MOVIE NIGHT INVITATION
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AIRBNB IS MESSING UP EVERYTHING (AND HOW YOU CAN CASH IN ON IT)
Every day, it seems that a newly minted 25-year-old billionaire attempts to disrupt what we thought was an unshakable industry with their newest innovative idea. Some ideas flop, but some change that industry forever.
It’s important for us to remember that even behemoths like the hotel industry and real estate as a whole are not immune to disruption. In fact, they’re ripe for it.
My wife and I recently decided to add a short-term vacation rental to our portfolio of investment homes in Phoenix. Early in our search, we considered purchasing a privately-owned condo that was located within a bustling Scottsdale hotel. As a bonus, the hotel would handle all of the management for us – all we would have to do is collect checks. Score! Right?
Upon searching pricing trends and comparable sales, we found that the demand for hotel-managed units has been diminishing and prices are dropping. The location is desirable, and the hotel is trendy, so why did all the signs point to “no?”
And then it struck me: Buying a unit that the hotel manages means putting in a lot of faith that the hotel can 1) keep your unit filled and 2) continue charging rent at a price that is profitable to you.
Thanks to Airbnb and similar apps, anybody can independently rent out their homes, bedrooms, condos, Airstreams, teepees – you name it – and every rental directly competes with the hotel industry. Therefore, trusting a hotel with our investment would be a bad bet.
So my wife and I have decided to go the Airbnb route. That way, we could cut out the middleman, because we know that the middleman isn’t going to keep up with our increasingly connected society.
We’re not alone in this decision. Vacation rentals are no longer the exclusive playground of rich investors. Thousands of average people like you and me are stepping into this investment pond due to it’s very low barriers to entry. Take note of the chart below showing the ever increasing number of new AirBnb listings each year. Also note that this site didn’t exist 6 years ago!
So we are going along with the crowd on this one and here’s why: In the midst of a world and an industry that is changing crazy fast, I feel safe betting on the choice that empowers us, the owners. How?
- We have options. I hate managing the house or it doesn’t rent as often as I had hoped, I can convert it to a long term rental and put a yearlong tenant in place (a well-established game that I know well).
- Phoenix is growing. Last year, Phoenix was among the fastest growing cities in the country. The market will go up and down, as we all know, but with a long enough time frame, the risk of loss is very low.
- You cannot disrupt the fundamental idea of housing. Shelter is shelter, and people have to live somewhere. I just don’t see technology erasing the value of owning land in a desirable city like Phoenix. The same cannot be said for most other investment opportunities.
- The value of the asset is not purely based on the price of rent. Housing prices (unlike condos built within hotels) are driven by supply and demand on a scale greater than income vs. expenses. The fact that people keep flocking to Phoenix and we only have so much land means prices can still go up, even with lower rent. For example, if Spring Training left Arizona, that could decrease vacation rental rates in nearby areas. However, the value of the homes would not change. The home market is much bigger than the demand created by Spring Training vacationers.
I’m excited to continue to share my Airbnb journey as well as dive even deeper into specific examples, case studies, and how to’s in the months to come. If you’re interested in bringing an Airbnb home to your investment portfolio, give us a call today at 480-378-6700 or email us at firstname.lastname@example.org and reference this article.