Why I’ll Never Rent On Airbnb

Metro Police cracking down on Airbnb and short-term rental properties, and the people who invested their money for some passive income aren't getting it. Thousands of Airbnbs and short-term rentals consume and disappear from Atlanta. The short-term vacation rental market is oversaturated.

What's up, Grandma? It's guys here, and it's no surprise the housing market is falling. For the first time in more than a decade, prices are down year over year. Rents are dropping at the fastest pace that we've seen since 2016. The latest reports are showing that Airbnb could actually be the next domino to fall. This is what's being called the Airbnb bust, which is about to have a significant effect across not only those who operate Airbnbs but also the entire market as more and more short-term landlords permanently go out of business.

So that's why we got to break down exactly what's going on. Why the Airbnb bust could be a brutal warning throughout the entire housing market and then what you could do about this to make money or, I guess, not lose money on today's episode of "Always be careful of falling iguanas if you're doing yoga in Florida." Although before we start, as usual, if you appreciate all the information and research that goes into making a video like this, it would help out tremendously if you "Airbnbusted" that like button or subscribed for the YouTube algorithm. It does help out tremendously, and thank you for doing that.

Here is a picture of a blue lobster, so thank you, guys, so much, and also a big thank you to Grammarly for sponsoring this video, but more on that later.

Alright, so to start, we first got to bring you up to speed with Airbnb because this will explain a lot. All of this began in 2007 when two San Francisco residents were looking to raise some money to pay for the rent. In doing so, they came up with the idea to rent out air mattresses in their apartment to the attendees of a nearby conference because all the local hotels were booked. The name at the time was "Air Bed and Breakfast." Within a year, the site had 10,000 users, 2,500 listings, and within two years, they raised 112 million dollars, launched International offices, and had millions of recurring users with their growth becoming exponential.

Although the real magic of Airbnb comes with their business model, which is entirely centered around what's called the sharing economy. This allows Airbnb to operate without owning any real estate, managing any tenants, or cleaning dirty units. Instead, they facilitate the exchange of information between a short-term tenant and a landlord while receiving a cut of every single transaction. In this case, Airbnb charges guests a 14% service fee and a host fee of 3%, meaning almost one-fifth of every single transaction is revenue for the company. That begins to add up fast.

In fact, in 2022, they were able to generate 8.4 billion dollars or 23 million dollars a day in income, with the current market cap of 75 billion dollars, making them one of the largest companies in the United States. However, as successful as they might appear to be, there's also a dark side that isn't quite talked about, and it all starts here. On June 15, 2021, Bloomberg reported that Airbnb was spending millions of dollars making nightmares go away before detailing some of the ways that they've hidden crime, vandalism, damage, and assault.

Of course, in fairness, any company that does as much daily business as Airbnb is going to have regular outliers. After all, in 2019, they were getting 2 million bookings per day. So even if one-tenth of one percent of customers had any type of issue, that would be 730,000 complaints every single year, even though you'd have a 99.9% chance of everything being fine. Although on a broader scale, some of these issues are more prevalent than others, with one of them being referred to as the "Airbnb effect." This occurs when inventory gets taken off the market for the use of short-term rentals, increasing the price for everybody else.

In this case, it was found that a one percent increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. As a result, many cities have begun to ban Airbnb entirely or choose to regulate it. For example, Los Angeles no longer allows Airbnb to operate if the property falls under rent control. Las Vegas is about to remove all Airbnb listings with the exception of 2,800 that get approved by a lottery system. Atlanta applied an 8% occupancy tax as a substitute for hotels. New York requires that hosts be living in the property full-time, and this is only a fraction of what's happening and what's being called the Airbnb bust.

Since the inception of short-term rentals, homeowners, landlords, investors, and entrepreneurs have used this as a reliable way of making money. After all, why rent your home to a long-term tenant when you can make four times more money renting it short-term on Airbnb? Fundamentally, Airbnb makes sense on so many levels because theoretically, a tenant would be able to rent a property for cheaper than what it would cost at a hotel, and landlords get to make more money in the process for the hassle of managing a higher turnover.

But as I'm sure you're all aware, anytime there's a good money-making opportunity, everyone else is going to jump on it. That's what started to happen. All of a sudden, people began renting and subleasing properties in a process known as Airbnb arbitrage, where they'd guarantee the landlord a fixed rate, and then they would profit the difference from what the home actually generates. Look, it's a former real estate agent—I've seen so many people doing this from 2012 through 2018. They would buy homes in popular tourist destinations or rent properties for one to three years that they could then sublet on Airbnb. They would hire a management team that would build it out, and then they would scale up insanely quickly.

But naturally, anything that's good is eventually going to get abused, and that's what we started to see. First, we had people renting out illegal structures on Airbnb for a profit. Then we had people trying to circumvent HOA regulations by renting out their condo, and then you had people renting out their homes on Airbnb for massive parties until that was also banned. The list goes on.

Now, keep in mind I say all of this as someone who's actually pro-Airbnb. I think it's a great service, and I think homeowners have a right to operate the property in the manner they see fit. But at the same time, we also have to be realistic and understand that inevitably people will push the boundaries of what they're able to do, and that's where the Airbnb bust comes in.

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And now, let's get back to the video. Alright, now in terms of the Airbnb bust, even though short-term rentals have proven to be an extremely great way to make a lot of money, lately the business has been drying up. For instance, Business Insider detailed one couple that was making as much as seven thousand dollars a month in revenue, but as of this past fall, bookings dropped; his homes were empty more often than not, and his monthly revenue sank to three thousand dollars. This isn't just a one-off situation either; bookings are down across the board as competition and more inventory are driving prices lower.

Even last year, short-term rental vacancies began to spike, with many property owners unable to cover their overhead expenses. You might even remember a somewhat viral story a few months ago where an Airbnb manager was stunned that more than half of his homes were empty over Super Bowl weekend while they had to reduce prices by more than 60% just to get some of them rented.

Now, I know nobody has any sympathy for someone who's only renting your home for 300 a night, but you have to wonder why. Why is this happening? Could it be the greedy hotel industry or the politicians who want to limit short-term rentals? Or Jerome Powell because you raised rates and caused a recession? Nope. Instead, it comes down to the simple fact that there is way too much supply. In fact, AirDNA found that from February 2017 through January of 2023, Airbnb and VRBO listings in Phoenix more than quadrupled, growing to 21,000 from 5,000.

This creates a vicious downward cycle where people reduce their prices to stay ahead of the competition, which then causes their competition to reduce prices even further until eventually it’s raced to the bottom. So that then leads us to what's happening today because it's really the perfect storm. Basically, money was cheap; people had a lot of cash. Remote work was encouraged, and Airbnb hosts were at the right place at the right time to capitalize. Because of that, Airbnb was posting record profits, their hosts were rolling in cash, and that led to quite a lot of people following a business model that had worked previously really, really well.

In this case, people were listing their homes online, they were participating in rental arbitrage, or they were specifically buying properties because they wanted that sweet, sweet Airbnb passive income. However, just as competition was increasing, interest rates began to rise. Consumers suddenly had less money to spend, remote work was a lot less encouraged, and bookings began to fall, which resulted in a quickly saturated market that begins to generate a lot less money than people initially expected.

So here are my thoughts on Airbnb, and I say all of this as a former real estate agent, current real estate investor, and landlord. First of all, if you're buying a property for an investment above all else, make sure it actually cash flows without the use of Airbnb. This is where I think most people go wrong on a purchase because if you rely on Airbnb, you're exposing yourself to so much risk in the event that something happens or prices fall. Instead, you should always view Airbnb as just a way to supplement your income, as icing on the cake.

For instance, if you have a cash-flowing rental property but you can make more money renting it on Airbnb short-term, go for it and ride that gravy train until there's no more gravy. Then, in the event that something happens or if prices fall below a point where it just doesn't make sense to rent anymore, you're totally fine because you still have a cash-flowing property that you could rent long-term.

In addition to that, it's really important to understand the reason people make so much money on Airbnb is because it's a lot of work. I know people who run Airbnbs, and it's a full-time job to make sure the house is cleaned, fully stocked, and everything is ready to go for a new tenant every few days. You also have to be extremely diligent on your photos, description, and reviews. You can't just put a lockbox on the front door and hire a cleaning person and expect to run a successful business. It's not how it works.

Of course, on the flip side, if you use Airbnb responsibly, if you comply with local regulations, you've bought a property that already cash flows, and you could make more money renting it short-term, then I'm all for it, and if you could make additional income, great job! Although keep in mind that as with anything that's profitable, more people will eventually drive down your margins, and we haven't quite seen the bottom in terms of just how far this will fall.

I personally believe that we'll continue to see a lot more listings on Airbnb as long-term landlords get desperate and aren't able to get the price that they need to pay their overhead costs. For example, rents are falling nationwide, and if they can't afford to eat the cost, then Airbnb is an additional option that's worth looking into. This is also happening at the same time that local regulations are making it more difficult to list and rent. That's why I absolutely believe that we are in the middle of an Airbnb bust while inefficient market operators are going out of business.

In a way, this could be a great opportunity to stand out from the crowd, especially if you have a very compelling description about the property, as our sponsor Grammarly is able to assist with. But I don't believe that you should rely solely on Airbnb for income just in case something were to happen.

So with that, City guys, thank you so much for watching. As always, feel free to add me on Instagram, and don't forget that you can get a free stock worth all the way up to a thousand dollars with our sponsor, republic.com, down below in the description when you make a deposit with the code Graham. Enjoy! Thank you so much for watching, and until next time.