WHY NOW? WHY SHORT-TERM RENTALS? WHY AIRBNB?
Our economy is currently in the midst of transformational shifts in consumer spending, personal priorities, product sourcing, and travel. The main drivers of these changes are the millennial generation and the effects on the population stemming from the COVID-19 pandemic. Currently, 22 percent of the United States population are millennials, and their numbers are expected to peak in 2036 at 81 million people.
The Influx of City Dwellers
The 2000s have seen an influx of individuals, mainly millennials, moving back into cities. Pew Research found in 2018 that 88 percent of millennials live in metropolitan areas. They typically rent urban space instead of owning it. Whether they are chasing greater work opportunities, short commutes, or simply the walkable city lifestyle, millennials are not interested in purchasing homes outside the city. According to BuildZoom, 2021 home sales ten miles outside of cities are down 50 percent from sales in the year 2000.
Why do we care where millennials are living? Because where a large percentage of a population lives impacts where they travel. City dwellers are looking for the opposite of what they typically see and experience daily. They are looking for rural getaways. Knowing where this population desires to visit and vacation allows us to invest in properties accordingly. The best places for short-term rental investments are rural destinations approximately one to three hours outside of medium to large cities.
The Sharing Economy
The late 1990s ushered in the new concept of a sharing economy. A sharing economy is an economic model defined as peer-topeer–based activities of acquiring, providing, or sharing access to goods and services that is often facilitated by a community-based, online platform. Some examples of activities generated by a sharing economy include: ridesharing, coworking, reselling of personal goods, crowdfunding, and of course, apartment and house sharing. As with any significant economic shift, opportunities arise for those with the foresight to see the moment’s potential. A sharing economy offers many benefits, including ways to monetize underutilized assets (like a getaway home), save money and resources, and provide more reasonable prices for goods, services, and space. The first well-known company associated with the sharing economy is eBay. eBay is a platform that allows individuals to sell goods to others without owning a storefront, maintaining inventory, or hosting a website. The idea may seem commonplace now but was revolutionary when it launched in 1995. Companies like Uber and Lyft have normalized the concept of ridesharing. Over 14 million Uber rides occur each day, and many studies show that ridesharing companies make up 65–69 percent of the gig economy. These enormous numbers reflect just how much the sharing economy has changed the choices that individuals are making in the way they travel to and around the city, Likewise, homesharing has become one of the sharing economy’s largest niches. It has overturned the hotel industry’s monopoly on accommodations. Between 2007 and 2009, Airbnb popularized the idea of allowing people to share space in their homes, or their entire home, with those looking for lodging in a particular city or area. As eBay is a marketplace for goods, Airbnb is a marketplace for space. Homesharing and short-term rentals have turned into a booming business mainly due to the wide variety of lodging options, locations, price points available, and easily accessible online search and booking features.
The Rise in Value of Experiences
The value of experience over ownership is on the rise. According to the Harris Report, 72 percent of millennials prefer to spend money on experiences rather than on material things. So, instead of prioritizing the purchase of luxury cars or homes, millennials are spending their money on mini getaways, vacations, concerts, and gourmet dining. This shift in allocation of spending toward experiences—and getaways in particular—plays right into the rise of the short-term rental movement. The Airbnb platform has always been extremely popular among millennial travelers due to the unique spaces and travel experiences that millennials favor. In fact, 60 percent of all guests booked through Airbnb are millennials, with a year-over-year growth rate of 128 percent.
Why Short-Term Rentals
The traditional ways and places people travel are changing. Travelers are devaluing the hotel stay experience. Personally, that devaluing shift started for me when we became parents. Hotels are awesome until you have more than your significant other along for a trip. As soon as you have a toddler, a place that has a kitchen and two bedrooms becomes more desirable. You want the option to put the kids to bed and relax a little bit with your partner. There has also been a universal shift toward more unique travel experiences. Most travelers do not want to stay in a cookie-cutter hotel room or resort. These shifts in preference significantly boosted the homesharing industry. Why do we care? We care about this change in travel because we can participate in it and invest in it. One can finance a $200,000 investment in a condo, a small home, or a small cabin and happily garner a share of these trends. Airbnb is going to charge us 3 percent, and we can then make $6,000 to $8,000 a month in top-line revenue on our investment.
The COVID-19 Boost
The short-term rental investment return phenomenon exists around the world. It existed before the COVID-19 pandemic. COVID-19 may have been terrible for most businesses, but it turbocharged revenue for Airbnb hosts. As people were trying to escape major metropolitan areas, we experienced a 35–40 percent boost in rates during the months after COVID-19 hit the United States. A year later, we are still experiencing long-tail elevation in nightly rates that are expected to continue for the foreseeable future. COVID-19 changed the way people travel. Suddenly, few wanted to stay in a hotel. Few wanted to book an all-inclusive vacation, and few wanted to spend time on a cruise ship. In 2020, the hotel industry surpassed 1 billion unsold rooms for the first time in history, with room revenues down nearly 48 percent. Most people were looking for a remote, safe, getaway that they could enjoy with their family without having to wear masks or worry about distancing from other guests.
The Rise of Work-Away and “Bleisure” Trips
The COVID-19 pandemic also changed how people spend their workdays. Much of the workforce got a taste of working from home instead of commuting to the office. I started receiving messages from guests saying, “Hey, my boyfriend and I decided we would both work from home. Instead of sitting in our tiny apartment in DC, we’re going to book your cabin for a Tuesday and Wednesday.” This “work-away” or “bleisure” (business + leisure) mentality is a game changer for weekday bookings, occupancy, and total revenue, as guests seek to combine work and play for a more enjoyable lifestyle. Young professionals are realizing that they don’t have to be at home to work from home. They can book an Airbnb, work 9:00 a.m. to 5:00 p.m., and then take a hike. This is a brand-new demand category for our listings. In the 2019 State of Travel Insurance survey, 27 percent of millennials said they took or were planning to take a mixed business/leisure trip in 2019.6 Currently, 60 percent of US business trips turn into bleisure trips.7 It’s certain bleisure trip bookings will continue to increase as more and more guests book work-away trips and tell their friends and colleagues about their experiences.
Short-Term versus Long-Term Rental
In the early 2000s, I purchased a two-bedroom condo in Bethesda, Maryland as a rental investment. My plan was to rent the unit for a number of years, use the rent to cover the mortgage, and eventually sell the condo for a profit. I found a long-term tenant who paid her rent for over a decade. Unfortunately, property values did not appreciate, and fifteen years later I sold the condo for the same amount of money I purchased it for. After factoring in ongoing maintenance and repair costs, occasionally updating paint and carpet, and then the final costs to make the property ready for a market sale, I lost a decent amount on this “investment.” Several years later, I discovered a new investment opportunity: short-term rentals. After successfully repurposing our family cabin, I purchased an investment cabin in the Shenandoah Mountains. After furnishing and listing the cabin on Airbnb, it has consistently generated $5,000 a month in top-line revenue. So, by investing the same amount of money in a short-term rental, I have a property that generates an after-expense profit of $30,000 a year. If I had originally invested in a short-term rental instead of a long-term rental, I could have accrued $450,000 over the course of fifteen years instead of just covering a mortgage and losing money on the sale. $450,000 is a life changing amount of money. Short-term rental investing can afford you the ability to send your children to college without debt. It can pay for your current home. It can give you the opportunity to travel the world. It can free you from a job you hate. You can use your profits to set up a charity or to take care of people in your family who are in need. Short-term rentals give you the freedom to turn your dreams into plans. Some individuals will make the case that long-term rental investing is a passive investment. That may be the case if you employ a property management company. However, if you are running the long-term rental on your own, there are always toilets to fix, bugs to kill, and rent to chase down, along with the annual re-painting, repairing, and prepping for new tenants. Short-term rentals are more active investments, but once you have the appropriate tools and software set up, your daily time spent on Airbnb will be ten to fifteen minutes in the morning and evening. If you enjoy hospitality, short-term rental investments are often more personally rewarding. Additionally, in my experience they produce three times the returns of long-term rental investments.
First Home versus First Short-Term Rental
Short-term rentals are changing how individuals invest their money. Instead of saving for a first home, many people are now saving for their first short-term rental down payment. Why? Instead of pouring their money into a home mortgage that provides a place to live, they are opting to invest in an asset that will generate monthly income. Consider this: during the first quarter of 2021, the median house price in the United States was $369,000.8 If you put down a 10 percent payment of $36,900 at 4 percent interest on a thirty-year loan, you can expect a monthly mortgage payment of $1,585 (property tax omitted.) You will have a place to live for the next thirty years, you will be accruing equity, and your home will be appreciating in value at the same rate of other homes in your market. Alternatively, you could invest in a short-term rental property with positive cash flow. A 1,200-square foot, two-bedroom cabin can be acquired for $216,000 at $180 per square foot. Assuming the same 10 percent down payment of $21,600 and 4 percent interest on a thirty-year loan, you can expect a monthly mortgage payment of $928 (property tax omitted.) Since a short-term rental investment property costs less, you can use the difference in down payments to furnish, improve, and make your investment property ready to shine on Airbnb. After monthly mortgage, cleaning, and expenses, this size of short-term rental investment can produce $5,000 per month in top line revenue and net a positive cash flow of $2,500 per month. This is why I say a short-term rental property will not only pay for itself, it can also pay for your primary residence and produce additional monthly cash flow. Once you have one short-term rental investment paying for your primary living expenses, consider the financial freedom that could result from investing in one or two more properties. I truly believe that short-term rentals are the wealth building opportunity of the decade.
Crazy Fast Return on Investment
Traditional investments such as stocks, bonds, and primary homes can take a long time to yield results. Investments with rapid returns can seem too good to be true. Many are, but short-term rental investments are the real deal. My friend Lou is a great guy. He owns a business and invested in a few house flips. Those investments promised fast cash, but he barely broke even. Lou noticed the success I was having with my rental cabins. Being the smart guy that he is, he started asking questions. I showed him my monthly books and he was a believer! Lou purchased his first cabin in Hedgesville, West Virginia and allowed me to help set up his listing and apply my systems and tools. A few weeks later, I received the best text from him: “Brother, my first month’s revenue from the cabin paid its mortgage and my home mortgage!” Lou’s six-year-old daughter, my goddaughter, loves staying at “her” cabin; his wife enjoys managing guest relations; and he’s delighted with the monthly revenue. Lou just bought his second cabin in Hedgesville to continue investing in financial freedom for his family. My mentee Bryan has a four-bedroom beach house in Surf City, North Carolina. He purchased it, furnished it, and we worked together on his Airbnb listing. His goal was to simply cover the mortgage on the beach house. Bryan took $7,000 in bookings during the first five days his listing was published. He is now cash flowing over the mortgage amount. Another one of my mentees, Tony, purchased a place in Berkeley Springs, West Virginia after I shared my Airbnb methodology and results with him. After his short-term rental did well, he became incredibly excited about the investment opportunity. Tony went out and raised a multimillion-dollar venture fund to purchase ten new properties. He said it was the easiest money he ever raised. My personal experience, combined with the experiences of my mentees, makes me confident that short-term rental investing is indeed the opportunity of our generation’s lifetime. This kind of investing is a vehicle to generate rapid, reliable financial returns that can lead to financial freedom for you and generations after you.
The sharing economy created the climate for Airbnb to become hugely successful. A company that started with two guys renting out air mattresses in their San Francisco apartment has scaled to a valuation of $110 billion. The Airbnb growth trajectory is something you can and should make the most of. It is best business practice to align yourself and your investments with the proven leader in an industry. Airbnb is by far the most popular and fastest growing vacation rental platform. Airbnb currently has 5.6 million listings compared to VRBO’s 2 million.9 This ever-growing pool of rental properties around the world make Airbnb incredibly attractive to guests looking to book stays. Why wouldn’t you choose the platform with the largest number of potential listings when searching for a place to stay? On the host side, Airbnb’s enormous market reach and continuous platform innovations make them the most logical choice for an investor listing a property. In November of 2021, Airbnb received 72.6 million visits. This is more than double VRBO’s 33.7 million visits during the same month.10 Since hosts make money when their property is occupied, it makes sense to for them to list on the platform with the most number of guests and the most efficient host tools.
Did you know:
• Every second, six guests check into an Airbnb listing.
• Since 2007, over 150 million worldwide users have booked over 800 million Airbnb stays.
• The hotel industry loses approximately $450 million in direct revenue per year to Airbnb.
• People stay an average of 2.4 times longer in Airbnbs than at hotels.
• Over 50 percent of Airbnb guests choose to stay at an Airbnb over a traditional hotel.
• Airbnb has generated $33.8 billion in revenue in the United States, to date.
Why do these facts and statistics about Airbnb matter? Airbnb is the reigning champion of the short-term rental industry. Who would you bet on in a horse race: Secretariat or some unknown thoroughbred? The safest bet is putting your money on the known winner. This mentality applies to short-term rental investing. Put your money via your listing on the biggest, most successful platform in the industry. I firmly believe in sole-platform listing with Airbnb, and will explain my rationale in detail in Chapter 7. The Time Is Now If you are considering investing in a short-term rental, you are not too late to capitalize on the opportunity. You are right on time. Do not wait. Do not look back in two years and think, “Man, I read a book that told me exactly how to invest and be successful. I really wish I had done that.”
Now is the perfect time to get started in short-term rentals. In this book I will teach you things 95 percent of current hosts are not doing. For example, browse listings in your area of interest on Airbnb. Look for professional photos: there are not many. Look at listing calendars: they are not 90 percent full. Look at listing pricing; it is probably the same rate for weekdays with a slightly higher price for weekends. This book was created to give you a set of proven systems and tools to ensure that you are the most successful host in your market and that you reap the maximum financial rewards from your investment.
→ Chapter 1 Takeaways ←
• Changes in travel and the creation of the sharing economy make now the perfect time to invest in a short-term rental.
• Short-term rental investing is the biggest wealth building opportunity of our generation’s lifetime