Airbnb Rentals: Everything Landlords Should Know
There's a lot in the news about Airbnb rentals and a declining market for landlords. Those hoping to buy properties and rent them out on the online marketplace are wondering, is there still a market for Airbnb landlords?
As with much of the news today, falling revenues for Airbnb listings went viral. Airbnb countered with a statement claiming the data was incorrect. So, who's right, and should you be concerned about short-term rentals?
Let's explore the facts, which markets are being affected, and if there is cause for concern.
The viral Twitter (X) posts
Nick Gerli, the CEO of Reventure Consulting, started his Twitter post (now known as X) with, "The Airbnb collapse is real." His post listed 15 cities where revenues dropped from almost 35% to nearly 50% when comparing May 2023 to May 2022. The source was AllTheRooms, a brand that provides short-term rental analytics.
Economist Jamie Lane, senior vice president of research at AirDNA, a short-term rental data and analytics provider, responded with his own post. According to Lane's data, though revenue is down, it is nowhere near the numbers cited by Gerli.
For instance, the city seeing the most decline is Sevierville, TN. Gerli lists the drop in revenue at -47.6%. Lane cites the decrease in revenue at -9.4%. Overall, AirDNA notes that the 15 cities listed experienced an average -3.6% drop in revenue, not -40.3%.
Not to be left out, Airbnb shared information from their Q1 earnings call in a statement to Newsweek. They claimed that more guests are using Airbnb than ever before. They also noted their booked nights and experiences grew 19% in Q1 2023 compared to Q1 2022. Nights and experiences represent the total number of nights and the number of seats for experiences booked in a certain period.
So, where does the truth lie?
Market trends & Airbnb rentals
Though no one seems to be in agreement as to the extent of the downturn, they do acknowledge a softening in the market. When interest rates were at their lowest, home purchases rose, bolstered by the Pandemic. According to Statista, 6.12 million homes were sold in the U.S. in 2021. Many people bought them as investment properties, including long-term and short-term rentals.
According to AirDNA, as reported by Time, the number of properties listed on Airbnb rentals in September 2022 reached 1.38 million. This represents over 23% more listings compared to the same time last year. As much of the market shifts to short-term rentals, the supply has started to outweigh the demand in certain market segments. In these areas, with the greatest supply growth, hosts are seeing the biggest declines in revenue.
Markets most affected
According to AirDND data, some of the cities experiencing the greatest reduction in Airbnb revenue include New Orleans; Orlando, FL; Sevierville, TN; Austin, TX; Panama City, FL; Lakeland, FL; Seattle; San Antonio and Phoenix.
But there are also cities experiencing increasing revenues per listing. These include Salisbury, MD; Myrtle Beach, SC; Breckenridge, CO, and Denver.
And then, there are places like New York City, which have all but banned short-term rentals. The new regulations, which went into effect on September 5, 2023, require hosts to register with the city and face fines if they violate the rules. These rules include that the host must be present if renting out a home for less than 30 days. Additionally, no more than two guests can stay, and they must have complete access to the home, as reported by The New York Times.
As evidenced by the Big Apple, it's essential to stay abreast of cities considering restrictive regulations. Other cities that adopted challenging restrictions include Oahu, HI, Atlanta, and Breckenridge, CO.
Markets showing promise
While purchasing a home and expecting immediate revenue from Airbnb rentals may no longer be a guarantee, looking into trends and developing a strategy can help improve success rates. In February 2023, AirDNA announced the best places to invest despite complex market conditions. They looked at rental demand, revenue growth, regulations and investibility. The latter refers to the expected income from a property in relation to the cost of buying it.
The outcome may surprise you.
The leader of the pack was Fairbanks, AK. Visitors travel to the Land of the Midnight Sun to enjoy nature's beauty, and it pays off for landlords and Airbnb rentals. The average revenue in 2022 came to $49,000, with an occupancy rate of 65%.
The occupancy rate is the number of nights booked divided by the number of available nights.
Illinois claimed the next three hot spots, with Evansville, Rockford and Springfield. Of these three cities, Rockford posted the highest average revenue, with $39,000, and an occupancy rate of 61%.
Properties showing promise
Another investment strategy leans toward unique properties. These special places may help your property stand out in a crowded market, differentiating you from the rest. For instance, a host, Brian Wong, shared the benefits of unique properties with The Journal Record.
Wong owns an A-frame tiny home in the Catskills, NY. Compared to their previous property in Joshua Tree, the unique tiny home is doing very well. The occupancy rate is 71%, exceeding the average 48% rate in their area. Additionally, their nightly rates range from $232 to $440.
The current economy
As we edge toward a possible recession that may never come, some short-term rental properties may offer better revenue and security by transitioning into longer-term options. As the saying goes, it's "location, location, location," as well as timing that makes the difference.
Fox Business reported that Airbnb saw a slowdown in the number of nights and experiences booked in the second quarter of 2023. They noted that many rentals are not booked most nights, and they are encouraging hosts to lower prices.
When purchasing Airbnb properties, be mindful of the area's market and pay close attention to other rentals. Conducting market research, looking at comparative properties and developing an effective pricing strategy are key to your success. And, if you haven't yet embraced social media marketing, now's the time.
As you can see, it's not all good news in the short-term rental arena, but it's also not all bad. Make your own decisions about purchasing your Airbnb rentals while remaining mindful of market trends.