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After an unpredictable summer, Airbnb and Vrbo operators are deciding if the headaches of hosting are worth it transcript
(00:10):
Hi friends, John here. Thanks for tuning in. For those of you who are new, my name’s John Candelario. I’m a serial entrepreneur and I’ve started scaled, exited, and ran businesses in the short-term rental space. I’m a huge fitness buff and I wanted to bring some of that coaching energy to the short-term rental community. Now, there’s many ways to climb a tree, right? And I’m by no means the only person who knows how to run a short-term rental. I’m just a regular guy who wants to share his knowledge so you don’t have to make some of the same mistakes that I did. Hopefully these episodes deliver value to you so you can speed up your learning curve, avoid mistakes, and reap more rewards. Now, this is a great business to be in for so many reasons, and I’m forever grateful for you for giving this show a chance.
(00:50):
Now onto the episode. So this episode’s about a business insider article that I read titled After an Unpredictable Summer, Airbnb and VRBO operators are deciding if the headaches of hosting are worth it. So we already know this topic because everyone is feeling that crunch from this summer quarter, first quarter, really good. We were actually up from last year. Now the second quarter rolled around and everything just went kaputt. Nothing was the same. We had less bookings. Supply search and things were not looking as good as the first quarter. So this article was really short, but well-written, and it went through the stories of a couple of posts that were having some challenges and some struggles in their own hosting business. So this episode is my way of reacting to it and walking you through some of the key highlights of that. So here are the key highlights of the article, Airbnb and vrbo.
(01:41):
Demand is strong this summer, but a glut of supply continues to pinch Host one host said he felt the need to find a niche as an engagement destination to stay competitive, but some host said, even Wif, the demand, the headaches of hosting are no longer worth the money. So what I think about this is, yeah, a lot of people got into this with different motivations, and I can’t say if any of those motivations are right or wrong. I don’t want to be a know-it-all. Some people have different reasons for getting into it. Some people buy into vacation rental through to tax benefits because they can use cost segregation a write off their W two income, right? Some people get in the business because they want cash flows or a retirement stream of income. So everyone has a different reason for wanting to do this, and I don’t want to say anyone’s reason is wrong.
(02:26):
All that I know is a lot of people got into it and the demand is just not keeping up with as much supply that we have going on. So a lot of hosts will sell off and leave due to the frustration of not making as much money as they did in the past. Right after the pandemic, everyone was making money. Right Now it’s less so, but if you want to do short-term rentals for the long-term, a drop in revenue even for a couple of months shouldn’t scare you away from it because this is a long-term asset. This was bought for cash flows, for tax benefits, and for long-term capital appreciation, right? So what I think this is just because we have a down quarter, it’s the same thing as owning Apple stock or Tesla stock. It’s going to go down. Sometimes the stock doesn’t go linearly up forever.
(03:09):
That would be great, but that’s not the reality any of us live in. There’s ups and downs and ebbs and flows like any other business. And this time it’s just been a long time. We’ve had a couple of bad months, but it doesn’t mean the business is a bad business to be in. What I believe is a lot of hosts will get frustrated, sell their rentals, convert them to long-term rentals, convert them to midterm rentals, which is not a bad thing because the market does need to normalize. I do believe with as much supply has happened, as much as supply has been affected by everyone buying Airbnbs, there’s less available affordable housing for people. Like in many communities like my own in Orlando, Florida, there’s less affordable housing for regular people to live in because so many people actually bought Airbnbs. Now, is that anyone’s fault?
(03:51):
Directly? No, it’s not everyone. This is a free country. Everyone has the right to do exactly what’s legal, and if they want to start a business, they can do so, but the macroeconomic impact of Airbnb, you can’t ignore it. It took a lot of long-term rentals off the supply. So what I believe is going to happen is many hosts are going to exit short-term rentals and they move into midterm rentals and long-term rentals, and we’re going to see more normalization of the markets overall. Now, how long will this take? No one really knows that, but what I’m thinking, it’s going to take about a year for things to normalize because there’s a whole real estate cycle that has to happen and people need to sell off homes. But right now, interest rates are high. We don’t know what the Fed is doing exactly right now.
(04:32):
Not a lot of people want to go out with all this economic uncertainty and speculate and invest in real estate when they’re not sure what the next few months holds, especially since Airbnb as an investment doesn’t have the best press right now. Now getting into the article, here’s a couple of hosts that had experiences that may be similar to yours. So Ryan, a host in the story, he saw revenue decline from $7,000 from last July to $5,900 this July, even though he lowered his prices and he offered a romance package to carve out like a niche, and he offered chocolate covered strawberries and he tried to make it romantic and he did bring in some bookings with that, but the revenue was still lower. So yeah, he had a revenue slump. Peggy actually turned her four Airbnbs and turned them into long-term rentals, and the Phoenix manager, Ken had his vacation rental occupancy actually remained steady, but he experienced a drop of revenue at 15%.
(05:26):
I saw this in my own businesses. For me, my manage rental revenue decreased 20% and my Airbnb cleaning platform’s revenue dropped 18% from last July. So everything will ebb and flow even in our businesses. It doesn’t mean you’re doing everything wrong because you can be doing everything right and operating efficiently and you can still have a down period. But what this really brings to light is that we want to go to war and make sure we’re doing everything possible to market our properties in slow and midseason and busy season. Because if we put the effort in and we make the right moves ahead of time, these slow seasons won’t be as bad as if we just take whatever bookings we get from Airbnb, whatever bookings we get from vrbo, we want to be more active and market our properties on our own means, whether that’s through email marketing, having our own website, leveraging social media and TikTok using our own marketing channels, we’ll make sure we stay booked even when it’s down.
(06:25):
So instead of losing $3,000, you’re only losing $500 in the terrible season. So with that logic, I don’t think you should give up on your short-term rental. I think you need to assess if you bought this with your spouse or a family member to sit down and talk about it. Are we all in it for the long-term? Are we all in or do we wish we just never bought this thing? Because it’s okay if this is not for you, but you want to have an honest conversation with either yourself or your partner to make sure that you’re actually in this for the longterm because this is a wake up call for everyone, myself included. Are we going to be okay operating even when times aren’t good, right? Everyone goes through this. Everyone has to talk about this, have conversation around it, make a decision about it.
(07:07):
It’s normal. Any business will go through this, but you want to self-evaluate and make sure you know where you want to go next year in three years, in five years, and so on. Amy from the Facebook group, she actually asked a really good question today, her property on Big Island has zero bookings except for one night this week. So she’s thinking of doing long-term, and I don’t think that’s such a bad idea, but you do want to talk to your partner, or if you bought this yourself, just think about what your long-term goals are because if your goals are just for this year to fill it with a long-term rental and then convert it back to short-term rental, you want to make sure the person you’re renting to is okay with the furniture you put in there because taking all the furniture out or selling it and then refurnishing it, it’s a big headache.
(07:50):
So if you could actually rent it as a long-term rental and it could be furnished, that would be ideal because if you decide to convert back to a short-term rental or midterm rental, you can still do that. But to sell off all the furniture, it becomes a big hassle. Now, long-term rentals do have pretty good returns. I’ve seen seven, 8% if they’re well ran, and right now there’s a lack of affordable housing. So it’s quite possible you could do just as good with a long-term rental, with a midterm rental as well. If you could get someone in there for 60 days, even 180 days, you definitely want to charge more rent because there’s more risk involved in that. And collect a fat deposit too, because I’ve seen a lot of shorter leases. People just don’t pay the rent. So if you do decide to go that route and do a shorter lease for now, you definitely want to make sure you screen, you do the criminal background check and you collect a big deposit because they do come with an increased degree of risk too.
(08:42):
But it’s not a bad idea if you don’t have a ton of bookings because it makes you more flexible. You don’t have to cancel a bunch of guests to convert it. But if you want to run a short-term rental in the long-term, a year from now, three years from now, six years from now, you might want to just try to put a longer term guest in there at a cheaper rate because if you could get someone in there and not have to deal with taking all the furniture out, that would be best. Now, a long-term rental is not such a horrible idea, and I do encourage you everyone listening to consider if your rental would be better as a long-term rental because this is vacation rentals with John, but there are some rentals that just make sense to be a long-term rental. I’m talking about those rentals that are in residential neighborhoods that your neighbors don’t really want you to be doing short-term rentals.
(09:27):
You don’t have the most friendly neighborhoods for hosting. It doesn’t mean you have to give up on short-term rentals, but some of these homes and property types are best suited to a long-term rental strategy and not a short-term rental one. So you do want to evaluate all of your options and do that analysis to see which one’s going to work better for you and which one you actually feel like doing because you may not really feel like dealing with the headache of doing short-term rental at all. Now, I believe in the long run, a short-term rental is going to make more money when it’s properly ran, but that’s if you’re willing to be actively involved in growing the business every step of the way. If you want to be just hands-off, a long-term rental is the way to go because there’s very little work involved in doing that.
(10:08):
You just have to really screen the right tenants and make sure that you’re maintaining the property every year, right? But it’s not as risky as running a short-term rental property, which involves you to be much more actively involved. So if you’re wondering what’s my short answer on this, it’s I would evaluate each possible option and also how you feel about each option because you’re going to be the one running it. So you want to be comfortable with whichever option you choose. Hope this content was helpful. Please drop a comment in the Facebook group. I want to know what you’re thinking and how your rentals are doing. I believe there’s going to be a sell-off for short-term rentals from the speculators, and that will totally benefit anyone staying in the game. As long as we’re playing the long game on an infinite time horizon, we will win because if you stick with something long enough and you keep getting better at it, the law just says you will win.
(10:57):
Anything takes work. Anything’s going to take getting incrementally better each and every day, and we will have ups and downs, but over the long-term, real estate is a winner, and short-term rentals are a winner too. If you properly operate this, it will make you money. You just have to be aware. There will be down periods like this one, and if you like this content and you want to support me to create more of it, please leave a rating or review on Apple Podcasts or Spotify. And if you want to join the brand new Facebook group, a link will be in the show notes now. Cheers, friends. Stay booked.
Vacation Rentals With John is one of the fastest growing short term rental podcasts. The show has been growing in popularity because of its no BS, to the point lessons on how to grow and operate a vacation rental. Join the facebook group. To listen to any of the past episodes, check out this page.
