The Danger Of Being An Airbnb Dependent Landlord

Q: I’m looking to buy a rental property.  At the prices I’m seeing for properties, the rents won’t come close to covering my mortgage and costs.  My cousin gets a lot of money for his place when he rents it on airbnb.  I feel more comfortable now knowing that.  Do you think airbnb is the way to go? Tim, West Orange, NJ

A: For 6 hours on Oct 4th 2021 Facebook went down for 6 hours.  There are many businesses who are dependent on Facebook who lost revenue during that outage.  Likewise, in recent years there are many investors (often newbie investors) who overpaid for rental property hoping to cover their expenses and debt service by renting out a home or apartment at a higher daily amount on airbnb than they would reasonably expect to get renting for a longer, more conventional period of time.  I worked for several Internet companies during the first dot com boom including a stint at a company that is now part of google.  Online platforms like all businesses come and go, but a landlord’s expenses and debt service are ongoing even if the platform you banked your investment on falters, is replaced, is acquired or faces additional competition from other alternatives.  When you buy a rental property, you are buying not only an income generating asset but also an expense-generating asset.  If you borrow money to buy your property, you have to pay your mortgage every month, there are also property taxes, maintenance and ongoing capital improvements–it’s a long term commitment.  Buying a rental property based on the hope of higher rents that are dependent on the whims of one online platform like airbnb is financially dangerous in my view.  The short term rents you may be able to get on airbnb this month may very well be lower next month, near year or during a different season of the year for lots of reasons you can’t control.  I don’t think it ever makes sense to buy a rental property that you cannot reasonably afford to maintain both in good times or bad times.  Thanks for your question, Tim.

For more real estate tips and information visit my blog at geraldlucas.com.