Airbnb Shifts to a New Type of “Host”

Dave:
Hey, everyone. Welcome to On the Market. I’m joined today by James Dainard for the start of short-term rental week. I feel like we need echoey music for that, or some sort of big announcement for our first ever short-term rental week. I’ve talked about this with Henry, James. Are you a short-term rental guy? Staying in one, not investing in them. Do you like staying in short-term rentals? Do you prefer hotels?

James:
I have no problem staying in them. I’m definitely good staying with them, but I go with whatever’s cheapest is what I go with, especially when I’m traveling for work. Now, if I’m with my wife and kids, they like hotels, the amenities trump it all, and so we do hotels on vacation. But I will do them. If I can find them and they’re cheaper in hotels, I will definitely rent them.

Dave:
That is something that we’ll get into throughout this week, but it’s interesting to see how Airbnb and hotel prices compare to one another. Because I think Airbnb started as sort of this cheaper option, but both have gotten so expensive that you never know, depending on what market you’re in, which is actually a better deal.

James:
Yeah, I feel like for me, I look on both and they seem like they’re about the same. But one thing I have learned, if you plan ahead, it’s way cheaper than hotels. If you’re doing it last minute, it ends up being flush. So, whatever I can do to save a dollar is what I’m chasing.

Dave:
Yes, of course. Well, this week we have two excellent episodes for you to talk about short-term rentals. Today, James and I are going to be interviewing Jesse Stein, who is the global head of real estate for Airbnb. So, we’re going to be talking about what’s going on in the short-term rental market. And Jesse’s also going to share with us a couple of strategies, new developments, new products at Airbnb that I think are really interesting, particularly for investors and particularly for people who are just trying to get into short-term rental investing right now. They have a new product line that we’re going to get into.
So, that’s what we got for you today. Interview with Jesse Stein. And then, on Friday for our second episode this week we are bringing on Vacasa, which if you don’t know, is one of the largest property management firms for short-term rental industry. And they’re going to be sharing with us some research about the best markets to invest in for short-term rentals. So, we’ll be diving into market data on Friday. So, hopefully these two shows combined will help you understand the state of the short-term rental industry and where the market is going in 2024, and what opportunities might exist. James, are you ready?

James:
I’m ready. I really do love this concept we’re jumping into. It’s save money, reinvest it. It’s a great way to do it.

Dave:
All right. Well, with no further ado then let’s bring on Jesse Stein, Airbnb’s global head of real estate.
Jesse, welcome to On the Market. Thank you for being here.

Jesse:
Thank you guys for having me. I look forward to the conversation.

Dave:
Well, we’re excited about it. So, Jesse, you have a very cool title. You are the global head of real estate for Airbnb. Can you tell us what that means?

Jesse:
Yeah, it’s a great question. I mean, what does the global head of real estate for an asset-like company actually do? Because we don’t own any real estate.

Dave:
I didn’t want to say that, but yes, that’s true.

Jesse:
But I joined Airbnb from the private equity community. I used to lead investments for a private equity company, investing in hotels. I did that for roughly a decade. I was really brought on to be the conduit between the institutional real estate community and Airbnb. Airbnb has grown from zero to 7 million listings without ever partnering or creating opportunities to partner with large institutional real estate investors. So, I was really brought on to create a team, to come up with new verticals, to bring the institutional real estate community to partner with Airbnb. And that’s kind of been my role for the last couple of years. And my team consists of software engineers, policy individuals, marketing individuals, as well as a go-to-market team. So, across all assets, I’m basically a general manager within Airbnb in the real estate area.

Dave:
Very cool.

James:
That’s pretty vast. That’s the bigger money in the Airbnb space. Hey Jesse, real quick. So, you came from the hotel business. How similar is the hotel business to the Airbnb or is it a totally different game when you’re looking at operating those?

Jesse:
I would say I have different roles in each different organization. And when I was in the hotel space, I was in charge of investments, so I was really running around the country, looking for opportunities to buy real estate, renovate real estate, stabilize real estate, and sell real estate. So, it was very detail-oriented on a micro market. So, for your consumers, if they’re looking to buy a single family home or they’re looking to buy a duplex, I was basically doing that on behalf of institutional investors, mostly college endowments. So, at Airbnb it’s a little bit different. Airbnb, the overall offering, we are a travel company at this point in time. We are starting to blend into more of a living company, but the majority of our business is travel, which is akin to hotels. But over 50% of our nights booked offer for stays over seven nights at a time across Airbnb.
In our hotels, the hotels we owned, I don’t think we ever had a stay over seven nights in any of our hotels. We were an urban hotel company. The name was Kimpton Hotels. And it was mostly corporate consumers staying for two or three nights, and then we got the leisure consumer on the weekends. At Airbnb, it’s really a different use case for travel and that’s kind of accelerated with COVID. So, similar dynamics and also different, because now I’m overseeing a team which is growing supply, where previously I was leading a team to actually make investments and dispose of real estate, and make returns for our investors.

Dave:
Jesse, I do want to jump into what you and your team are doing, but given the name of the show and the focus of the show, I want to just take a step back before we talk about what’s next, and just talk about what’s going on in the short-term rental industry. Is there anything Airbnb and you and your team have uncovered that you think our audience, a lot of whom are short-term rental investors, should know about market trends?

Jesse:
From a macro perspective, the marketplace has never been stronger. In Q2 of 2023, yes, that’s the year we’re in, I lose track of time sometimes Q2 of 2023, we grew our host base more than we’ve ever grown our host base from a nominal perspective and consumers booked more nights and experiences than ever before. So, the marketplace is strong and we are continuing to grow. So, I would say that the consumer now may have less disposable income than they did historically, but they’re choosing to spend that income on travel and experiences, where during COVID it was more on Home Depot, renovating a house, so on and so forth. Today, the consumer’s strong. The consumer is traveling on Airbnb. And our hosts are looking at the opportunity to host to keep up with the cost of living and the cost of inflation, and it’s really a healthy marketplace at this point in time.

James:
And I think that’s fairly interesting right now because I think a lot of people’s perception is that it’s not right, because the transactions have slowed down, travel’s slowed down a little bit. And a lot of that’s sometimes just all mental where people are like, “Okay, this is going bad. I’m going to shift out,” and it kind of becomes this trend or in the headlines. They put the rainy day out on all these investments. Have you seen many hosts pull out recently because of changes? Even though it’s strong, I feel like we’ve been seeing some operators selling off their properties over the last six, 12 months, wanting to get out of the space, which really contradicts… If it’s strong, you’d almost want to keep your money there with the inflation and the other economic factors going on.

Jesse:
Yeah, when I speak to it, I speak more on a global perspective. And at the end of the day, more hosts were added in Q2 2023 than ever before from a global perspective. Now, consumer trends are shifting. So, consumers are starting to travel to different places. So, what may have been a good investment a couple of years ago may not look like a good investment today because consumers are looking to go to different places. So, I would say from a macro perspective, the marketplace is really strong, consumers are doing really well, hosts are doing really well. From a micro perspective, it just depends on where your investment may be. And the old rule of real estate, location, location, location, it really, really matters. So, some individuals may have bought homes in X, Y, Z market, and that specific market may be down a little bit year over year, but other markets are up year over year. So, from a macro perspective, the marketplace is strong. And obviously, there’s pockets that are doing better than others.

James:
Do you feel like right now since travel’s increased a lot globally that the US local market is slowing down compared to… You’re seeing some markets are doing better than others. Is it more of an international presence that’s still growing, or is it also locally still staying strong? I’ve definitely noticed when I travel overseas, the planes are packed and everything’s packed, but then when I travel throughout the US, it’s actually a little bit less busy in a lot of cities.

Jesse:
Oh, really? That’s interesting because every time I fly, James, there’s never a seat left on the plane. I don’t know about you. Domestic or international, I always somehow end up in 42B on Southwest because I’m in section C, to be honest. So, we are seeing it strong across the board. And as we announced in our last earnings call, the US is still growing. So, it may be growing in different pockets than it was during COVID, but from a macro perspective in the US, it is still growing. And obviously, some other places were later to open up after COVID, international, for example. People feeling more comfortable going cross border. So, that is doing really well. But I would say domestic is also doing well.

Dave:
Jesse, there are some pundits, me, who loudly believed this year that there is going to be risk of oversupply in the short-term rental market just because we saw it, like you said, really rapid acceleration of owners. And I get that total revenue is probably up, but on a per property basis, are there declines in occupancy rates?

Jesse:
What I really would like to speak about is more so Airbnb-friendly apartments and where we’re seeing occupancy in adoption of that space. So, when it comes to broader Airbnb, I think we’ve kind of disclosed in our earnings call how we’re doing, and I’ll stick to that data and I would say it’s strong. Obviously, some markets may be oversupplied. But where there’s supply, usually demand follows. So, that’s the greatest thing about the marketplace, supply and demand are kind of in balance to a certain degree. And obviously, during times of compression, things are more occupied than not.
But when it comes to Airbnb-friendly marketplaces, and maybe we can shift to that conversation, it’s really providing an opportunity for renters that haven’t historically had the opportunity to host to get their feet wet. I was looking at BiggerPockets today, actually, and one of the questions I kept on seeing is, “How do I get started? How do I get started? How do I get started? How do I get started?” And Airbnb’s never made it easier to get started in your journey and Airbnb-friendly apartments is really part of that opportunity to grow because you can now host your primary home part-time on Airbnb.

Dave:
Okay, cool. Well, so that is something we did want to talk about. So, can you just explain this to us? This is Airbnb-friendly apartments, and this is for primary residences exclusively? Is it a different product offering?

Jesse:
It’s a totally different product offering to a certain degree. It’s really getting back to our roots of Airbnb. When Brian Chesky started Airbnb in 2008, he started it to really pay his rent. Airbnb has been so successful, Airbnb has now basically been banned in 45 million rentals across the US. That’s the overall rental stock in the US. So, we wanted to create a product that allowed consumers, like Brian, when he was 28, to get started in their journey to keep up with the cost of living. So, we partnered with some of the largest landlords in the country, Greystar, Equity Residential, UDR, household names, Starwood Capital, Brookfield, so on and so forth. And we now market their buildings to our consumers for 12 month unfurnished rentals.
So, now consumers can go to Airbnb, find their next 12-month unfurnished rental that embraces and encourages them to host part-time. And once they move in, then they can start their hosting journey. And we’ve built all the tools to ensure it’s actually a primary residence, not an individual looking to rent a place and run a dedicated Airbnb in there. It’s really meant for the individual trying to keep up with the cost of living and get their feet wet in their investment journey. When I was 28 years old, when I was 35 years old, I lived in an apartment and I was struggling to pay my bills. If I had the opportunity to Airbnb it when I was traveling, or when there was a event in town, I could have paid the majority of my rent for that month by hosting one weekend. So, it’s a really new opportunity and it’s really catered to primary home individuals that want to host part-time.

Dave:
Okay. So, I just want to make sure I understand this. So, normal Airbnb people can and still do rent out their primary residence, but this new product is basically if you’re signing a new lease, you can sign a lease with a landlord who has maybe pre-approved you or is inclined to allow you to sublet or allow short-term rentals within your unit right from the get-go. Is that correct?

Jesse:
Yeah, exactly. So, it’s really creating a quality across asset classes. Most homeowners have the ability to Airbnb or sublet their home if they own it. If you rent it, most leases have a do-not-sublet clause in them. And there’s 45 million rentals in the US, which is 35% of the overall housing stock. So, if you’re a renter today, for the most part, you don’t have the same opportunity to capitalize on the benefits of Airbnb that a homeowner would. And so, this product is really catered toward the renter that wants the ability to make some extra income when they travel, which is the same as a homeowner today that has that opportunity. So, it’s really opening up and democratizing the idea of Airbnb and rentals that exist today in owned assets.

James:
When people are looking at this and they’re looking at this kind of product, have you seen any developers or just specific buildings really marketing for this to that they’re friendly… I kind of hear this as it’s for owner-occupieds, so a lot of owner-occupied are people living there as their primary, as a renter, they don’t want tenants coming in and out around them, but I guess if it’s one big community that’s all doing it, they’re way more open to it. Is this entire buildings or is this just more located throughout specific cities?

Jesse:
So, high level, all of our partners are starting to market the ability to Airbnb your home part-time on their websites. So, if you go to Airbnbfriendly.com, and you were to look at one of our partners’ buildings, there’s a link to their website. So, if you look at an Equity Residential building in Denver called the Theo, they are actively marketing the ability to Airbnb it part-time. With that being said, not everybody in the building does it. It only works for a certain percentage of the building. So, what we’re really, really focused on is ensuring that the people that are not doing it are having just as good of as an experience in the community as the people that are doing it.
And in a certain building, maybe 5% or 10% or 15% of the residents host on Airbnb. We need to make sure it’s a great experience for the other 95%, 90% or 85% of residents that do not do it. So, there are no dedicated buildings per se that 100% of the people are doing it. It’s just providing an amenity to the residents that live there that they’re now allowed to do it if they so choose.

Dave:
Jesse, this is a very interesting concept, very clever. And I want to ask you more about it, but I did want to ask you about if and how you ensure that it’s actually the person’s primary residence. Because you’ve probably heard of this concept of short-term rental arbitrage, where people sign leases and then are subletting out, and are doing this all over the place. Is there any controls against that?

Jesse:
Yeah, 100%. So, our partners enforce night limits. So, let’s take San Francisco at the moment. Currently, you’re allowed to host your primary home 90 nights a year in San Francisco. So, our landlords enforce those night limits on the residence, and it’s virtually impossible to have a rental arbitrage business if you’re only occupied 90 nights a year. It can help really offset the cost of living by hosting 90 nights a year, but the opportunity is really for the landlords to enforce these night limits on the residents to ensure individuals are not doing the rental arbitrage game that you mentioned, Dave.

Dave:
Smart.

Jesse:
The economics just don’t prove out.

Dave:
Yeah. Awesome. So, who should consider doing this? Obviously, people who want to supplement their income, to offset some of their rent payments to, like you said, begin your journey. If you’re interested in becoming a short-term rental investor, this sounds like a good first step. But what makes a successful host? If people are not currently short-term rental hosts, who should consider this line of business?

Jesse:
It’s interesting. I always thought it was for the 28-year-old that was traveling a lot and living a flexible lifestyle. We have a single mother of three in one of our buildings that is hosting on the weekends every so often to help fund her vacations with her kids. So, the use cases are up and down the spectrum. From the consumers of Bigger podcast, you’re thinking about getting into the real estate investing game in the STR space, there’s no better way to test it than doing it on your primary home. So, that’s obviously one use case. Another use case is somebody that travels for work a lot, or if you live in a market like Denver and there’s a big convention in town, you can go up to the mountains and pay for the entire trip. So, it’s across the board the use cases of individuals that do this. From the single mother of three, we have a active duty military in San Diego, she’s hosting to pay off her student loans and actually use the money to create a new business. She created a fitness studio for herself and she’s now doing it.
So, it’s up and down the spectrum. And to get started, it’s actually really, really easy. Airbnb has launched a bunch of new features and tools called Airbnb Setup and other things. And you can easily get started in these buildings. And our partners in these buildings help the residents get started with hosting. And you kind of learn what works and doesn’t work because not every market is the same. Consumers want different things for different markets. So, getting started is number one and using Airbnb Setup to do that. And then, you learn, you iterate, and things come up over time depending on the demand use of your unit.

James:
This is a very interesting concept and I’ve heard this touched on over the years, but it’s kind of like the pre-house hack. What a lot of people do, especially with the short-term rental, was they were optimizing these first-time home buyer loans. They can get into a property with 3%, 3.5% down, or sometimes even zero down State Farm programs. So, that allowed a lot of access for investors or new people to become investors over the last four years. But then, as rates have gone up, the mortgage payment won’t work, and I know the cost of rent’s a lot lower in major metro cities than the cost of purchase.
And so, are you seeing more of a trend right now because A, traditional short-term rentals just don’t mathematically work out? And B, I mean if you think about the average condo, let’s say, in Seattle is going to be like 600 grand, your down payment on that even with a low down is going to be $18,000 to $25,000, whereas you can probably rent that with first last and deposit and get into the deal for 6,000, which will increase the cash on cash return. Is that where you’re seeing some demand for this jump up because you just can’t traditionally do it with the FHA loan in a lot of metro markets right now?

Jesse:
I would say demand is coming from a lot of sources. Right now, it is basically cheaper to rent in almost every market in the US than it is to buy because of where interest rates are and down payments. And so, this is an opportunity for renters that aren’t able to buy yet to try to save some incremental money to get them into their home in the future. We’ve had a few of our hosts that started this way, and then they use the extra money they earned to actually buy a home, that they also host by the way.
The house hack, it’s 100%. I wish this was around in 2010 when I was struggling to save money for a down payment on a home. It was so hard. And I was blessed with low interest rate environment when I bought a home in 2015. It’s so hard to save money for a down payment, and this is a great way to kind of house hack that. And you can use the money to potentially get into that ownership, but that is definitely helping adoption of the program is the imbalances right now in the cost to own versus the cost to rent across the US.

Dave:
All right. Jesse, I only have one short-term rental, but the way I can mentally deal with it is that it’s not my stuff in the house. So, how do people deal with this? If it’s their primary residence and they’re living there, how do people protect themselves or rent out something that they’re also living in?

Jesse:
Yeah, that’s always a question we get. So, from a host perspective, a lot of our hosts store their special belongings, whatever that may be. And our partners have storage lockers, so our partners do offer storage lockers in a lot of buildings to the hosts, or our hosts lock a closet. So, small simple things can really enhance your security. And if something were to go wrong, which by the way, UDR is a large partner of ours [inaudible 00:23:36]. They’ve had over 10,000 nights in their portfolio so far it with zero issues. So, it’s kind of like the boogeyman in the closet kind of concern. We do have protections if for, on some forsaken reasons, something happens, like AirCover, where we protect our hosts in situations like that.

Dave:
Jesse, I mean it sounds like a very interesting strategy and hopefully it creates mutual benefit between guests and hosts. How much of this is a reaction to some of the regulations around short-term rentals that are mostly focusing on allowing primary residence rentals and in many places, not everywhere, obviously, disallowing or discouraging the investor driven short-term rental, taking up all the supply, I guess?

Jesse:
I wouldn’t say it’s reactive. I would say it’s proactive. Where regulation seems to be going with some of this primary home thing that is beneficial to the program to a certain degree, because that’s the nuance of the program, but really the integrity of it with or without regulation because our partners still have enforced night limits in markets that do not have night limits, they still do that, is really to create affordability for renters in today’s market. Because even though it’s cheaper to rent than it is to buy, it’s still really expensive to rent and that really has to do with just the lack of overall housing and we just need to build more housing. But it is really helping these renters afford their homes, and we’re really focused on that at Airbnb.

James:
And Dave, sometimes you just got to use the cashflow to buy new things. You’re saving a ton of money-

Dave:
That’s honestly what I do. I’m just like, “This is not my house. This is purely an investment. I’m just going to take the cashflow and I’m going to buy a new shovel because someone decided they wanted my snow shovel.” I don’t know.

James:
Jesse, as you guys are expanding this out, what regions are you guys really focusing on, or is there certain areas where this doesn’t really make sense? Every asset class, it can work in every market, but sometimes you avoid different markets. Like flipping, for me, I avoid different types of markets just because of certain things that impact the deal, and I could do it there, but it’s just not worth it. Do you feel this is going to be more affordable housing areas or more mostly focused on those metro expensive areas where that $100,000 a year to $150,000 a year renter is trying to subsidize it, right? Because back in the day, if you were making 100 grand a year in college, or at least when I was in college, I thought I was rich. Now you need four roommates. And so, do you see this more growing in the metro areas or every type of region?

Jesse:
You know what’s really interesting about that is it is totally different than house flipping? And I want to make that clear because house flipping is so localized. Here, it really does work everywhere. I think the question is what is success? And so, we have buildings in Addison, Texas, which is suburban Dallas, and there’s roughly 30 hosts in one of these buildings, and they’re making pretty good money relative to their rent. We also have buildings right in the heart of the Gaslamp District in San Diego, roughly the same amount of hosts. But what’s interesting is rents also kind of ebb and flow based on urban location, city center, suburban, so on and so forth. So, the percentage of money one can make is kind of relative to the location they’re in. So, it really works everywhere. We have hosts in Addison, Texas. We have hosts in Downtown Miami. We have hosts in Downtown San Francisco and we have hosts in Cleveland. So, it’s across the board. And it’s not really a flip, if you will. It’s trying to make incremental income to go buy a shovel, like Dave’s doing for his Airbnb.

James:
Yeah, I was more talking about different asset classes. Sometimes it’s just not worth it as much. I’m a firm believer, Airbnb’s location, location, location. If you’re going to start a short-term rental business in itself, it should be in an area that has demand or a reason people are coming there, not just to do it to do it. Because we have seen that over the last four years, people just went and bought a property because they could. But this is also not just subsidizing your rental, this is an investment strategy. Build up cashflow so you can build up some extra cash to go buy your next house. I think it’s a great pre-step for house hacking, but depending on how fast you want to move and depending on what you rate as success, that’s going to tell you where to go.
Because if you want to get out of the renter pool, but you want to be in the best possible area you want to focus on… If I was a tenant right now going, “Hey, I want to subsidize this and buy in two years,” from your guys’ analytics is being in those metro, it doesn’t matter or is it more like those metro areas are more attractive because rents are a little bit lower versus purchasing power, or there’s a bigger gap between there they can cashflow a little bit better and save more money versus affordable… A lot of the affordable markets, cost of rent and cost a buyer are very similar, so there’s not as much spread. Whereas I’m looking as the rent is the spread on this.

Jesse:
What’s actually really interesting is we’ve built a custom calculator for this program. So, we’ve kind of outlined what rents are for each one of the buildings and what you could make by hosting part-time. So, a consumer can go to a market… Because a consumer might not move from Dallas to Miami to potentially make an extra 500 bucks a month or whatever it may be, just making up locations. A consumer lives where a consumer lives. So, he or she can go to Airbnb-friendly apartments and look at our custom calculator and then kind of determine which building is right for them. So, obviously if you live next to American Airlines Arena in Dallas, you’ll probably make more money than you do in Addison, Texas, but then you have to take into account the cost of the rent in that building as well, which may be higher.
So, this custom calculator really helps our consumers understand what the underlying 12-month unfurnished rent is and what they could potentially make by hosting on Airbnb. So, I would just recommend that consumers of the show go and play with it and kind of see what the data is telling them because the data doesn’t lie. The data is based on historical demand in the market and we’re pulling in the actual rents from our partners PMS feeds. So, it’s really interesting. I mean personally… It also depends on their lifestyle. Do they want to be closer to the family? Do they want to be next to the convention center, X, Y, z?

Dave:
Awesome. Jesse, well, thank you for telling us all about this. I have to ask, with your very broad job, is there anything else interesting coming down the pike that our audience should know about in addition to the Airbnb-friendly apartments?

Jesse:
There’s definitely other verticals we’re looking at. We did our first ever Airbnb-branded condominium in Miami with The Related Group, where consumers can go and buy a condo, a second home, and Airbnb it so they know upfront that this condominium or vacation rental allows Airbnb and encourages Airbnb. So, that’s something we’ve already done. We’ve done a couple of those developments in Miami. And there’s a lot more under the hood that we’re going to announce that can’t announce it right now as a public company, but we are definitely expanding the concept. And Dave, hopefully I can come back on the show and we could talk about what we announced.

Dave:
All right, fine. We’re going to drip it out slowly. And so=

Jesse:
I apologize.

Dave:
… we would love to have you back, but we won’t force you into any SEC violations.

Jesse:
Thank you. My comms team really appreciates that, Dave.

Dave:
Yes. So, Jesse, is there somewhere people should find out about it? Do you just go on Airbnb and you can look for these places like you look for a traditional apartment?

Jesse:
You can go on Airbnb and you can go to the host landing page and find Airbnb-friendly apartments. The easiest way to find it is honestly just a Google Airbnb-friendly apartments, and it pops up at the top of the page and you can learn more. If you’re a consumer, you can look for your next rental that allows you to host. Or if you’re a building owner, you can get in contact with my team through Airbnb-friendly apartments, and we can discuss how it could benefit your program.

Dave:
All right. Jesse Stein, thank you so much for joining us.

Jesse:
Thank you.

Dave:
All right. Well, big thanks to Jesse. James, I have some questions for you. But before that, I just want to clarify. I asked Jesse a question about occupancy rates because it’s something I always want to know, and he explained after we were done recording that he can’t tell us that because literally today, within a few hours of recording this, is Airbnb’s investor relations call. So, he can’t disclose that information before the investor call. It is an SEC rule, so that’s why he was not able to answer that question. We will put a link to the transcript to Airbnb’s earnings call, so you can check that out. I will just tell you that anecdotally, we do see some evidence that occupancy per unit is down, but revenue is still doing pretty well. So, it’ll be interesting to see what Airbnb records this week.
James, what do you think of this concept of Airbnb-friendly apartments?

James:
I really do like it because as we go through different phases, because we’ve been hearing for the last 12, 18 months, I think I’ve probably said it, that Airbnb is really tough to get done right now with the rates as high as they are and the pricing has not came down. Median home prices creeping up, rates are up, it’s hard to do. So, this is just a way for if you want to get going and saving on your housing costs, that traditional house hacking method is you can get in and have a lower payment. The lower payment, which is your rent, is going to allow you to actually cashflow it to make it work. So, I do like it. It’s about adjusting how you do the investment to continue for it to grow. Airbnb is not dying, it’s just being changed right now as rates are too high.

Dave:
I think it’s a great idea because a lot of the STR regulations right now are in response to really high rent and the lack of affordable housing and housing shortage. And just to be clear, even with the increase of supply in the market, Airbnbs and short-term rentals make up about 1% of housing units in the United States. So, that obviously impacts people and some markets more than other, but it’s not dominating the housing market. But this seems like a really interesting and good balance. It helps maintain supply of Airbnbs, which obviously there’s demand for. People want to stay at Airbnbs, so having them go away altogether wouldn’t be good because that would probably just sense hotel rates skyrocketing. But at the same time, you’re not taking a potential rental away from someone else. So, this just seems like a really interesting way to adapt to ongoing regulation changes.

James:
Yeah, and people want more affordability in their lives, and so giving them that option of bringing… I mean credit card debts are at all times high. Everybody’s still spending a lot and things are crunching them. So, I think this is a great concept and it’s a matter of making sure… I will be curious to see what big buildings will think of this. Is there going to be more regulation sweeping through because tenants will complain?

Dave:
That’s interesting. Yeah, so you’re in a building with 100 units. If 20 or 30 people do this, are the 70 people who aren’t doing it going to be annoyed by all the short-term rentals?

James:
Will that building have a higher vacancy rate, which then they’re going to say, “No…” But there’s always a season. It could work for 24 months and then things change, then you got to pivot again.

Dave:
I just think this would work really well, and I have very limited short-term rental experience, just one. But a big problem in a lot of vacation towns is the lack of affordable housing. For people who work in the tourism industry, for example, this could work really well for places like that. So, I bet it’ll catch on. But yeah, I guess it will be a market-by-market, building-by-building experiment.

James:
Well, you know what, Dave? I have my first short-term rental coming live. I haven’t had one in seven, eight years. Mine’s coming live in two weeks.

Dave:
I was going to say, I was going to ask you, because you own a real estate business in every strategy, in every sector of real estate investing, but I’ve never heard you talk about short-term rental.

James:
It’s a lot more work, and I believe in it… It’s kind of like when people are like, “I don’t want to flip because it’s a lot of work.” We have a lot of doors, and so we just manage it in a traditional way. But there is a purpose. I’m going to be doing it. I bought a duplex in Bellevue. I travel a lot. I’ll probably be in there 12 nights a month, and the other nights I’m renting out. I mean, hotels are all-time highs right now there, and I think I can get 200, 300 bucks a night.

Dave:
Wait, dude, you can’t do this. You can’t do it. This was the only part of real estate investing where I was more experienced than you because I had one and you had zero. Now, if you get one, we’re going to be even and I have nothing on you.

James:
But that means I still have to operate it in an effective way, so I need to be coached first.

Dave:
All right. Well, good luck with that. I mean, it sounds great. Obviously, you’re traveling back and forth. It’s a perfect way to do it.
All right. Well, thank you all so much for listening. Hopefully this was helpful. And remember to join us again for our second episode this week where we’re going to be joined by Vacasa to talk about some of the best markets to buy a short-term rental in for the following year 2024. James, thank you for joining us, and thank you all for listening. We’ll see you next time.
On The Market was created by me, Dave Meyer, and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.