on the work they needed to put into managing their properties so they started
putting more unrealistic expectations on guests about cleaning up before they leave exorbitant
cleaning fee that will irk people especially if you the person staying there has to pretty much
clean the house themselves overall this is just a few bad hosts but it has given the platform
a bad reputation amongst customers who expect to be charged cleaning fees on top of already
high rates compared to a hotel where as long as there is not permanent damage housekeeping will
handle everything free of of charge if airbnb's business was being a middleman platform between
hosts and guests then both of these groups having a bad experience is not a good direction for the
company but there is another group that has had it worst and who are involved in the app whether
they like it or not and that's a third reason for the airbnb bust the public is sick of it customers
can choose to stay wherever they want and the threat posed by Airbnb and other short-term
rental options has forced existing hotels to improve their offerings host were investors who
need to accept that all investing carries risk most of them still own a home or multiple homes
that they can now lease out in an overpriced rental market or sell likely for a profit
neither of these groups have lost unless they were really stupid the people who did lose though were
priced out of their homes because it became more profitable to rent to vacationers than long-term
residents who needed a place to live poor renters don't have any power over the platform itself but
the problem of unaffordable homes in certain cities is becoming so bad that politicians
are introducing new policies that will limit how many short-term rentals are allowed to exist and
charging ing hosts additional taxes for running unregistered hotels if hosts are not playing by
the rules this legislation will require platforms to take down those listings other cities have just
made short-term rentals illegal without the same licensing as a normal Hotel making it so expensive
that it's not worth it for the host to bother the other group cracking down on short-term rentals
are the people who you would least expect to be the heroes in a story about housing homeowners
associations owners associations and apartments and suburbs that have them are blocking owners
from renting out their homes to short-term stays because residents who live in their homes don't
like loud parties and additional security risks that come with the short-term guests some hosts
are simply ignoring these laws and taking the fines into account as a cost of doing business
a report from Mill University's urban planning Professor David wsmith found that 45% of all
short-term rental listings in Los Angeles are legal in one way or another and that the city
could have levied between 56.8 million and 32.2 million in fines in 2022 alone the semi-legal
approach to rentals is still working for some host but it's creating problems for the platform Airbnb
is spending hundreds of millions of dollars across the world fighting legal battles for the right to
operate and that's why they still spend so much on Advertising their service as a way to see a
new city with a local host even though most of their properties are rented out as whole new
homes where a guest will never even see the person that owns their home it's much harder to regulate
shared short-term stays because it's harder to distinguish them from someone just staying with
their friend the folksy image of someone sharing their bedroom with curious Travelers who want
to see a new city with a local is much better PR than a multi-millionaire or institutional property
investor who has just listed their 10th home with a tech company worth 80 billion and that's the
fourth cause of the Airbnb bust the platform is losing its control on guests hosts and the
general public Airbnb has always had competitors like VRBO but now incumbent traveller sites like
Trip Advisor booking.com and Expedia are launching their own short-term rental platforms like Turn
Key or incorporating them into existing sites that already aggregate listings from multiple
Hotel ad advisors Airbnb charges a host fee of 3% to the people listing their properties and
a service fee of 14% to guests some hosts have found it cheaper to advertise their properties
through local agencies and split these savings with guests Airbnb has about the same amount of
technical overhead for a vacation stay as Uber has for food delivery or ride share but Uber
can only make a few dollars off a small charge where Airbnb can make hundreds of dollars from
their 17% cut of every transaction this has made the platform profitable where other peer-to-peer
platforms have struggled to turn a profit which is a great advantage in today's high interest rate
environment but it is also painted a Target on the back of the company that has no competitive Mo
around their business model apart from their brand name and recognition there is nothing to stop
these new entrance entering the marketplace from taking market share away from Airbnb by offering
a better service or charging lower fees the bonus fifth reason behind the airbnb bust was that the
platform was never set up with longevity in mind it has made billions in just a few years and for
its Founders and early investors everything else is just a bonus that's not a bad thing but if
you're interested in businesses that have a bit more staying power go and watch my video over on
how history Works to find out what it takes for a company to last 1,000 years if you want to watch
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