How to Trade-In Your Airbnb Without Getting Out of Real Estate

The last three years were a gold mine for investors in short-term rentals. Lenders approved loans based on projected revenue, and Airbnb and other intermediaries connected property owners with vacationers and remote workers, providing insatiable demand to fuel profits.

In 2020 and 2021, demand for second homes surged due to the pandemic. Stay-at-home orders opened the door for employees to work remotely, and low-interest rates made loans affordable. In 2022 when companies began calling workers back to the office, many converted those second homes to vacation rentals through Airbnb or VRBO, generating more than enough income to cover property costs.

For many, profits soared. From first-time landlords to full-time real estate investors, it seemed like there was enough room for everyone- until there wasn’t.

The collapse is so profound that investor-purchased homes fell 46% in the fourth quarter of 2022.

Why Short-Term Rentals Will Struggle in 2023

Rent Rates Are Too High: The perception is that short-term rentals are becoming less cost-effective than hotels. One of the top consumer complaints is cost, which rose an average of 37% in 2022. Price-sensitive consumers are returning to hotels offering more price transparency and a reliable check-in and check-out experience.

To remain competitive, Airbnb amplified its marketing efforts to court new property listings, intending to increase supply and drive down prices. According to AirDNA, ADR (average daily rates) for short-term rentals in 2023 is expected to be a dismal 1.7%. An oversupply of rental properties drives down the daily rate and occupancy, directly affecting investor profits.

Lack of Transparency: Another major consumer complaint is high cleaning fees and, in many cases, more tasks required at check out. To discourage owners from using cleaning fees to offset a lower daily rate, Airbnb began showing the total price of a proposed rental, including cleaning fees. The new algorithm also impacts how properties appear in the search affecting bookings and profits for owners.

Local Government Regulations: To address long-term housing affordability, many local governments restrict who can offer short-term rentals and add to the cost of doing business by requiring licensing and other compulsory fees.

Each of these changes negatively impacts investor profits. Add job losses, a recession, or other economic events that could further erode demand, and investors may no longer earn enough revenue to cover property costs.

Those without a backup plan or the experience and skills required to remain competitive in this dynamic market could face losses.

How to Stay In Real Estate Without the Headache of Short-Term Rentals

If you want to own real estate but find Airbnb rentals are no longer producing the profits you have come to rely on, a real estate syndication may be a better option.

Syndications give you partial ownership in a commercial property without the work. Apartment complexes tend to be safer than individual properties because the risk is spread across a hundred tenants or more. It can also provide income stability that short-term rentals lack because of the lease structure. Vacation rentals rely on travel trends and discretionary income, whereas multifamily properties produce consistent monthly revenue through annual leases.

You may even be able to avoid taxation on gains by transferring profits to a commercial real estate syndication when you sell. To learn more about real estate syndications and how to turn your time time-consuming rental into a profitable passive investment, watch our introductory video.

Enter your info below to get a free ebook copy of the "Bringing Value, Solving Problems and Leaving a Legacy"