A Bargain With the Devil'---Bill Comes Due for Overextended Airbnb Hosts

[Doc Spouse]

fwiw we've never really gotten on the airbnb train. it seems like it's a great option for large group travel (e.g. rent a house for weekend with 3 other couples) or for long term travel (e.g. spend a month in Seattle as a family). absent that it seems like a fairly complicated way to stay at a place with fewer amenities than a decent hotel.

the few times i've done it i've been thoroughly underwhelmed and would have preferred to just get a room.

Domestically I'd agree with you 99% of the time. That random 1% would just be for beach houses and such :P

Where we've had a lot of luck with Airbnb is with international travel. We had a small apartment in Prague that cost us $80 a night that was a stones throw from Old Town Square where hotel rooms were $300+ for a single room.

Same in Tokyo. Got a 2 bedroom fully furnished in Shinjuku for $100 per night that was less than a block from the train station. Beautiful neighborhood and the owner took us out to eat at his favorite local places. Compared to $250 a night for a micro room hotel, it was a steal.

But yeah, domestically 99 times out of 100 Airbnb just equals more headache and risk for a savings that isn't worth it.

[fatlittlepig]

We had that same discussion in my living room for half an hour last night. Crazy to spend that on a rental business, and crazy to spend 20% on declining assets.

well the house that you are borrowing heavily to rent out needs to look nice.

[wideopenspaces]

100K for furnishing? Maybe that shouldn't be the thing I'm focused on...but wow that is a lot for two properties at $190K a piece.

That's exactly where I got stuck;-) we didn't even spend half that on the one house we live in! Because children destroy everything.

[fatlittlepig]

Fatlittlepig would sell and take a loss, but I doubt they will.

[Shant]

100K for furnishing? Maybe that shouldn't be the thing I'm focused on...but wow that is a lot for two properties at $190K a piece.

We had that same discussion in my living room for half an hour last night. Crazy to spend that on a rental business, and crazy to spend 20% on declining assets.

[dennis]

The AirBnB and hospitality side of real estate investment always seemed more speculative to me. I've had opportunity to invest in some but couldn't pull the trigger, thankfully. People always need a place to live but don't have to go on vacation and these days don't have to do as much travel for business. To me residential is still the safest real estate investment. Nothing is fool proof and you can still lose $ if you over leverage, mismanage or over pay for the asset. I've been cynically saying for a couple of years that we need a good recession to shake out the speculators in the real estate market. I think I over did it.

[burritos]

When we got loans for rental properties, the banks went through an extensive underwriting to ensure we could cover all PITI's in a worst case scenario if all properties went unrented.

[bullsdoc]

100K for furnishing? Maybe that shouldn't be the thing I'm focused on...but wow that is a lot for two properties at $190K a piece.

[CordMcNally]

A fool and his/her money are soon parted.

[fatlittlepig]

Smaller players have spent hundreds of thousands of dollars each buying homes for short-term rentals. Jennifer Kelleher-Hazlett of Clawson, Mich., spent about $380,000 to buy two Michigan properties in 2018. She said she and her husband cashed out their financial investments and borrowed $100,000 from employers to furnish them.

The 47-year-old expected to net up to $7,000 a month from Airbnb after mortgage payments, supplementing her income as a part-time pharmacist and her husband’s as a schoolteacher. Before the virus struck, the couple was considering buying more homes. Now, they can’t make mortgage payments because no one is booking, she said. “We’re either borrowing more or defaulting.”
Diversify, diversify, diversify

https://www.msn.com/en-us/money/mark...3T4?li=BBnb7Kz

spending 380 to buy two properties (mistake 1)
cashing out financial investments (mistake 2)
borrowing 100 to furnish (mistake 3)

[Jack_Sparrow]

How leveraged must someone be where they can't pay the mortgage after what 2-3 months of Quarantine? I would expect you would have 2-3 months just to cover damages to the property.

[VagabondMD]

Kamban and previous posters, I agree. Who said speculating on AirBNB properties was a risk-free goldmine? There was a 100% chance that the next recession would hurt many of these people, but the nature of the pandemic has cut the travel and lodging business deeper and in ways I would not have predicted.

[Kamban]

Jennifer Kelleher-Hazlett of Clawson, Mich., spent about $380,000 to buy two Michigan properties in 2018. She said she and her husband cashed out their financial investments and borrowed $100,000 from employers to furnish them.

The 47-year-old expected to net up to $7,000 a month from Airbnb after mortgage payments, supplementing her income as a part-time pharmacist and her husband’s as a schoolteacher. Before the virus struck, the couple was considering buying more homes. Now, they can’t make mortgage payments because no one is booking, she said. “We’re either borrowing more or defaulting.”

Sometimes I feel like banging my head against the wall when I hear these stories. The couple could have made good money with her working full time as a pharmacist and her husband as a school teacher with his generous benefits and probably a pension. Instead they tried to be too greedy and borrowed 380K, well beyond their means. Did they think the magical mystery ride was forever??? And they want the government to help them out for their stupidity?.

People think that passive income means no risk, and unfortunately there are people who tout it that way. Any passive income carries risk, whether they be from stocks or real estate or commercial properties or hotels or what not. One has to not only be prepared for the gravy train to stop rolling but you should be prepared to infuse cash to prevent it from total collapse, like many business properties. That is why you should not overextend yourself ( like owning 10 houses in 10 years) or completely stop working till you are financial secure. Keeping your toes dipped in active income till you are fat FI is a good idea, especially if there can be circumstances like a prolonged epidemic that can stop you being FI. Lean FI does not cut it during these times.

[Gamma Knives]

Always good to know what the terms and conditions really are.

"Airbnb granted guests full refunds for stays between March 14 and May 31, wrenching the finances of those who had used Airbnb income to underwrite and sustain their mini-empires." "hosts agreed to an “extenuating circumstances policy” that allowed the company to override them—as it did when the pandemic hit."

I agree with the sentiment of you took the risk and reaped the rewards. Too often people underestimate the risks involved.

[Cubicle]

This is the exact same as the housing bubble in 2007-2008. People were fetching $400 per square foot for a condo not in a major city. Then things melted & people were crying. Not to be mean (I am), but I don't feel bad then or now.

I'm a capitalist. Make your dollar. But don't hurt people. If you do, be prepared to get hurt.

No doubt house values & rent rates increased as a result of "hoarding" air bnb properties. But like Lordosis said, up & down (should be) is all on the investor. That's why when you make stupid amounts of profit you're supposed to squander as much cash as possible into savings accounts for times like this.

grossed about $1.5 million annually... 18 apartments they leased and 21 apartments they managed... what she called “magical money"... gross more than $8,000 a month... double what long-term tenants would pay...

As anyone can see, I'm a bit riled up... Stop being stupid.