We reserved our kids’ spots in the for a June 2020 week-long adventure in the Camp Kennedy Space Center program. It’s a day camp, so we did what we usually do when visiting a new area — we booked an Airbnb. That was back in January.
Earlier in May, we were informed that “space camp” would not be happening. Our boys were seriously bummed. Not only did they lose the opportunity to play astronaut for a week, but they also weren’t going to be able to see their friends again. The plan was to share the Airbnb with another family that we’ve traveled with before, and their kids were going to be campers, too.
There’s one person that might be even more bummed than we were: the Airbnb host. The refund policies have been adjusted to make canceling due to anything COVID-related much easier. I’m now the proud owner of an $850 Airbnb credit, and the property owner lost a week-long reservation just five weeks out from the anticipated start of the stay.
I’ve wondered how Airbnb hosts are holding up during this crisis, and I reached out to Boris and Susan of BuildYourBNB.com to see how they’ve fared thus far. I was impressed with the pivots they’ve made to not just survive but practically thrive despite the huge decrease in travel nationwide.
How to Thrive with Airbnb Rentals Amid the COVID-19 Pandemic
As the pandemic unfolded in the U.S., there were numerous economic consequences for nearly everybody. For many professionals, including physicians, who have been pursuing real estate investing as a way to build financial security, there’s been a tremendous impact as people have found themselves with properties in which the income stream has dried up yet the mortgage payment continued to accrue.
A few months ago, we wrote an article here describing how we’ve used short-term rentals as our real estate investment strategy and how it’s worked for us over the years. Since the pandemic began to spread in the U.S., it has effectively shut down the entire travel and hospitality industry. As a result, for many Airbnb investors, they’ve seen their properties go from 90% occupied at the start of the travel season to nearly empty virtually overnight.
We, ourselves, are in a unique position in that we have 9 units with 36 listings between them spread out in 5 different cities, so we’ve been able to watch this unfold in different markets and test our varying strategies to make the most of this unfortunate situation.
Fortunately, we’ve been able to take steps that allowed us to pivot and actually thrive during the last couple of months – covering all of our costs and still keeping the properties somewhat profitable – which under the circumstances is the best one can ask for.
We wanted to share our experience so anyone who’s either an existing real estate investor or a future one can better understand the tools you have at your disposal and make decisions about their own strategy.
We’ll break this up into three sections:
Long-Term Impact & Consequences
The reality is that the crisis has had an effect on all types of real estate investors – both with long-term and short-term rentals.
Arguably, for investors with long-term rentals, the situation is also difficult. If your tenants are unable or unwilling to pay rent, the tools you have at your disposal are limited. If all goes well, you can find a common ground and come up with a payment plan that works for both parties.
If not, there isn’t a whole lot else you can do in the short-term – other than ask your own lender for forbearance. However, that comes with negative consequences as it’ll be considered a black mark on your record for a little while.
Short-term rentals are a bit different. First, it’s worth highlighting that for short-term rentals, the impact was quick and significant – but not evenly spread.
As properties in urban areas saw their occupancy decline overnight, there was actually an increase in demand for more remote, drive-to accommodations as people looked to book them for several weeks or months at a time to isolate themselves.
If you owned property like that, you have likely seen a small dip in demand when the country initially shut down followed by an increase in longer-term bookings. So traditional vacation rentals actually fared OK – and will likely continue to do well as people likely switch to more domestic travel for the foreseeable future.
However many others, including ourselves, have properties in urban areas who don’t necessarily cater to the leisure traveler. As such, our demand dried up and did not necessarily recover on its own right away.
Making Adjustments to Thrive
As the situation unfolded, most hosts had to figure out how to deal with the new reality. The objective for most was simple — cover all of your holding costs (mortgage, interest, insurance, property taxes) and hold on until the situation begins to improve.
As the situation continued, we took a number of immediate steps:
- Increased the maximum duration that guests can stay from 5 nights (our regular limit) to 90 nights to encourage longer-term stays while also giving us flexibility to go back to regular short-term rentals when things begin to improve.
- Tweaked the pricing to offer discounts for multi-week or monthly stays.
- Begun to explore additional channels outside of Airbnb, such as FurnishedFinder.com – which is a popular site for connecting with travelling nurses who are looking for temporary accommodations during their assignments.
- Implemented and highlighted more intensive cleaning and sanitizing procedures throughout all of the properties.
What happened as a result is that we’ve quickly begun to fill up our listings with people who were looking for accommodations for 2 to 4 weeks or a bit longer.
Some guests are medical professionals. Others are students who have been kicked out of their dorms. A number were airline employees who were caught in limbo between cities.
Although the tourist and business travel market dried up, there were no shortage of people that have been displaced suddenly that needed a place to stay that was furnished, flexible and reasonably priced.
And then there are quite a few people who were local who looked to isolate themselves for one reason or another and just needed a safe, affordable place to stay for a couple of weeks.
Although the RevPAR (Revenue Per Available Room) went down quite a bit with these reservations, it was still a bit higher than with traditional long-term rentals and allowed us fill in our listings quickly.
As a result, our occupancy across all of the properties remained at above 90% through March and April and is on track to do the same in May. Between all of the properties, we’re able to stay above break even point even during the worst of it.
Support Your Team
We’ve provided our housekeepers in different cities with additional directions on how to sanitize the property daily and highlighted this in the listings to let the prospective guests know what’s being done.
We’ve also communicated to our housekeepers that we’ll continue to support them through this and instituted a floor pay. Whereas before, their pay was typically dependent on the number of turnovers or days worked, we’ve let them know that even as we have more longer term stays that reduce the need for daily turnovers, they’ll continue to get a fixed pay throughout this entire crisis that’s about 80% of the regular amount.
This was key because these relationships are vital to the long-term success and the people on the other end are the most vulnerable to the crisis.
So while it may be tempting to cut their work as booking revenue comes down, I think it’s wise to provide everyone with stability until things begin to return to normal — if you expect to continue to operate in the short-term rental space.
Long-Term Impact & Opportunities
It is my opinion that the consequences of this crisis will be felt for some time to come. Regardless of whether the government “lifts the lockdown,” people will be hesitant to travel until a vaccine is widely available and adopted or herd immunity is achieved.
I think that under the best of circumstances, we’re looking at a year or so until this is more under control.
In the meantime, we’re likely to see economic pain continue to depress the hospitality industry and the real estate market.
That said, for real estate investors, it represents an opportunity not seen since the financial crisis over a decade ago:
a. For one, real estate prices have been unsustainably high to the point where in many markets, it is nearly impossible to buy and cashflow a small multi-family property. Yes, short-term rentals made it possible to be profitable, but ideally, any multi-family property should also be underwritten to work as a long-term rental so you have a backup plan.
For better or for worse, I think we’re going to see a significant impact on the real estate market in the coming months as the sellers begin to be more anxious to get cash out of the market and the buyers are more hesitant with using their depleted cash reserves.
b. We’ll likely see a significant number of short-term rental properties shut down or be converted to long-term options. Many existing hosts don’t have enough reserves to manage the temporary but significant financial blow or decide that they don’t want to deal with it anymore and simply convert their listings to long-term rentals.
Paradoxically, this may actually lower long-term rentals, as more inventory will come online. On the flip side, the lowered supply of short-term rentals may actually increase the average daily rates for the short-term rentals that remain on the market.
What are we thinking for ourselves?
First, as real estate investors, we see the emphasis in underwriting any acquisition with a Plan A, Plan B and Plan C.
Even as we’re continuing to look at properties that can be rented on a short-term or mid-term basis, we want to make sure that they can also thrive as long term rentals or have multiple types of tenants they can cater to.
Second, we’re not in a rush. While we may see some opportunities come up in the next few weeks, we will likely wait towards the second half of the year before beginning any additional acquisitions.
Third, we’ll likely expand beyond just urban markets to also focus more on traditional vacation markets. Especially over the next few years, we expect that people will remain hesitant about traveling abroad for their leisure and instead will seek out places they can go to domestically with their families for vacations.
We remain bullish on short-term rentals as a long-term investment strategy and will be spending the next few months on research, analysis, and forming the strategy, so we can get everything in order for when we are ready to act.
To sum it up, once everything settles down, for those that are prepared, there will undoubtedly be significant opportunities to explore and act on.
About Boris & Susan
Boris & Susan are experienced Airbnb hosts and real estate investors hosting close to 10,000 guests per year around the country and managing their properties remotely while working full-time.
They write more about their experience, as well as help other people acquire, launch and manage successful short-term rental investments at www.BuildYourBnb.com.
Drop by to say hello or email them at [email protected] with any questions you may have!