In a previous post, I warned against relying on income from short term rentals.
I was correct to make this warning. Now, Time Magazine is reporting that too many rich people bought Airbnbs. Now many are sitting empty. Short-term rental hosts are reporting a steep decline in occupancy rate.
Market analysts are saying many U.S. Airbnbs are sitting empty because so many wealthier people and investors listed short-term rentals on the site, in the wake of a pandemic-fueled boom. I say it is because investors bought properties that would not cash-flow with normal long term rentals. The low interest rates had them interested in seeking yield and the higher appearing yields of short term rentals were alluring. However, they miscalculated the expenses of short term rentals. With short term rentals, the owner has to pay higher management fees, has to pay for furniture and decorations, cleanings, utilities, and, hardest to estimate, vacancies.
The number of available short-term rental listings increased 23.2% year-over-year, according to AirDNA.
During the pandemic, those able to work remotely sought out furnished relatively long term rentals (too long for hotels, too short for leases) in lower density, attractive vacation areas like Montana, Wyoming, Colorado, and beach locations in places like Florida, Cabo San Lucas, Playa del Carmen, Merida, etc. However, now many companies are requiring workers to come back to the office, for at least a couple of days a week. This means there is less demand in the vacation areas and the “new normal” is coming to an end. For legal compliance reasons, companies prefer that workers work in the same state as the office, so that HR knows how to withhold state taxes and so that employees are in-network for healthcare. Some employees used VPNs and other tricks to mask their true locations. Competent IT departments can determine if a VPN is being used. State tax authorities can determine an employees true location from credit card statements and mobile phone company records. If it is necessary to be in the office at least a couple of days a week, employees will return home or at least within an hour or so to the office.
Now that interest rates are going up and real estate values are going down, those who took the biggest risks, on properties that would not cash flow with conventional long term tenants, will face the greatest losses.
https://time.com/6223185/airbnbs-empty-short-term-rentals/
Contact Deepak Malhotra if you need help with real estate investing. Even if you are not looking in Cheney, Medical Lake, Airway Heights, or the Spokane area, mentoring services or referrals can be provided.