Airbnb Investor Reacts: HUGE Airbnb Crash!

What’s up guys in today’s video I’m gonna be reacting to a video and sharing my thoughts I saw this video come up on my feed recently it’s titled Airbnb owners are about to sell massive housing crash coming. So honestly the title kind of says it all I just you know immediately saw this I want to really react to this video I want to share my thoughts with the audience here so i This is my first time watching the video. It’s completely new to me. So let’s jump into it and I’ll share my thoughts.

0:26
A massive airb&b liquidation is about to hit the US housing market where we see hundreds and 1000s of air b&b owners be forced to sell their property. But the central issue for these Airbnb owners being something that’s called Air b&b bust the new trend where the revenue and profit

0:44
Airbnb bust. It’s not like a nice ring to it when you say Airbnb bust, but

0:49
that’s for air b&b are collapsing with the average air b&b owner in America earning 21% less revenue this year compared to last year with those declines reaching as high as 50% in certain cities.

1:04
Catastrophe Yeah, but I mean, it also like the most short term rentals in North America is just absolutely exploded in revenue last year, and the year before that. So it’s actually just cooling back down to normal or actually above normal, you know, so we’re just basically saw this big boom, and now we’re cooling back down. But people are just talking about the cooling down, not about the fact that oh, it actually shot up more than 20% and then cooled down 20%. So that’s the convenient part that a lot of people are missing out on. And you know, neglecting to mention but let’s jump in because it actually does cause issues this drop down. But it only causes issues to the people that bought on a hope and a prayer hoping that the good times would never end anyone that was an intelligent investor and looked at the historical data and saw that the big boom because no one was able to travel internationally wasn’t going to last forever, because people would eventually be able to travel internationally again. So anyone that knew that they could put one plus one equals two bought properties off of good data and didn’t end up in a bad situation didn’t end up in this place where they’re having to sell because the slowdown isn’t impacting them. For example, we bought a property at the height of all this that we projected would do $100,000 A year best case scenario, because COVID happened and there’s a huge boom it did 150,000 That was just astronomical. And now this year, it’s only gonna do like $120,000 only. So we actually saw a pretty significant drop year over year. But we bought the property with the best case scenario being $100,000. So we’re still laughing is the people that got in seeing that Oh, someone like James bought a property and did $150,000 Well buy it because I’ll buy another property that’s going to do $150,000 to, but there was no way that that was gonna go on forever, there was just absolutely no way that was going to happen. So people that bought off of improper due diligence that didn’t analyse properly, they’re the ones that are getting burned, and rightfully so, you know, if you’re gambling, you’re gonna have to leave the casino when you lose your money.

3:03
situation that’s going to cause a flood of inventory onto the housing market is we’re in a very interesting situation right now in America, where the number of rentals on Airbnb and verbo totals nearly 1 million according to data from all the room that’s 65% higher than the number of homes for sale, according to realtor.com. Now, that graph probably looks discouraging to a lot of you home buyers out there to see that so many of the houses that you could have bought over the last couple of years ended up as an Airbnb however we’re going to Don’t

3:39
ya mean, that’s not what that data says. But carry on. Let’s see

3:43
the reverse of that trend occur into the future. Now that Airbnb bust is here and the revenues are going down. And ultimately, I think this situation could be as bad as the subprime crisis in 2008, for some of the cities because people don’t understand just how much shadow inventory is lurking in these housing markets from all the listings on Airbnb, I mean,

4:07
again, like we’re talking about the only people that are going to have to sell because of this decline, or the people that bought in the last couple of years, because the decline that he’s talking about is relative to the last couple of years, you’re not seeing a decline from 2019 or 2018, you’re actually seeing an increase from 2019 or 2018. Compared to now you’re seeing a decline from 2022. And from 2021 In some instances, but that means that only the people that bought in 2021 and 2022 are going to potentially have to sell and all the ones that did buy in 2021 or 2022. They don’t like not all of them made bad decisions. Not all of them went in and just YOLO their money on a speculative investment that they hadn’t done proper due diligence on so I really, really don’t suspect it’s going to be like the subprime crisis and then we’re going to see that big of an impact from you know, a million properties that are held in total Well, with, you know, a fraction of that, obviously having been bought in the last couple of years here. So, again, and I mean, ultimately, what does it mean for us as investors, it means that there’s going to be great buying opportunities, right, there are going to be some great buying opportunities, but the catastrophic collapse that he’s talking about this massive housing crash, it’s coming, I don’t really buy it. Let’s just

5:21
take a look at Phoenix, for example, in Phoenix,

5:23
the air b&b Read always the best thing to do when interpreting data is to just look at one specific sample of the data that’s just randomly chosen and ignore all the surrounding area. Yeah, definitely. That’s the best way to interpret data, like we’re just picking, I’m sure he’s cherry picking one single market that I’m sure isn’t even going to illustrate his point all that well, but he’s going to illustrate better than any other area. But again, if you just does zoom in on one specific area, then you’re going to paint a different picture. So again, I think it’s just important as well as a viewer to just watch out for like the way that someone is trying to skew your interpretation or manipulate the way the information so that you interpret it a certain way and come to a certain conclusion that obviously they’ve already come to

6:09
Airbnb revenue per owner has absolutely collapse from its levels and 2021 and 2022, down to only

6:16
seven again, make note that he said it collapsed from 20 From the levels of 2021 and 2022. Why? Because literally, no one could travel internationally, it was an unprecedented thing. Literally, we’ve never had that happen where people just were it was illegal to travel internationally. So yeah, it’s skyrocketed. The revenue per owner in North America is good, because people travelled domestically, so of course, it’s down from there. But is it down from 2018 2019 and 2020? No, data doesn’t look like it’s worse than it is

6:51
1800 per month, that’s down 50%, from where it was just a year ago. And what’s scary about that is that the revenues and Phoenix are down 50%, while the supply of Airbnbs has nearly doubled in just the last 15 months. So you had all

7:08
you don’t think those two things are related, right? Things are, of course related. And by the way, there’s still things you can do in Phoenix, we still have investors in Phoenix that do really, really well, you can still do really well investing in Phoenix if you buy the right property. And you know how to make sure that you’re in the top percentile of performance. So you actually outperform the rest of the competition. But of course, like yeah, when when more people are buying, and you’re getting less demand because things are going back to normal. If you were buying speculatively, of course, like you should have, like any reasonable investor would have been able to predict that this was coming. And those two things are related. Like it’s not a really crazy conclusion. They came to hear

7:46
these people in Phoenix and so many other cities in America over the last few years who said to themselves, hey, it’d be fun to own an Airbnb. So they bought a property on Airbnb, or they decided to list their house on Airbnb instead of selling it. The result was at the yellow line, the Airbnb supply went from around 9000 and late 2021 to 18,000. Today, at the same time, the blue line the for sale inventory, and Phoenix has crashed back down to historically low levels. But now we’re going to see the reverse occur, this air b&b supply is going to crash down causing this for sale inventory.

8:21
Now, if you actually look, it’s probably going to end up where do you think, Where do you think if you just like interpret this graph, right? Where do you think it’s going to end up probably right around here, right, like it is higher than it like quote unquote, should be right we saw this boom, there is excess supply. And so the market is going to equalise like it’s going to end up somewhere around here. Sure, it might crash down a little bit further before doing that and then scoop back up. But like, like, it’s just not that hard to interpret this data and see what’s happening like

8:53
Tory to go back up, especially because lots of these air b&b owners used subprime loans to purchase their air b&b. Over the last couple of years, these air b&b owners use something called DSCR loan to buy their properties in many cases and what a DSCR loan is, it’s the loan that they can get from a subprime lender where they don’t need to provide proof of their personal income, often they don’t need a good credit score to get a DSCR.

9:24
But again, if you’re buying something from a dealer, and you’re using a DSCR loan to get it, they’re looking at the data for short term rental performance. And generally, again, not right across the board. There are bad lenders out there don’t like don’t get me wrong, there are definitely just like anything else. There’s bad plumbers, there’s bad electricians. There’s also good electricians good plumbers, there’s good and bad DSCR lenders out there, but any good DSCR lender, they’re lending out their money they’re analysing the risk. So what he’s about to share is that DSCR lending they don’t look at your personal income when lending to you because They’re not assuming that you’re going to use your income to service the debt. They’re assuming that you’re going to use Airbnb or short term rental income to service the debt. So what do they look at, they look at the short term rental income, right? It’s the same way that a commercial lender lends on a commercial property by looking at the rent roll, not by looking at the purchasers income, because obviously, the rent roll is going to be what’s used to actually service the debt. And so because of that, if you have a DSCR lender that actually looks at the data properly, and was lending like most of them, had to make sure you’re actually buying a good investment not just being super speculative in order to get lending. Again, there are bad DSCR lenders out there that were lending based on hoping and prayer based on like bad data. And you know, they’re going to have to recall these mortgages, like there’s going to be issues there. But a lot of the time, if you’re buying using DSCR, you have to actually buy a good property, they’re not just going to sell you a loan or finance you rather on a garbage property that has no potential to earn the kind of income that’s going to be needed to actually service the debt.

11:03
Your loan is a loan is based on the income levels from the property. So long as the income levels are good. There’s no issue but if the income goes down,

11:12
again, I just I really want to stress that they don’t just guess at what the income is going to be like a lender, they’re lending out their money, they don’t want you to default on it. They’re going to do due diligence, and they’re going to look at backdate history to see what that income is going to be. They’re not just going oh yeah, like pin the tail on the donkey. I think that it’s going to generate this amount of income that’s going to be able to service the loan was down

11:32
because revenues collapse by 50%. Then you have a big problem. You can see this is actually something that Bloomberg wrote about one year ago, they wrote an article talking about how Americans are building vacation home empires with easy money loans, and this article talked about a woman named Brenna Karl is based out of the Great Smoky Mountains who was making $100,000 a month by being a mortgage broker specialising in loans for vacation homes in eastern Tennessee and one of our clients was a 29 year old former grocery store manager in Columbus who bought four rentals in the Smokies in East Tennessee, she borrowed over $1 million in these DSCR loans to purchase the properties which have a typical monthly mortgage payment.

12:12
And again, like, like I just like other they’re very clearly painting an incredibly biassed picture here by portraying her as a former grocery store manager. It’s like how much more condescending can you get? And like belittling can you be with this person’s like former career? Like and when were they a grind? You know what I mean? How relevant is that? It’s like I was a former Chinese food delivery boy is that what the article would say if it was about me that like a former Chinese food delivery boy is now investing in short term rentals. Like, what relevance does that have

12:44
mortgage payment of 2600 a month now all that debt and those high mortgage payments to buy the vacation rentals wasn’t a big deal a year ago because the revenues were still good however, now in a place like East Tennessee, the revenues have absolutely crashed, especially in severe Ville where the revenues are down 48% You’re

13:04
again like we saw this coming in because you can go to sites like guarantee and a when you’re doing your do your due diligence, and you can get back data data to see how the market performed 2018 2019 2020 2021 22 But you can see the last five years of data so when you saw that it boomed up because international travel shut down. Anyone with any sense in their brain went Oh yeah, it’s gonna come back down once international travel does open back up. So okay, great. As long as I buy a property that’s going to perform well here, not only up here, I’m good right? And a lot of DSCR lenders were lending understanding that right there were lending understanding those numbers not going on I’m an idiot and I think that the the numbers are gonna keep going into the sky forever and ever and that we’re all just gonna get rich like no one with any sense actually thought that

13:54
you’re in Asheville, North Carolina, they’re down 43% year over year. You can see that even in Nashville, the Airbnb revenues are down 39% year over year and so this is a freight train that’s coming for certain housing markets freight train. It’s in America this is no joke I’m going to show you guys later in this video the cities that are going to get hit hardest here where the Airbnb bust is worst and we’re going to see the most for selling and the biggest home price declines as a result of first I want to actually properly set your expectations about what to expect from this Airbnb bus. This is not going to happen everywhere across America isn’t gonna happen everywhere across a given city. So if we take a look at this heat map in Phoenix, which shows where the air b&b is are what do you notice is that the air b&b is are very concentrated in specific areas of Maricopa County and Phoenix. You can see that they’re heavily concentrated in downtown Phoenix. They’re in Scottsdale, they’re in Tempe. They’re in Paradise Valley and they’re a little bit west towards Peoria and in Glendale. Otherwise, if you zoom out there isn’t as huge a concentration in the L blank suburbs and rural areas. So one of the big things you got to understand that in bigger cities Airbnb bus is going to be a more urban phenomenon. Airbnb is tend to be located in more densely populated areas, because that’s where,

15:14
like the Smoky Mountains. No, air reviews aren’t necessarily located in densely populated urban areas. They’re located in a few different different markets. And some of the markets did explode in popularity. And those ones that exploded in popularity are the ones that are generally going to decline down. And what we found is that, again, we were doing analysis on this as it was happening in real time. So if you’re falling, you’re not subscribed, it’s a good time to tell you subscribe to the channel. Because we’ve been following this for years, we’ve been all over it. Like if you want to learn how to actually invest successfully, and not just go, you know, learn from fear mongering, then just subscribe to subscribe to the channel, we post two new videos every single week. But what we found is that the markets that blew up during COVID, during the pandemic, when people couldn’t travel internationally, were popular staycation destinations. So the reason that Arizona is popular is because there’s tonnes of really great hiking, national parks, things like that. And then we also saw the Smokies blew up quite a bit. We saw areas outside of upstate, like in upstate New York. So basically, it was generally urban areas, if they were surrounded by beautiful nature, places that people want it to get away to. Or it was just like local vacation destinations, think like Palm Springs, California, or like out in the desert in California, things like that, or it was around like big attractions. So things like Orlando, for example. Or it was around like two to three out like one to three hours outside of a major metro area in like cottage country that tend to blow up and do really well. And so naturally, it’s those areas that are going to come back down, like what goes up naturally comes down, it’s going to come back down to normal. So it’s pretty honestly easy to predict where these pullbacks are going to occur.

16:54
Travellers want to stay and so that’s where we’re going to see the most for selling, we might also see a lot more rentals hit the market, as well. Don’t be surprised if those vacancy rates for multifamily apartments as well as single family homes continue to increase. I don’t

17:11
know if that’s actually going to be true because, like sure, some people are going to use long term rental or mid term rental as a fallback if they’re short term rental isn’t panning out. But realistically, for a lot of people if their short term rental isn’t panning out, then it’s probably not going to pan out as a long term rental either because they probably didn’t do enough due diligence to make sure that that was a viable backup plan. So those people are ultimately likely going to sell. And what we’re seeing as well is that because interest rates are going up lately, a lot of people that are have traditionally been long term renting their properties are transitioning over to short term rental because they want to get higher returns to offset the rising interest rates. And also because they just don’t want to deal with tenants and all the hassles and aggravation is there.

17:55
Over the next year as Airbnb operators also flood the rental market with inventory. And what’s crazy folks is at the same time that we’re about to see Airbnb bust turned into a de loop of for sale and rental inventory onto the market. We’re also seeing home builders in America begin to go crazy again, the May 2023 home building report from the US Census Bureau just came out. And it was a shocking results. Reuters reporting that new US home construction surged by the most in three decades red, which you can see on this graph, which tracks the housing starts for single family homes as well as apartments in America and you see this huge bump in May, ooh, housing starts for single family shot back up to nearly 1 million. And then for apartments in multifamily. They shot up to 624,000, which is actually the highest level on record. And so very clearly the builders and the apartment developers are buying into this idea that somehow we’re in recovery in the housing market and that the recession isn’t going to be bad or that maybe the recession is over.

18:56
Are we saying that there’s not a shortage of housing in North America? Because there definitely is like, I don’t I don’t really understand the link that he’s trying to make here between the two.

19:05
And the saying, Yeah, let’s turn the building floodgates back on. But folks, when you look at the fundamental data, there isn’t a recovery in the housing market, mortgage applications to buy a house are still sitting at their lowest level in nearly 30 years. So folks show me where is the recovery here in the housing market that I see everyone talking about? It’s certainly not on this graph of mortgage applications to buy a house is certainly not on this graph showing the vacancy rate for rentals in a city like Phoenix, which has now surged to its highest level on record. According to apartment list. Where is the recovery?

19:42
Again, like people aren’t like there’s a slowdown in here buying houses be reapplying for mortgages, not even buying houses, but applying for mortgages because interest rates are really high. And interest rates are really high like oh my goodness, I’d be here for another 20 minutes if we were just talking about like the basics of why that’s happening. So it’s not because there is demand for housing. It’s because there is a demand for mortgages, because right now interest rates are really high. But again, again, I’m still not really seeing that, like the big link that he’s trying to draw here.

20:11
Oh, it’s imagined because the participants in the housing market are still conditioned by over 10 years of government bailouts and fed stimulus and foreclosure moratorium is they’re conditioned by all of that, to somehow expect that nothing bad can happen. Because of that. People are inventing narratives, that things are turning around when they’re very, again, I

20:37
can’t I couldn’t disagree with this more. It’s not like it’s not like we’re imagining that nothing bad can happen. The biggest thing, the biggest advice I always give to any of the investors that we work with, is plan for the worst case scenario. And the best way to do that is protecting your investment with cash flow, if you like, it doesn’t matter what happens to housing prices in the short term, or, frankly, even in the long term. If you have positive cash flow on your investment, if every single month you make money, or the very worst case scenario break, even by owning a property, you don’t have to sell it. So it doesn’t matter what the value of the property does short term, you can just wait, you’re going to hold on your property, you’re making money by holding it, it’s the people that end up in negative cash flow that care about what’s happening right now, with the values of properties. When values properties go down by some more, right when they go up, still buy some more, because it doesn’t really matter. Like as long as you have cash flow, it doesn’t matter what’s happening with the value of the property of the short term. So again, like I’m just not really seeing where he’s going with this. And I think it’s just like a lot of fear mongering, what’s what’s the better option, keep your money in cash and let it just be killed to inflation. When you when you keep your money in cash on the sidelines, then you’re guaranteeing a loss, like there’s no way to mitigate that downside. If you’re insistent on just holding your your your money in cash, your money is going to get devalued to inflation no matter what, when you invest in real estate, there is downside risk. But it’s not a guarantee of downside the way it is with holding your money in cash, I can guarantee you holding your money in cash, you’re going to experience the drawbacks and the pitfalls of inflation, your money is going to be worth less, there’s nothing you can do to protect against it. If you insist on holding your money in cash. If you invest in real estate, there is downside potential, but you actually have the control to be able to mitigate that downside. And you can actually have upside potential as well. So how could you possibly argue that buying real estate if you’re smart about if you’re intelligent about it is not the right move is a bad financial move compared to what keeping your money in cash,

22:46
when they’re very clearly not turning around. The only thing that’s really in support of a bullish narrative on the housing market is low inventory. But as I showed you earlier in this video, one of the big reasons that inventory was low was because of all those Airbnb ease all that Airbnb and VRBO supply hitting the market, which now is likely to go into reverse, pushing more inventory on the market. The other thing to think about here, folks, if you’re a home buyer and investor trying to understand where things are going in your city understand also that the recession has not even really gotten going, we’re in the early stages of the recession, but the unemployment rate is still 3.7% very low. So I think that

23:23
if you’re an investor who’s trying to understand where things are going and grab your crystal ball and predict the future, then what you really need to realise is that you’re not an investor, you’re a speculator, and you’re gonna lose a lot of money, and you’re gonna get hurt really badly if you don’t become an actual investor. Because again, like the most successful investors, they don’t try to time the market. They’re not like this guy waiting for the recession to come. So they can snatch up properties. They’re dollar cost averaging in there, you know, making intelligent decisions, buying the right properties, and buying them for cash flow. Like they’re not trying to time the market. They’re trying to spend time in the market, not timing the market. Like it just it’s so frustrating people like get it into their head by someone like this, that like you need to time the market trying to time the market is just categorically the worst decision you can possibly make. Like just like read any book. It’s crazy to me that people still think this way. And like I’m, I’m speaking from a place of like, it really genuinely pains me when I see investors and talk to investors that are thinking this way, because it’s so sad to me that like they’re just holding themselves back on the sidelines, because they’re afraid because they’re trying to time the market. It’s like while you time the market while you sit there and wait for the market to crash. You’re literally losing money every single month in the year that you wait, when you could just be growing your wealth, right when you could be adding cashflow. And not only that, but even if you do time the market successfully once. Try doing that for a sustained period of time. Try doing that for long term, like no one can do it the most intelligent sophisticated investors in the world Hold, can’t do it. So why would you think that you could like it’s not the way to build wealth, timing the market is just not the way to build wealth. So trying to do it, it’s just a fool’s errand. You’ve got to get educated. You gotta get smart about how to invest intelligently in any market. That’s like, anyway, little bit of a rant there. Let’s get

25:21
back into it. You know, this downturn in Airbnb is happening still with a strong labour market. The inventory is low still with a strong labour market. What happens when the labour market inevitably worsens. I think when that happens, folks like people aren’t going to be able to comprehend how much inventory gets released onto the US housing market in rapid succession and it’s going to be something that leaves just lots of people flabbergasted because they’re just stuck looking.

25:50
flabbergasted. Alright, we’re gonna stop the video there. This is turning into a very very long video if you want a part two where I go through the remaining there’s like 10 minutes left of this video. If you want me to go through the rest of it, let me know give me a like on this video or let me know in the comment section that you want me to go through the rest of it here. But that’s where we’re gonna wrap it for today. Yeah, this has been a lot I think there’s just like a lot of hyperbole a lot of fear mongering going on this video and a lot of just like really really poor like reading of data like we’re just skewing data left right and centre here to try to try to just paint a specific narrative here. So yeah, I that’s all my thoughts. Let me know what yours are in the comment section down below give me a like on this video if you enjoyed it if you got value from it if you if you agree with me or if you have anything to add, let me know always curious to know your guys’s thoughts, let me know in the comment section down below. And obviously, if you’re new here or you’re not yet subscribed, make sure you hit the subscribe button on the video here so you can stay up to date with the two new videos you post every single week here on the channel. With all that said, I hope you enjoyed this video. I’ll see you in the next one.