6 minute read
Since the beginning, my real estate investment strategy focused on building and renting out freestanding, single-family homes. My strategy is not unique. I felt these properties presented the best opportunity to benefit from both stable rental streams as well as capital appreciation. While over three quarters of my portfolio consists of single family homes, I did in fact purchase five apartments as a hedge against potential market downturns, given apartments traditionally fare better during adverse market conditions.
Three of these five apartments are located in the same property complex. At the time of purchasing these properties, they were independently operated as fully serviced apartments. This was a sufficient draw for me, despite there being negligible capital growth with owning apartments compared to freestanding homes. My main contributions would be the purchase price of the properties, plus a negligible amount of my time every quarter to attend and vote at annual general meetings held by the service company. In exchange, I would receive an above average rental rate which, at the time, was attractive given Perth was moving deeper into a depressed real estate market. Also, I didn’t need to bother myself with finding new tenants or addressing tenant complaints, as that was all taken care of by the service company.
For those of you reading this and thinking this is too good to be true, it genuinely was… until it wasn’t. From 2015, when I initially purchased the properties, until February 2019, everything was going swimmingly as far as these apartments were concerned. I enjoyed steady returns and the only inconveniences were minor maintenance issues arising outside of the service agreement with the service company. Then, in February 2019, we received an unwelcome surprise with the news that the service company had filed for insolvency and would shortly be commencing liquidation proceedings.
At this point, things started to go off script. As landlords of these apartments, we were subordinate to other creditors of the property complex, so our ability to get the attention of the liquidators was near impossible. A further wrinkle was that the property complex was zoned for short-stay living, meaning it was not possible to convert to longer-stay accommodation without a council review and approval process, as well as a majority decision from the landlords in favor of changing the zoning requirements.
This is a pretty bad scenario for any landlord. Even in a simple case where a tenant is vacating a property, every day that the house remains vacant results in lost income and increasing costs coming directly out of your pocket. In our case, the issue was compounded by the fact that there were three apartments vacant, and all the sales and marketing undertaken to promote these apartments disappeared along with the service company.
The Solution To Our Problem: Airbnb
Around this time, some friends of ours mentioned that they had recently listed their property on Airbnb. Up to this point, the extent of my knowledge on Airbnb consisted of some cursory glances at some online ads, as well as some passing remarks from my son when recounting some trips he took with his friends. It is somewhat embarrassing to admit my lack of knowledge, given by this time, Airbnb was well on its way to achieving unicorn status.
To provide some context, this is a company that employs 6,000 people globally, has a global turnover of approximately US$4 billion, and is being touted as one of the best IPO opportunities with a potential market valuation of US$35 billion (these are 2019 figures; at the time of writing this blog post, Airbnb is yet to IPO and has a market valuation closer to US$30 billion).
Being a creature of habit, I was hesitant about listing the apartments on Airbnb, given I had no experience or background on the process. As a middle-aged man who valued the Rolodex and analog communications in an earlier life, I was also nervous about utilising technology to market these properties, something of which I am forever envious of the younger generations. Still, on the balance of factors, I leant towards giving this a try given there was no viable alternative to leasing out short-stay apartments, certainly no options that were as economical as Airbnb’s cost structure.
It took a weekend of idle time to figure out the platform, and I use that time estimate liberally. The setup process was extremely intuitive and straightforward. I was also enticed by the incentive structure offered by Airbnb, primarily the opportunity to achieve Superhost status. I’m a naturally competitive person, and am more than willing to seize any chance to get in front of the pack. The Superhost badge presented this opportunity and served as a yardstick to measure the overall success for this new rental approach.
Prior to starting the Airbnb journey, I drafted a mission statement which required me to achieve SuperHost status within the first six months. I ended up achieving it after the first full three-month quarter.
Another unanticipated benefit was the level of support offered by Airbnb once you achieved said SuperHost status. I received a special direct line of communication with the support team, had virtually non-existent wait times, and have had almost all of my issues resolved after the first discussion. This more than filled the void left by the service company, and I found it to be more efficient and convenient to my needs. For example, owning a property can sometimes feel like a 24/7 job, however the service company obviously could not honor these hours. The global reach of Airbnb’s support team provided me with immediate and helpful support regardless of the time of day, which certainly aided in reducing my overall stress levels.
Hosting an Airbnb during the Pandemic
Now to address the 800-pound elephant in the room. How has my experience been with Airbnb since the start of the Coronavirus pandemic? Before providing my response, I must caveat that it is influenced by a number of unique and personal factors. I am sure those of you reading this that are also Airbnb hosts may have differing experiences, and for those of you that have been significantly damaged financially over the last few months, I can only sympathise with your position.
As my houses were located in Western Australia, we were subject to hard-border closures and local mandatory restrictions as early as the first week of March. Perth is a warm and coastal city which makes it attractive to tourists from Asia and Europe. So the closure of the borders suffocated a significant channel of potential demand. Alas, not surprisingly, the month of April saw a string of cancellations, equivalent to approximately A$10,000 of lost income. While this was a month to forget, there was a silver lining that would come with these historic restrictions. The Western Australian Government required those travelling interstate (and in limited cases, internationally) to quarantine for 14 days upon arrival, either at a hotel or a short-stay apartment (including Airbnbs). This resulted in a few 14-day bookings resuming in May, which certainly helped cauterize the damage caused by the pandemic.
I note that around this time, Airbnb was receiving a considerable amount of backlash from travellers, due to its long-standing policy to allow landlords to set their own refund policies. Notwithstanding my clear bias in this discussion, I can appreciate both sides’ arguments as to whether Airbnb’s actions were appropriate. To be completely honest, while I did experience some financial loss, my reaction to the company’s actions would have been much stronger if I continued to lose bookings for a sustained period.
In light of my personal experience, I can’t assign any excessive blame on Airbnb and its actions. The simple fact is that prompt and decisive measures were made in response to an unprecedented event, and there will always be disagreement with those kinds of measures. While I would have preferred the company to be more proactive on some of its measures, I remain grateful that they provided the support and contact that I needed during those first few months after the pandemic restrictions commenced.
My overall experience in being an Airbnb host has been surprising and unexpectedly positive. While I’ve certainly taken over a lot of additional work since starting Airbnb, there are clear advantages from my earlier situation. For instance, I truly appreciate the fact that my booking and administrative processes are fully automated; a task I never achieved in the years prior. Despite the adverse effects brought on by the global pandemic, I feel confident enough with Airbnb and its practices to continue hosting my properties on the platform.
For those Airbnb hosts out there, I would love to hear of your experiences in the past few months.
The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.