Podcast 311: The State of AirBnB

Airbnb has been hit extremely hard by COVID-19 along with the hosts that rely on the platform for bookings. In this week’s podcast, we deep dive into the world of short term rentals during a pandemic.

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Show Transcription:

Eric Worral: (00:00)
Hey everybody, welcome back to another episode of RentPrep for Landlords. This is episode # 311. And I had to say it that way because I’m a fan of the band. And a funny little side note about that band is that when Google or Alexa say who’s singing this song? It’ll say three one one which I think is funny, but that is neither here nor there, right? But what we’re gonna be talking about today is the state of the short term rental market and specifically Airbnb. So a lot of us have talked about this, seen articles about this, but we’re just going to do a deep dive today into where Airbnb is at as a company and the impact of that on landlords who are doing short term rentals because obviously that is an area that has been severely impacted by COVID-19. So we’re going to be deep-diving into that right after this.

Voice Over: (00:54)
Welcome to the RentPrep for Landlords podcast and now your host, Eric Worral.

Eric Worral: (00:59)
So I apologize if I’m stumbling on my words here or there. Didn’t sleep great. Last night, a little guy who was making a lot of noise, but also I think sometimes in the morning, I’m trying to figure out this balance where I’m doing this like black coffee in the morning and then not eating until 11 trying to shorten my eating windows because I’ll be honest, I’ve been working towards my COVID-19 and I’m trying to get away from putting on those extra pounds. I do think that’s kind of a tough thing right now, especially if you’re somebody who isn’t going into an office and doesn’t have that structured schedule like maybe you used to. And I’ve found myself where things start getting stressful for whatever reason.

Eric Worral: (01:39)
You know, I’m trying to get work done and then there’s, you know, kid starts crying or you know, that pops up or my wife has a bunch of meetings and I find myself going right to the fridge and in the first half of my day, first two-thirds of my day, it’s like I’ll reach for snacks. So I’m maybe I’m getting, you know, carb type food. And then in the fridge, I might even eat like chocolate or something about these little leg, you know, chocolates. And there and then I find in the back half of my day I’ll reach for a beer. So if it’s like in the evening it’s like, you know, ah, I just need a beer. So I’m trying to break those habits. And one of the ways I’m trying to do that is just trying to short my eating windows.

Eric Worral: (02:15)
But I will say sometimes it feels like, especially with not sleeping well last night, that you know, you don’t feel as sharp sometimes. So I’m trying to navigate that and figure that out. But you know, that’s all a little bit of a side. I’m sure everybody’s got their little things they’re working on, but one of the things I’m working on is trying not to put on more weight out of lazy habits. So we’ll see how that goes. Luckily it’s a podcast so people can’t comment and be like, Hey, fatty, I see you’re gaining some weight. They’re, you know, or they mean things that people say on YouTube or other platforms, but that’s not what we’re talking about today. That was just a, you know, an unnecessary aside, what were we talking about is Airbnb and what the state of the company is, what the impact is on landlords and what the trends are in this area.

Eric Worral: (03:02)
So if you’re living under a rock, Airbnb is the largest short term rental platform on the planet. They have a really interesting business model because a lot of times when you’re looking at businesses, you want to assess like what kind of moat the business has and what the definition of a moat, or at least from my recollection is that a moat is something that goes around your business just like it would around a castle to protect the castle. Well, for your business, it’s like what is unique? What is proprietary about your business that creates a moat? A lot of times, you know, it might be a patent. A patent is a great moat net, you know, this cannot be reproduced unless, you know, it’s getting ripped off in illegal ways. But for Airbnb, they’ve had a really good moat in the sense that when you build out this platform, it requires two sides.

Eric Worral: (03:52)
And I learned this from Scott Galloway who I’ve commented about in the podcast before and NYU marketing professor, and he was explaining it that as you grow the user base that Airbnb requires a large user base and it also requires users, meaning like people that are using the platform to you know, get a short term stay. Maybe it’s me, I’m going out of town and I want to stay in an Airbnb. But then it also requires a large supply base. So people that are willing to put their rentals up on the platform in a short term rental fashion. So it’s really hard to mimic the platform itself because it requires both of those things. If you don’t have people like me that use it just for a vacation or going out of town, then you don’t really have the demand.

Eric Worral: (04:40)
And then if you don’t have the supply of people with the rentals, like let’s say I’m, you know, a year from now I’m going to go to Myrtle beach. If there are no rentals on Myrtle beach, on Airbnb platform, then I’m not going to use the platform. So it requires people from all over the place because let’s say you own, you know, Myrtle beach rental properties, you are not just relying on Eric from Buffalo, New York to fill that rental. You’re relying on people from all over the country that might be traveling into Myrtle beach looking for a rental property. So as far as the moat, they have a very strong moat because it’s very hard to mimic that business model because of the factor requires both the supply and demand on both sides to be high to make it worth it for somebody to either join the platform as a user or join the platform as a host. So they do have a really, really solid business model, but it is probably one of the worst as far as COVID-19. So since COVID-19 has happened they’ve had to make some pretty drastic changes. And I’m reading an article here on cnbc.com published by Deirdre and Salvador titled Airbnb to Lay off Nearly 1,900 People, 25% of Company.

Eric Worral: (05:53)
So, they’ve had to lay off this is as of May 5th, and it says they plan to off nearly 1900. Employees which is about 25% of the company as they have 7,500 employees and they will help projects related to hotels, transportation division, and luxury stays. So right off the bat, like if you’re thinking, you know, how does this impacting rental properties? Well if you’re somebody who was planning on being like a luxury stay for Airbnb, that’s definitely not happening in the future. So it says the layoffs were first reported by the information which reported the news re-broken employees by CEO Brian Chesky. I did breathe through his entire note, but just some kind of basic highlights of it is that they, us employees laid off, we’ll receive 14 weeks of base pay plus an additional week for every year they worked at Airbnb. And they are also providing 12 months of healthcare for their employees. But I, you know, desperate times desperate measures kind of situation.

Eric Worral: (06:47)
So that is why they’re laying people off. As far as you know, the profitability of the company while the company, I said heading into this year, the San Francisco tech company was eyeing an entry into the public markets to do an IPO and the company had lined up bankers to lead the offering, which would test whether Airbnb could live up to its 31 billion private market valuation from 2017 instead, the company is raising 2 billion in new debt funding at a valuation of 18 billion. So almost half of what it was valued at at 2017. The wall street journal reported in February that Airbnb lost 322 million over the first nine months of last year. After reporting a 200 million profit in 2018 as it ramped up spending. So 2018 they reported a $200 million profit. 2019 they lost 322 million due to increased spending I as far as the notes that they are raising their, or I should say the capital. Another article here by Deirdre on CNBC is saying that the initial 1 billion and fresh capital came in and then they raised another 1 billion and it seeks to pad its balance sheet to get through COVID-19. That’s being, that additional 1 billion is from Fidelity, T. Rowe Price, and Blackrock are financing as well as Oaktree Capital, Apollo Global Management.

Eric Worral: (08:17)
So, what are they doing with that money? And they are setting aside 250 million of that to reimburse hosts. So the way that works, I, if I can find it on here, I’ve got a few articles open up, but I believe what it is, is if the stay was scheduled before the COVID head, so March 14th, they will be refunded 25%. Yeah. Here it is. So it’s saying that to cover the costs of coronavirus cancellation specifically Airbnb will pay host 25% of what they normally were to receive through their cancellation policies. The payments will begin to be issued in April. So if you had an Airbnb as a host and you had a bunch of you know, trips planned between March 14th and April 14th, you will get 25% of what you normally would get for the cancellation. Airbnb has also has a $10 million fund.

Eric Worral: (09:09)
They’ll go towards the company, super host and long-tenured experience hosts starting in April. These hosts can apply for $5,000 grants. So when it’s the Superhost, they are obviously trying to, you know, take care of them because they know where their bread is buttered by these people that are, you know, maybe have 30 properties on there that are always being filled up. And then they are also making massive cuts in the company as well to try to kind of just float through this a weird time period. So one of the things that I thought was interesting is an article from money.com by Gabriella Cruz-Martínez. The title is experts say that Experts Say Struggling Airbnb Hosts May Be Forced to Sell Their Properties.

Eric Worral: (09:49)
So as the Coronavirus continues to wreak havoc on the economy and travel industry, Airbnb, homeowners are starting to wonder if they’re going to be able to make their next mortgage payment. It’s a worrying times at CJ Hunt and Airbnb host in Hampton Roads, Virginia. There will be a lot of shifts in some people that depend on Airbnb income may not make it, but Hunt has a plan. Despite having an onslaught of Coronavirus related cancellations through August, she slashed her prices up to 35% and put three properties. She was preparing for Airbnb on hold to avoid further economic loss, but it still might not be enough. The mortgage bankers association recently revealed that the scale of the forbearance jumped to 6.99% from 0.25% on March 2nd totally at least three and a half million American homeowners that are currently in forbearance due to Coronavirus related hardships.

Eric Worral: (10:39)
So you know, this article is kind of highlighting the fact that people that are didn’t diversify and they’re fully all in on Airbnb and then it makes sense, right you, your money that you can get on there is a lot higher, especially if you’re in a high demand area here in Buffalo. Kind of tougher. I mean, there’s a few spots that you could run an Airbnb and get pretty good a return on it, but if you’re in a tourist location, especially like Niagara Falls or something like that, and you’ve got a nice property, then why would you, if you’re willing to go through the headaches and the extra work of doing Airbnb, because of course, it’s more work than a standard, a longterm rental property. You know, some people can double, triple their income that they would make as a rental property versus a short term rental.

Eric Worral: (11:21)
So it’s very attractive. But unfortunately, a lot of people are going through this hardship right now as they try to figure this out. So this article is basically saying that a lot of these people may be forced to sell their properties because it may be very difficult to get somebody to move in right now. Depending on the location, especially if it’s a tourist location, right? Like it’s not like people are really moving there. They’re usually coming and going. So there may be an influx of properties hitting the market, especially in tourist-heavy areas that were former Airbnb type properties. And it’ll be interesting to see how that affects the real estate markets. But I think the 250 million set aside to help pay for cancellations, I mean, it may take out the sting a little bit, you know but you’re still only getting 25% of what they would normally receive through the policy and payments will be issued this month. And that’s only for anything that was set up before March 14th. So, which I agree with, like, they, you know, if you’re still trying to, you know, set up stays after March 14th, but people are canceling, like that’s kind of obvious.

Eric Worral: (12:32)
So I reading a story here, it says the Airbnbs relief fund will help to some extent, something is better than nothing. Says Jim Prugh who manages 4 vacation rental properties in the small town of Lindsborg, Kansas. I didn’t know that Kansas had vacation rental properties. I know that’s mean, but I’m like, who’s vacationing in Kansas? Right? but it says it applies only to those who have two or fewer properties. So that leaves me out as a small business owner of vacation rentals. I decided whether Airbnb is good enough to work for me. Currently, I removed my listings with Airbnb, so it was really interesting that I didn’t realize that it’s only two or fewer properties that there are helping out people. So really it’s interesting that they’ve decided that that middle segment is not worth helping, but they want to help people who have two or fewer properties.

Eric Worral: (13:22)
But if you had three to 10 and you’re not a superuser you’re kind of left out to dry. That’s, that’s pretty interesting. Airbnb’s relief on will help you with his bookings. Calendar cleared for March and April. Frugal has lost $3,670 for five Airbnb cancellations in $2,772 to eight cancellations through his website. Fortunately, his properties don’t have mortgages or loans against them, but a hundred percent of the income he receives your Airbnb offsets, costs and utilities including maintenance, internet, telephones and property taxes, addition, name a few. He said, we are committed to doing everything we can to support our community these difficult times. We want to thank all of our hosts and guests for their understanding of representative for Airbnb told money when asked about their response to the pandemic. According to Airbnb, data analytics from Airdna urban cities have suffered the most by Coronavirus.

Eric Worral: (14:10)
New York for example, as bookings drop as much as 66% in March compared to last year. And meanwhile, rural coastal, all locations are seeing a slight rise in bookings as people try to escape congested cities. So that’s interesting. So if you had an Airbnb that was outside of New York, you might get somebody who’s like, yeah, I gave it to me for two months because I’m trying to get out of New York City. So that’s pretty interesting. Stat they’re Airbnb hosts in the United States may be eligible for some Coronavirus impacted small business loans and grants set out by the cares act, including the paycheck protection program, PPP, and the economic injury disaster loan program. While some of these relief programs have run dry and funding and have applications due to high demand. Congress recently approved a 480 billion bill to further aid small businesses and hospitals. So Francisco Riviera who manages eight coastal properties in Puerto Rico says that despite this setback, he’s positive by Airbnb’s management of the situation. Some hosts are offering their Airbnbs free of charge, a two-hospital staff or central workers that are in the front lines battling this outbreak. While some of our hosts are scared of what this could mean financially, I think we will recover. I’ve actually had some people reach out to me asking how they could become a part of Airbnb to help.

Eric Worral: (15:25)
So pretty interesting articles. And a very interesting time for people that are all in on short term rentals. I’m sure they probably wouldn’t use the word interesting, but as far as these articles, I will link to them today’s show notes. But from the sounds of it, I’m not going to be something that’s going to be bouncing back anytime soon. I think it’s a very optimistic viewpoint that the CEO has, that people, he thinks there’s going to be a pretty high demand for people wanting to travel after this. I think the problem with that sentiment is this, this is not a clear cut and dry situation. Like it’s not like unless all of a sudden, you know the vaccine comes out and COVID-19 is cured and even if you get it, you’re going to, you know, walk into a CVS or Walgreens and you’re, you’re fine.

Eric Worral: (16:14)
Unless that kind of thing happens, that resolution, I think this is going to be a very long dragged out type virus pandemic. And I think that people are going to avoid airports. And they’re also going to probably avoid travel and leisure. You know, as much as people want to get out and get away. I think that some people sure will just say, screw this, I’m, I’m going on vacation. We’re going to get some remote Airbnb. Right. But I do think that a lot of people would just say, you know what, we’re going to skip vacation this year. We’ll save that money because also we don’t, you know, maybe a job is in flocks or something like that. So it’s really like two parts, right? They are a luxury service because you don’t need to go on vacation and go get an Airbnb.

Eric Worral: (17:01)
So if money is tight because of job uncertainty, it’s affected that way. And then also they’re affected because of travel bands and different things that are going on. Are people not wanting to travel. It’ll be interesting to see also what happens. I was tracking a little bit with Airbnb what their IPO was going to launch at, cause I did think it was a really solid business model. But man, it’s probably from the sounds of it, it’s already almost half based on the valuation of the debt that they collected in at I think it was 18 billion and they were valued at 31 billion. I said those numbers were probably wrong, but I apologize. Really interesting though. I, if you guys have any insights or comments on this always, you can leave a comment on the blog post where we post these and yeah really, really appreciate you guys following and yeah, we’re gonna get through this and lots of black coffee this morning and yeah, just keep your spirits high and yeah, just make sure you’re taking care of yourself and your loved ones and treating each other well and doing the best you can through this.

Eric Worral: (18:04)
All right, guys, if you do have short term rentals hopefully you learned something from this. And yeah, please share your feedback, share what your strategy is. What are you planning on doing? How are you gonna get through this time? And I hope you guys managed to have a good week and take care of yourself and I look forward to catching up with you next week. All right, guys, take care.