INVESTOR Reacts! The (Overdue) Collapse Of Short Term Rentals

Speaker 1 0:00
What’s up guys in today’s video I’m going to be reacting to a another video from a much more popular than I am YouTuber. It’s a YouTube channel called how money works and the video is called the overdue collapse of short term rentals. Now I haven’t watched this video yet I wanted to save it to react to it live on this video here. And I just want to share my thoughts because as always, there’s a lot of people speculating around what’s going on with the Airbnb market. I suspect I don’t know much about this channel. I’m not sure what their background but I thought it’d be an interesting watch. And there’s a lot of people that are kind of panicking talking about the collapse of Airbnb talking about Airbnb bust, and I just want to watch this video with you guys to share my reaction, my honest thoughts on what’s being discussed in this video. So without further ado, let’s go ahead and let’s jump right into it. And yeah, let’s just see what’s going on in the video here. Short

Speaker 2 0:50
term rentals are a $100 billion market that have reshaped global tourism accelerated a nationwide housing crisis and created fortunes for early adopters. But now customers the government the public and the hosts themselves are turning their back on a concept that started out as a fun alternative to stuffy hotel chains but became everything wrong with modern real estate.

Speaker 1 1:13
Okay, so right off the bat I think that there’s there’s a lot of exaggeration happening here a lot of hyperbole saying that short term rentals or Airbnb is everything wrong with modern real estate is absolute insanity. Like obviously, that is baseless. There’s nothing that you could say that could convince me that Airbnb or short term rentals is everything that’s wrong with modern real estate. How about the crazy high housing prices due to a real lack of additional supply? inflow of demand? How about the crazy high interest rates? How about like, like, like, all of these problems are so many problems that are like way, way bigger than just the use of properties as short term rentals to say that it’s everything wrong with modern real estate, when like, for example, real estate agents can do a blind bidding process and like there’s just all these different problems with modern real estate. And to say that short term rentals are everything that’s wrong with that is absolutely crazy. But let’s let’s carry on in the video here,

Speaker 3 2:15
party’s over for Airbnb renters. The company said yesterday that its temporary ban on parties and other large noisy events is now permanent.

Speaker 4 2:23
I put all my savings into into my unit, I’m following all the rules, paying all the taxes, buying the business licence, ultimately, our goal was to get more housing. So

Speaker 1 2:33
again, this is just just already the way all of this media is being positioned. It’s like the party is over for Airbnb, and he’s talking about how you’re not allowed to have parties that and Airbnb anymore. That doesn’t mean that Airbnb is suffering means people can’t host parties, which is amazing. It’s incredible. It’s actually helped tremendously for hosts that they banned parties, because now parties are way, way less of an issue. And they are always a big issue, whether you’re investing managing properties, whatever. And that lady talked about, she put all our money into it. Like that’s just one person that put a bunch of money into it. And she doesn’t even say whether it’s doing well or not for her. And even if it’s doing poorly, that’s not a problem with Airbnb. That’s a problem with her. But anyway, let’s let’s carry on. I just always like to point out these biases that are being snuck into videos, especially when you do like news clips, all in a row like this, where you’re like you’re mashing them together and trying to paint a narrative. But all these clips are lacking context. So you don’t even know what’s actually being talked about here

Unknown Speaker 3:29
back into the housing market. For people to be able to run I

Speaker 5 3:31
just uncovered a massive amount of debt that Airbnb hasn’t paid on the books. They’re hiding 10s of millions, hundreds of millions, possibly even a billion dollars plus of debt that they have not paid.

Speaker 6 3:41
So we are looking around and are saying what can we do right away, that makes more homes available.

Unknown Speaker 3:46
The short term rental market does

Speaker 1 3:48
wonder this is YouTubers Canadian, I haven’t looked into it. But a lot of those clips are from like global and CTV and whatnot. And real estate is totally screwed up in Canada, largely because we take in a lot of immigration, which is great. We have a huge growing population. But we don’t have the growth in supply of housing to match that because of systemic issues like just zoning issues, new building issues, like it’s just impossible and challenging to build new inventory because of all the bureaucratic red tape. And so because of that we have all this demand, not enough new supply and skyrocketing housing crisis. So yes, I mean, trying to pin that all on short term rentals is crazy. And I just want to reiterate again, like all of those clips lacked any kind of context. This is like very much just like kind of scare tactic media, but let’s carry on

Speaker 2 4:38
a cough when Brian Chesky and Joe Gebbia tried to rent out a spare room with an air mattress to attendees of a conference because they realised all the hotel rooms had been booked out. They called their service air bed and breakfast which was later shortened to the short stay app that you know and love or hate today. Airbnb is now worth more than hotel chains like Hilton and Wyndham combined. The company is by far the largest short term rental company and it has achieved excellent penetration into markets around the world where other similar peer to peer or network market apps like Uber, DoorDash, Lyft, and even Amazon have failed to take share away from local competition. It was a good idea. customers loved it for giving them a cheaper alternative to outdated hotels and hosts like the opportunity to earn extra income on a spare bedroom or even an entire separate property. But the four parties that make the short term rental market work, the customers the hosts, the public, and the platforms are all now dealing with four unique problems that are threatening to undo this market and take out a lot of other real estate investments within. The first problem lies with the people who has hurt us to feel sorry for the hosts. Airbnb and other short term rental platforms provided a unique opportunity for people to profit off real estate in a totally new way. Having a roommate existed long before Airbnb. But the platform that homeowners offered their spare rooms to travellers who could pay up to triple what a long term roommate would pay since budget was the reason that they were looking for a roommate instead of a place of their own. The extra income was nice, but the added flexibility of a short term roommate was the biggest appeal to most people. If you had an extra bedroom to rent out in your apartment, you could find a long term roommate, but then you run the risk that they are the type of person who is messy, loud doesn’t pay the rent on time or is just a clash with your own personality. With a short term tenant, any problems are only going to last as long as they’re short stay. Other advantages are that payments are handled through the Airbnb platform. There was a rating system that controlled bad behaviour. And if you ever wanted the house to yourself because family was coming over or just wanted a quiet week to yourself, it was as easy as blocking out those dates on the app. That was the early value proposition of Airbnb. But sharing a spare room and staying with a random person while on vacation only appealed to a certain type of alternative traveller. Most people who Airbnb are putting up entire properties for guests to use as exclusive accommodations, instead of a short term alternative to a roommate DeMorgan became a short term higher yielding alternative to conventional long term tenants in an investment property. Property owners can make as much as double the rent from short term stays after paying Airbnb fees than they could from long term rentals even if their property was only rented out for half the year. The downside was that short term rentals required more effort because the property needed constant cleaning between stays and there was less guarantee of consistent income but financial benefits we’re still clearly in favour of short term rentals for properties close to cities and tourist hotspots.

Speaker 1 7:29
I mean so far really everything he’s just nailing all of it. This is just like all quite accurate,

Speaker 2 7:34
large scale Airbnb landlords the Airbnb barons if you will design properties with the express intention of cutting down on the effort required from them, they fitted doors with keypad locks that can be changed remotely between guests easily cleanable surfaces inexpensive but fashionable fittings and preferred properties with minimal landscaping. All of this cut down on the additional efforts hosts needed to put into managing a property. But like all good things, it didn’t last forever. Airbnb advertise its platform just as hard to new hosts as it did to guests and investors started buying multiple homes to turn them into Airbnb ease. Some hosts turn managing their Airbnb properties into a full time job effectively purchasing a job as a hotel General Manager. Other hosts took an easier approach. Realtors in high tourist areas started offering short term property management services where just like they would manage traditional long term tenants, the realtors would instead manage the short term rentals with some services even handling the listing on Airbnb. Their fee was higher but the higher short term rental price meant owner still came out ahead, the additional cash flows from higher yielding short term rentals also made it easier to qualify for more home loans because the additional income can be used to pay for the loan on the next property and the next property.

Speaker 1 8:49
That’s not entirely true. That’s difficult to do. So all of this has been really accurate so far, honestly like this is all accurate and he’s just nailing a lot of the benefits of short term rental investing or short term rental property management, which shameless plug link in the description down below. If you want to learn more about how to do that yourself guys just want to take a quick break here to say that for those of you watching, who want to build cash flow and long term wealth by purchasing Airbnb and short term rental properties, there’s a link in the description right down below for a free training that will walk you through my exact strategy for investing successfully in Airbnb ease. Now if you’re not ready to actually buy properties, and you want to get started managing other people’s properties on Airbnb the same way I got started and build a full time income managing other people’s properties. There’s actually another free training linked in the description down below as well. That’ll be a really great fit for you. So whether you want to invest in short term rental properties and actually build amazing cash flow and long term wealth by acquiring the assets, buying the properties themselves, or you’re looking to earn a full time income managing other people’s properties on Airbnb. We’ve got some awesome trainings that are linked in the description now Below, it’ll definitely help you out. When you sign up for the trainings, we’re also going to send you a few other tools and resources completely for free just to help you get started. Again, the links to sign up are in the description down below. And both trainings and all the tools are completely free. So make sure to register for the trainings, links in the description down below. The one thing so far that there’s a bit of a caveat around is the home loans. So getting a home loan qualifying for a mortgage, on a property based on short term rental income is something called a DSCR loan, since we’re debt service coverage ratio, and it’s basically it’s basically asset based lending for short term rental properties, where the lender is going to qualify the property based on its potential income as a short term rental, as opposed to qualifying the borrower based on their personal income. So it’s very similar to the way lending works on a large multi residential property. If you’re buying, let’s say, a 10 unit property, the lender isn’t looking at you the buyer and say, Okay, can you afford to pay the pay the mortgage on this property, because of course, you’re not going to be the one paying the mortgage on that property, it’s 10 freakin units, you’re obviously going to rent them out, put them get the rent roll to be covering it. So they’re going to qualify the property based on its rent roll being able to cover the payments, that’s a simplification of how that lending process works. Now, lending of that type for short term rental properties is available, but it’s much less common. So it’s not quite as straightforward and simple as its laid out here. And it’s not available in all places. For example, in Canada, we can’t do asset based lending for short term rental properties. To my knowledge, there just aren’t any, any lenders that operate that way. Because most lenders are more conservative, and they view short term rental income as being more volatile. So some lenders, especially in the US have caught on to this and they see okay, there actually are ways to predict how well a short term rental property is going to do. And so they are comfortable lending on them. But it’s not quite as simple and straightforward. As it’s being portrayed in the video here.

Speaker 2 12:01
The inevitable result was clear, for little additional effort, hosts can make more money from their properties. So the market became oversaturated. And hosts started to struggle to rent out their properties enough to make it worthwhile.

Speaker 1 12:13
Again, that’s all speculation. If you actually look at the numbers, that right there, he just doesn’t really have any any numbers or data backing that up. Maybe we watch a little further, we’ll get to that. But here’s where I think we’re going to start to have issue with it with the video. Like, yes, there is definitely a huge amount more supply of short term rentals, but it’s also become way more popularised amongst guests. So demand for short term rental properties has risen dramatically over the years as well. And no, it’s true in anything, and literally anything, there’s always gonna be some people that are doing poorly that don’t know what they’re doing. Like, for example, there are some people that are unemployed, there are some people that have a hard time and specific jobs, there’s always a bottom quartile, there’s always lower performers, there’s always the middle that, you know, that’s tends to be large, doing okay, and then there’s some outliers that are performing really well. And so on short term rental, it’s no different. If you don’t know really what you’re doing, if you don’t have the right skills, the right expertise, then it can be challenging, or you can kind of be just more average and do okay, you’re still going to probably do in most markets better than a long term rental would. But if you do exceptional, if you really know what you’re doing, then you can just run circles around long term rental. And then if you put zero effort into it, and have no clue what you’re doing, and you buy on speculation, don’t do analysis, all the things we talk about not doing an avoiding here on this channel, then obviously, if you go the completely wrong way, and essentially just YOLO the whole thing, then yeah, it’s gonna be it’s gonna be disaster. But

Speaker 2 13:41
short term rentals also made long term rentals more expensive, so the gap between what someone can make,

Speaker 1 13:46
so again, that’s really, really tough to put a finger on. best estimates from actual analysis that’s been done on this is that short term rentals have caused an increase in the average big metro area of like about a fraction of 1%. Sometimes you can speculate to say like, you could you could expand to say that, like, maybe there’s a 1%, or one and a half percent increase in rent prices, that’s actually directly caused by short term rentals taking up taking up additional additional supply or the market. And so if you look at that, that means that you’re getting like, you know, your your rent is going up by $10 per $1,000 in rent that you’re spending. Like, that is not what’s making housing unaffordable, an extra $10 on your $1,000 a month rent payment an extra $20 a month on your $2,000 a month rent payment. That’s not what’s making housing unaffordable. So that’s why it just gets really really tough because a lot of people just go Okay, great. So since 2008, rent prices have gone up dramatically since 2008. Airbnb has taken off dramatically, and they equate correlation to causation, when in fact So that’s like one of the biggest mistakes that you can make when analysing trends is that correlation does not equal causation. And if you actually dive into the numbers, the real causation relationship, it’s very, very, very minimal from a

Speaker 2 15:12
short term rental versus what they can make from a long term rental is narrowing. For many hosts, it’s no longer worth the additional risk and effort to rent out property short term. And for the others that could only afford their loans because of the higher rent they got from the short term rental yields they might be forced to sell.

Speaker 1 15:27
It’s not, it’s not really the case, like I’ve seen very, very few. If any markets where you suddenly can’t make more as a short term rental investor, then as a long term rental investor, you can almost right across the board, you can still make, you know, 234 times more with your property being a short term rental than as a long term rental. But can you justify the purchase price well actually cashflow? Well, you have to actually analyse a property to do that, like if I buy a million dollar property, I may be able to make $4,000 a month on that instead of $2,000 a month by having it be a short term rental instead of a long term rental, making $4,000 a month with a million dollar property still means that I’m going to be losing money after paying for the mortgage utilities, the insurance, the property taxes, the cleaning fees, everything like that, right. So it doesn’t just because you can make more doesn’t mean that you can actually justify the purchase. And so yes, certainly some people did speculate and they bought bad properties that they shouldn’t have purchased. And I fully agree with that a lot of people bought properties, especially over the last couple years that they just kind of again, YOLO their money into and didn’t do any kind of analysis. And they bought them like without any kind of a backup plan. And yeah, if you do that, then yes, you can be put in a really bad position where you can no longer afford those payments. But that’s not the majority of people. That’s just you know, that’s just the speculators in the market, which in any market, there will be people that are not able to make the payments that are not able to do things properly. Just like with long term rental investors, there’s a whole bunch right now that aren’t able to make their payments. Just like with home buyers, people that purchase homes for themselves. There’s a whole bunch of people right now that can’t make the payments for themselves. And that has a lot more to do with the rising costs of real estate than it does how you’re making money to cover the real estate payments,

Speaker 2 17:17
first group and the collapsing market for short term rentals. And they were one of only two that were in any way responsible for the shitstorm to begin with. So it’s time to learn how money works to find out why short term rentals got so big and failed so quickly.

Speaker 1 17:29
Again, like that’s a that’s a tough one there. That’s like a I forget what the what the correct debate term is for it’s a it’s a hidden premise, essentially, where he’s saying that, that it collapse so quickly as if that’s factual when it hasn’t actually collapsed, right? Like that’s a hidden premise being snuck in there. He hasn’t actually proved that it’s collapsed because he can’t write it hasn’t. Short

Speaker 2 17:51
term rentals were a good solution to a real problem. Traditional hotels had become overpriced. It didn’t cater to what a lot of people really wanted when they went away on vacation. hotels provide a lot of amenities like housekeeping room service, restaurants, concierge desks, meeting rooms, gyms, spas, pools, valet parking, and 24 hour security. These services are nice, but they come at a price which is either directly baked into the price of a room or charge separately at a significant markup. These services also don’t always align with what the vacation goers really want. When travelling, which is a place that just feels like home in a different city. Airbnb cut out a lot of amenities that catered more towards business travellers and offered vacationers their own kitchen, multiple bedrooms for their children, and an element of privacy that couldn’t be purchased at any hotel chain. It felt like a home away from home because in many cases, it was just someone’s home. Airbnb ease were also much cheaper, especially when sharing a larger home between multiple friends or family members who would only need to book their own separate rooms if they were staying at a hotel. Again,

Speaker 1 18:50
I just want him to says all of this is still completely true. I got the impression that you saying that it was true and it’s not. But all this is literally still true is still the case, you still how are you going to get a hotel room with multiple bedrooms with a whole whole homestyle privacy with a full kitchen, all that like there’s not really available it’s not really what hotels do what they cater towards. So you absolutely still do get that and those are the properties that still tend to perform the best as short term rentals are not ones that compete with hotels, the ones that are just sort of in a different category altogether where you get like all these amenities and whatnot or all the all these additional benefits I should say not so much amenities but like you get your own backyard like you get a full kitchen you get the bedrooms, you get the basement like all these different things, but

Speaker 2 19:38
study conducted by the University of Waterloo and Daniel Guten Tag hospitality research serving customers booking Airbnb is in traditional hotels. The study found that 61% of all correspondence said that they chose the Airbnb as a budget friendly alternative to even budget hotel chains. Despite the company’s marketing as a way to share the vacation experience with a local host that can show you around the city most respond It said that they did not care about this aspect of the service and 70% stayed in a home that they had all to themselves. So they didn’t have to share space with a random stranger, despite people actually preferring not to share their short term rental with a host Airbnb still spends billions every year promoting this aspect of their service for a really important reason that will come up later,

Speaker 1 20:18
I Airbnb doesn’t really promote that that much like they do promote whole homeless things. And yeah, I get it like they do, they do have to, to a certain extent for like public perception, because they don’t want the the angry mobs of politicians and other than just people in general coming after them. And they want to portray themselves in a specific way, right. They want to prostrate themselves as like a home sharing platform, because it’s really, really attractive for a lot of people to go and attack Airbnb. And so they don’t want to just hand that opportunity to people. I’ll give you a couple examples. It’s super, super attractive for hotel companies to go after Airbnb and try to get them killed by just saying, hey, they’re killing affordable housing. They’re, you know, they’re not a whole home. They’re not a home sharing platform. They’re for whole home, they’re driving up real estate prices. And why is the hotel company doing that is because they genuinely care about rising home prices? And they’re so philanthropic? No, of course not. It’s because they want to decrease the competition to their business, they want to increase their profit. That’s why they exist as a company is to create profit for shareholders just like any other company does. And sometimes the best way to build up your building and make it taller in the skyline is by taking out the bigger building that’s already there. Scrape you know, screaming over you. Like we said earlier in the video, Airbnb is larger as a company than the other major hotel companies in the world combined. So they have a big a lot to gain by just snapping and taking shots at their biggest competitor. Similarly, politicians, right? Why do they want to go after short term rentals? And why do they why do they tend to do that? Well, because the housing crisis is a really, really tough long term problem to solve, there’s going to have to be some really major systemic changes in order to actually change the housing crisis make a dent there. So what’s a politician to do? Well, a politician’s incentive is in most cases to get reelected, and they have to be short term, they have to be doing things that are catering to the people they want to get votes from. And so saying, hey, there’s a huge issue that’s going to take a decade to really fix, and we’ve got to go and do all this reform, that’s a really big uphill battle for a politician to fight, they’re probably not going to be able to point to any measurable progress they’ve made by the end of their term. Whereas if they say, look, let’s ban short term rental, boom, right? It’s not actually going to make an impact on housing prices, right? Like if you look at the major cities where they have done this, it’s not like housing prices just suddenly dropped through the floor, and now everyone can afford housing. But the politician gets to stand up there and say, Look what I did, I made a big difference because I made this happen, and they can actually make something happen relatively quickly and try to get reelected. So again, it’s just if you understand why people are going after the platform, you understand why it’s important Airbnb, that they present themselves in a specific way. They’re just playing the game, right? And that’s not their fault. Get

Unknown Speaker 23:17
an Airbnb and get a place to yourself.

Speaker 2 23:18
Anyway, the things that made Airbnb are now either being lost or offered by competitors in three areas. The first is price. Airbnb is no longer an affordable alternative to budget hotels

Speaker 1 23:31
1,000% They absolutely still are. Airbnb is almost always, I mean, virtually always less expensive than a hotel. If you’re travelling in a large group, it’s almost always the case. And if you’re travelling solo, it’s a bit hit or miss, but it just depends on what you want. Honestly, when I travel solo, I often will still stay in a hotel. But when I’m travelling in a big group, no doubt about it. It’s way more affordable and just way better to stay at an Airbnb or short term rental than it is stay at Hotel.

Speaker 2 24:04
It is now a premium option competing with premium five star chains. According to the company’s own data, even though the number of bookings has only increased 70%. Since 2019, the gross value of all bookings worldwide has increased by 67%. Airbnb is just not cheap anymore. The second area where the platform is losing out is its monopoly on homes away from home hotel chains have significantly increased their offerings of apartment style accommodations that do away with typical hotel services in exchange for larger rooms with multiple sleeping areas and kitchens.

Speaker 1 24:37
I don’t know if any of you guys have stayed at like a an apartment style hotel. That is nothing compared to an Airbnb. Now. Sure, if you’re comparing it to staying in like a condo Airbnb in a metro area, then sure like they’re kind of comparable, but if you’re comparing it to staying in like a like a whole home listing a single fan only home. It’s nothing and like there’s so many markets the vast majority of markets out there are people are buying or managing short term rental properties. There just aren’t these options from hotels like hotels are putting these options up where they already have hotels which is in big major metro areas. But if you go to like cottage country you go by national parks, you go by, you know, the by these, like more more rural areas. Good luck finding a hotel chain, let alone a hotel chain that has apartment style listings. To many customers,

Speaker 2 25:30
the semi service departments offer a better value because the combined the known consistency of a hotel chain with a space in price of an Airbnb, the third area that turned customers against Airbnb was service hosts wanted to cut down on the work they needed to put into managing their properties. So they started putting more unrealistic expectations on guests about cleaning up before they leave

Speaker 7 25:51
exorbitant cleaning fee that will earn people, especially if you the person staying in their house pretty much clean the house themselves. Overall,

Unknown Speaker 25:58
this is just a few bad hope. I

Speaker 1 26:01
mean, like yes, there are fringe case, like I’ve seen, I’ve definitely seen posts about like hosts asking the guest to like, take out the garbage wash all the sheets, clean the floors, like go above and beyond. But that’s like, yeah, that’s like what maybe one or 2% of hosts, like the outliers that ever actually do that. And to boot, it’s like, well, yeah, cleaning fees. So what you would rather as a guest that your place not be clean before you get there, you’d rather just check into a place that the guest before you tidied it up before you and then you’re gonna want sleep in the bed that they didn’t wash the sheets properly on, you’re gonna go and like use the kitchen where they didn’t properly clean the dishes like absolutely not. So yes, guests do tend to like to just complain about the cleaning fee. But the reality is what they’re saying is like, Okay, I’ll just clean it up when I leave. Well, yeah, but okay. Are you okay? with it not being cleaned before you get there? Well, obviously not. And so again, this is why like, I think that Airbnb has a really good specific place where it makes a lot of sense, like, as a traveller, I’m not saying that I use them for every single time that I travel. But if I’m booking, you know, a five night stay somewhere, that cleaning fee now becomes a lot less significant per night. So it’s generally a lot more affordable to stay at an Airbnb or short term rental than it is to stay at a hotel for anything longer than maybe five or seven nights. And if I’m staying with a large group of people, again, it really decreases what the impact of that cleaning fee is for me. And so again, I’m going to stay at an Airbnb or short term rental, if I’m going to a place for one night, and I’m staying in a big city where there are really great hotel options available. And I’m only going for one night and I’m travelling solo or just with my partner, then yeah, sure. Okay, I’ll book a hotel room. Because if I book an Airbnb, the cleaning fee, it significantly impacts my nightly rate, it’s going to be a little bit more headache to get checked into the Airbnb generally than it is with the with the hotel last consistency like there’s reasons where it will make sense to book a hotel. But that doesn’t mean that Airbnb is dead, and it’s all collapsing. It just means that there’s room for both few

Speaker 2 28:05
bad hosts. But it has given the platform a bad reputation amongst customers who expect to be charged cleaning fees on top of already high rates compared to a hotel where as long as there is not permanent damage, housekeeping will handle everything free of charge.

Speaker 1 28:18
No they won’t, it’s baked right into the fee that you pay. And you think that you’re getting housekeeping for free when you stay at Hotel, you’re insane. Of course you’re paying for it, they just don’t separate it out. Because they don’t need to they have they have cleaners that are on staff. So there’s not an actual like they’re paying the cleaner hourly regardless. So there’s not an additional variable expense to them when you stay at the hotel, because they’re going to pay the cleaner anyway. So they don’t have to bake it into that price like a separate fee. Whereas it’s just really hard to price your your cleaning to price your your cleaning into your nightly rates as an Airbnb host. Because it’s very variable, right, you’re not paying a cleaner to be there on staff, no matter what you’re not absorbing that cost. Either way, you’re only paying that fee if a person stays and you’re paying the same amount to your cleaner whether the person stays for one night or five nights. So it just makes a lot more sense. It’s way easier to manage pricing if you separate it out as an Airbnb host. But that doesn’t mean that you’re like you’re paying for cleaning with Airbnb and you’re not paying for it with with a hotel, it just means it’s baked into the price for the hotel. If

Speaker 2 29:28
Airbnb business was being a middleman platform between hosts and guests in both of these groups, having a bad experience is not a good direction for the company. But there is another group that has had it work, which

Speaker 1 29:38
is again not actually happening as it demonstrated that’s happening and it’s all just like a snug premise there

Speaker 2 29:43
and who are involved in the app whether they like it or not. And that’s a third reason for the Airbnb bust, the public is sick of it. Customers can choose to stay wherever they want, and the threat posed by Airbnb and other short term rental options has forced existing hotels to improve their offerings. push for investors who need to accept that all investing carries risk. Most of them still own a home or multiple homes that they can now lease out in an overpriced rental market or sell likely for a profit. Neither of these groups have lost unless they were really stupid. The people who did lose though were priced out of their homes because it became more profitable to rent to vacationers, then long term residents who needed a place to live.

Speaker 1 30:21
Again, like that’s just categorically not accurate based on actual analysis, because again, we just come back to the correlation and causation then,

Speaker 2 30:32
for renters don’t have any power over the platform itself. But the problem of unaffordable homes in certain cities is becoming so bad that politicians are introducing new policies that will limit how many short term rentals are allowed to exist, and charging hosts additional taxes for running unregistered hotels,

Speaker 1 30:47
because, again, politically, it makes a lot of sense for them to do that. Again, none of this is actually demonstrating here is a cause and effect relationship. And the reason that’s important to recognise is because if you approach this by actually understanding what’s truly going on, not what the headlines are saying, then you can navigate it right? Like you can, for example, I only invest in markets, where it’s politically popular to keep Airbnb and short term rentals around because I know that I’m not going to run the risk of politicians choosing to get rid of them. How do you how do you find areas where it’s politically popular to keep Airbnb around? Well, you find markets where the local economy depends really heavily on short term rentals where that drives a lot of tourism and it actually helps and supports the local economy. And then politically very popular to have short term rentals operating there, things like that. It just, you know, you’re able to navigate things a lot better if you understand what’s truly going on, as opposed to just what the headlines are saying.

Speaker 8 31:46
If hosts are not playing by the rules, this legislation will require a platform to take down those listings, other

Speaker 2 31:52
cities have just made short term rentals illegal without the same licencing as a normal hotel, making it so expensive that it’s not worth it for the host to bother. The other group cracking down on short term rentals are the people who you would least expect to be the heroes in a story about housing, homeowners associations, owners associations, and apartments and suburbs that have them are blocking owners from renting out their homes to short term stays because residents who live in their homes don’t like loud parties and additional security risks that come with the short term guests. Yeah,

Speaker 1 32:21
I mean, that’s just true. We just get dumped by properties in areas with Hoa is because he always tend to be tricky to navigate. It’s like who wants to buy a property for an investment anyway, where there’s an association of people that get to just tell you on a moment’s notice that you can’t what you can and can’t do with the property? Like who wants to invest in a property where you don’t have control over like, even the colour of the paint the length of your grass, like whether you can rent it short term whether you can’t Why would you possibly want to invest in a property like that, again, that that just to me falls under the category mentioned earlier of like people that were being stupid,

Speaker 2 32:57
some hosts are simply ignoring these laws and taking the fines into account as a cost of doing business. A report from McGill University’s urban planning Professor David Walker Smith found that 45% of all short term rental listings in Los Angeles are legal in one way or another, and that the city could have levied between 56 point 8,000,302 point 2 million in fines in 2022. Alone, the semi legal approach to rentals is still working for some hosts, but it’s creating problems for the platform. Airbnb is spending hundreds of millions of dollars across the world fighting legal battles for the right to operate. And that’s why they still spend so much on advertising their service as a way to see a new city with a local host, even though most of their properties are rented out as whole new homes where guests will never even see the person that owns their home, it’s much harder to regulate shared short term stays, because it’s harder to distinguish them from someone just staying with their friend.

Speaker 1 33:46
Again, like all this exactly what I said before around like they you know, they have a public perception they want to have for the reasons they do. And that’s just the reality of having a multibillion dollar company. Like there’s going to be legal battles. You need public perception of extremely good if you like, you know, every multibillion dollar corporation goes through the exact same thing. Google Apple, Amazon, like, how much of DDC them, you know, fighting court battles, you know, dealing with public perception issues, that’s just the nature of being a Goliath company like they are.

Speaker 2 34:19
The folksy image of someone sharing their bedroom with curious travellers who want to see a new city with a local is much better PR than a multimillionaire or institutional property investor who has just listed their 10th home with a tech company worth $80 billion. And that’s the fourth cause of the Airbnb bust. The platform is losing its control on guests posts in the general public.

Speaker 1 34:39
I actually disagree. I think they’re doing a great job of giving control. Again, I don’t I just I don’t see the I don’t see the proof of that last statement there.

Speaker 2 34:47
Airbnb has always had competitors like VRBO but now incumbent traveller sites like TripAdvisor, booking.com and Expedia are launching their own short term rental platforms like turnkey or incorporating them into existing sites that already aggregate listings for multiple hotel advisors, which

Speaker 1 35:02
again like the video here is what we’re talking about is the overdue collapse of short term rentals, what he’s saying. And what he’s really talking about, I still don’t even agree with even in the slightest based on what’s being presented here is a collapse of Airbnb, one single platform, not short term rentals, additional options for people to rent their property short term, additional Rino marketing methods, basically marketing platforms for your short term rental, like pointing to that is not really just doesn’t equate to, okay, short term rentals are dying because there’s more ways to grow your short term rental business, there’s more ways to market your short term rental. No, that’s actually making things way better. You can not be less platform dependent, you get more exposure. Like it’s, it’s actually really beneficial to short term rentals that like VRBO, and Expedia and booking.com. And these other platforms are starting to adopt and give options for short term rental hosts

Speaker 2 35:56
Airbnb charges a host fee of 3% to the people listing their properties and a service fee of 14%. To guests, some hosts have found it cheaper to advertise their properties through local agencies and split the savings with guests. Airbnb has about the same amount of technical overhead for vacation stay as Uber has for food delivery or rideshare. But Uber can only make a few dollars off a small charge where Airbnb can make hundreds of dollars from their 17% Cut of every transaction. This has made the platform profitable were other peer to peer platforms have struggled to turn a profit, which is a great advantage in today’s high interest rate environment. But it is also painted a target on the back of the company that has no competitive moat around their business model. Apart from the brand name and recognition, there is nothing to stop these new entrants entering the marketplace.

Speaker 1 36:40
I mean, I really like yeah, if you know really basically anything about about business and grow startups like That’s an insane statement to make that Airbnb doesn’t have a moat around their business in any way. Aside from their brand name and recognition. Well, I mean, that’s a pretty big Asterix, the whole value of a platform like Airbnb is that I as a host, it’s a it’s a marketplace, it’s a network effect that happens there, I as a host want to put my property there, because there’s a bunch of guests, I can go and put my property on Wimdu. But no one actually books there stays through Wimdu. So I don’t get bookings there. So I’m not going to go to whim do similarly, as a guest, I want to go where there’s a lot of variety of properties. So I can go to whim do as a guest, but I’m not going to because no one list their properties there. And there’s very little variety. So the value of the platform is largely based on how many users it has on both sides of the equation. If there’s a lot of hosts, then lots of guests want to come there. If there’s a lot of guests, then lots of hosts want to come there. And it’s a really great feedback loop. Once you’re growing a platform like Airbnb, it’s a really hard feedback loop to get going because you have that chicken and the egg problem like guests don’t want to go there when there aren’t hosts and hosts don’t want to go there when there aren’t guests. And Airbnb has gotten past that huge barrier to entry that other platforms just really haven’t gotten the same kind of momentum with and so Absolutely there’s a huge competitive advantage for Airbnb crazy to say that there isn’t from

Speaker 2 38:11
taking market share away from Airbnb by offering a better service or charging lower fees to bonus fifth reason behind the air button.

Speaker 1 38:19
Even again, like even if competition is getting fierce for Airbnb, which again, I don’t believe that it is like yes, it’s heating up like VRBO is getting better and getting more popular. But it’s not even close to being what Airbnb is. But even if that does happen, even if air b&b is a company completely collapses, that doesn’t mean the collapse of short term rentals. It means the collapse of one single OTA

Speaker 2 38:42
and bust was that the platform was never set up with longevity in mind. It is made billions in just a few years. And for its founders and early investors, everything else is just a bonus. That’s not a bad thing. But if you’re interested in businesses that have a bit more staying power, go and watch my video over on how history works. So

Speaker 1 38:59
again, the company wasn’t built with longevity in mind. I don’t know where he’s getting that from. That’s crazy. Like again, that’s just pure like I don’t even know where he’s getting that from is just pure speculation guesswork, just like just sneaking that in again. So, again, I think that a lot of what’s covered in this video has just like no actual basis in reality, but let me know what you think like let me know in the comment section down below. If you liked this video if you thought was valuable if you thought it was helpful if it helps you to better understand what’s going on with Airbnb and short term rentals and the whole Airbnb bus conversation all that let me know by just hitting the like button if you did like the video, give it a thumbs up it really does help me out tremendously with growing these videos and getting them in front of more people. And yeah, last but not least, if you haven’t yet subscribed to the channel, and you want to do that just make sure you hit that subscribe button down below because we post two new videos every single week here on the channel helping you succeed with short term rental investing Property Management hosting everything in the world of short term rentals, navigating this Minute and overdue collapse. We help you with all of it. So make sure you hit that subscribe button, and I’ll see you in the next video.