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"Airbnb Bails Out Highly Leveraged Superhosts As Travel Industry Crashes "

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Airbnb CEO Brian Chesky wrote a letter to all hosts informing them that the company is committed to a $250 million bailout to cover some of the cost of COVID-19 cancellations. The canceled check-ins are for March 14 through May 31, Airbnb will pay hosts 25% of what they would've received via their cancellation policies, and the "payments will begin to be issued in April."

Chesky said a separate $10 million Superhost Relief Fund would be designed for "Superhosts who rent out their own home and need help paying their rent or mortgage, plus long-tenured Experience hosts trying to make ends meet. Our employees started this fund with $1 million in donations out of their own pockets, and Joe, Nate and I are personally contributing the remaining $9 million. Starting in April, hosts can apply for grants for up to $5,000 that don't need to be paid back."

And here's where the story gets interesting...

Of the four million Airbnb hosts across the world, 10% are considered "Superhosts," and many have taken out mortgages to accumulate properties to build rental portfolios.

With the travel industry crashed, many of these Superhosts have seen their rental incomes plunge in March and risk missing mortgage payments in the months ahead. Chesky was forced to bailout Superhosts because some of these folks have overextended their leveraged in building an Airbnb portfolio and risk imminent deleveraging.

Highly leveraged Superhosts could be the first domino to fall that triggers a housing bust this year. Superhosts can have one property and or have an extensive portfolio, usually built with leverage. So when rental income goes to zero, that is when some have to make the difficult decision of missing a mortgage payment or having it deferred or liquidate the property to raise cash. These decessions are all happening all at once for tens of thousands of people not just across the world but all over the US and could trigger forced selling of properties into illiquid housing markets in the months ahead.

Some of the horror stories are already playing out on Twitter


full article here
 
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If AirBnB crashes, timeshares rental and purchases will crash too...
The no-travel policies will impact all tourism, all rentals, all real estate...
this is 2008 all over again (or worse) and I am far from certain that the timeshare business will survive this one, as it is still trying to recover from 2008!
 

TravelTime

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I would assume that airbnb and other rentals and purchases will be crashing. This downturn is going to be worse that 2008. This is sad and I hope people will survive.
 
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Most people want another Real Estate crash, housing prices in cities like Orlando skyrocketed past what the average person can afford. For instance, my income is around $4000/month as a trucker. Under the 25% "rule", that means we should be able to afford $1000. But, most apartments start at $1200/month for a 1/1. Buying a home is not much better, the average 3/2 home price is $180000, which most mortgages are above $900/month. Brand new homes start at $200k. The only thing we can afford is buying a Manufactured (mobile) Home, but even if the purchase price was $50k, most manufactured home neighborhoods charge $550+ per month HOA/lot rent. Right now, our landlord is forcing us out (we pay $725/month for a 600 sq ft 1/1 condo) so they can charge $825+ for our condos - which are worth $75000 (if you do the math you can see how much profit they will get after kicking us out in a few months). Oh, and other places we can afford won't allow us because they have an income restriction of $36000/month Gross for 2 people.

So, we want those housing prices to drop, so the average person can get a place to live. And no, the theme parks here pay crap wages, while a cast member is paid $15/hour they're lucky to get 29 hours per week.

TS
 

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this is 2008 all over again (or worse) and I am far from certain that the timeshare business will survive this one, as it is still trying to recover from 2008!
I am not sure if you are referring to the resale timeshare prices (that stayed low after 2008) or the profits of the timeshare companies that looked extremely healthy before this pandemic
 

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Most people want another Real Estate crash, housing prices in cities like Orlando skyrocketed past what the average person can afford. For instance, my income is around $4000/month as a trucker. Under the 25% "rule", that means we should be able to afford $1000. But, most apartments start at $1200/month for a 1/1. Buying a home is not much better, the average 3/2 home price is $180000, which most mortgages are above $900/month. Brand new homes start at $200k. The only thing we can afford is buying a Manufactured (mobile) Home, but even if the purchase price was $50k, most manufactured home neighborhoods charge $550+ per month HOA/lot rent. Right now, our landlord is forcing us out (we pay $725/month for a 600 sq ft 1/1 condo) so they can charge $825+ for our condos - which are worth $75000 (if you do the math you can see how much profit they will get after kicking us out in a few months). Oh, and other places we can afford won't allow us because they have an income restriction of $36000/month Gross for 2 people.

So, we want those housing prices to drop, so the average person can get a place to live. And no, the theme parks here pay crap wages, while a cast member is paid $15/hour they're lucky to get 29 hours per week.

TS

The norm for a rental is 1% of the value of the home (as per Clark Howard). So if a home is valued at $150k then the expected rental price is $1.5k per month (maybe slightly less for super expensive homes). The big problem with a lot of renters is that they want to rent a $300k home for $500 a month and that just isn't going to happen.

Don't forget, on top of possible mortgage payments, the owner has to pay taxes, repairs, rental agency, possibly some utilities, and insurance as well. The profit may not be as high as you think it is.
 
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I am not sure if you are referring to the resale timeshare prices (that stayed low after 2008) or the profits of the timeshare companies that looked extremely healthy before this pandemic
Hi Danny TS,
i am mostly referring to a lot of people being overextended financially all at the same time , impacting travel and the tourist industry (and the timeshare industry). Millions of Jobless people - when was the last time we saw this?
Maybe I am overly pessimistic...but I think we are heading into quite a big financial storm...
 

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The norm for a rental is 1% of the value of the home (as per Clark Howard). So if a home is valued at $150k then the expected rental price is $1.5k per month (maybe slightly less for super expensive homes). The big problem with a lot of renters is that they want to rent a $300k home for $500 a month and that just isn't going to happen.

Don't forget, on top of possible mortgage payments, the owner has to pay taxes, repairs, rental agency, possibly some utilities, and insurance as well. The profit may not be as high as you think it is.

I've been a landlord with homes in the San Diego, NYC, and Maryland areas and have never heard or used a rental rate of 1% of the value of the home per month. I'm not sure what area that holds true for. That would make a 12% per annum return on a home that is fully paid off; IMHO a return of 3-4% is more likely. Mine are all single family homes, though, so it could be that this "norm" is for apartments. 12% return would get me a very profitable rental from my house in San Diego.
 

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I've been a landlord with homes in the San Diego, NYC, and Maryland areas and have never heard or used a rental rate of 1% of the value of the home per month. I'm not sure what area that holds true for. That would make a 12% per annum return on a home that is fully paid off; IMHO a return of 3-4% is more likely. Mine are all single family homes, though, so it could be that this "norm" is for apartments. 12% return would get me a very profitable rental from my house in San Diego.

Well, I'm guessing you don't listen to Clark Howard then as I've heard there pretty much monthly in different segments. Granted, it can be adjusted up or downward based on certain local criteria and is just a general rule of thumb.

If you don't like Clark Howard (or don't get him on a radio station in your area) then here is an article which backs up my statement.

Whether a home is paid off or not is immaterial as the value of the home doesn't change based on whether it has a mortgage on it or not.
 

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Well, I'm guessing you don't listen to Clark Howard then as I've heard there pretty much monthly in different segments. Granted, it can be adjusted up or downward based on certain local criteria and is just a general rule of thumb.

If you don't like Clark Howard (or don't get him on a radio station in your area) then here is an article which backs up my statement.

Whether a home is paid off or not is immaterial as the value of the home doesn't change based on whether it has a mortgage on it or not.


Well, crud. That means I'm going to have to jack up the rent I'm charging my tenants in San Diego to somewhere around $6,000 or $7,000 per month based on the comparable sales in the neighborhood for the last several years. My tenants in Maryland won't be as bad off, though, since their rent will only go up to $4,000 or $5,000 per month based on those comparables. I don't base my interpretation of the return on capital on whether or not the home is paid off; I base it on the market value of the house and my experience has been that 3-4% per annum is a decent range for rents for the last several decades. 12% per annum strikes me as very high and out of alignment with returns/interest rates achievable elsewhere. If Clark Howard is touting that those returns are achievable, it's likely that he is selling something.

When I do my taxes, I use TurboTax, which provides an average rental rate for housing by county throughout the country, broken down by number of bedrooms. My rents are reasonably close to the average rates. I haven't looked to see how the data on sales prices and rental rates compares throughout the country, but would speculate that it would not support a 12% annual return when that is about four times the cost of capital currently.
 

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Well, crud. That means I'm going to have to jack up the rent I'm charging my tenants in San Diego to somewhere around $6,000 or $7,000 per month based on the comparable sales in the neighborhood for the last several years. My tenants in Maryland won't be as bad off, though, since their rent will only go up to $4,000 or $5,000 per month based on those comparables. I don't base my interpretation of the return on capital on whether or not the home is paid off; I base it on the market value of the house and my experience has been that 3-4% per annum is a decent range for rents for the last several decades. 12% per annum strikes me as very high and out of alignment with returns/interest rates achievable elsewhere. If Clark Howard is touting that those returns are achievable, it's likely that he is selling something.

When I do my taxes, I use TurboTax, which provides an average rental rate for housing by county throughout the country, broken down by number of bedrooms. My rents are reasonably close to the average rates. I haven't looked to see how the data on sales prices and rental rates compares throughout the country, but would speculate that it would not support a 12% annual return when that is about four times the cost of capital currently.

As I said, it's not just Clark Howard (check out his radio show, he is not a salesman but teaches people financial responsibility and is a master at getting the best bang for your buck) but it's a general industry norm. If you're happy with the profit you make from your homes, all is good for you. I have a friend who owns 10 homes (and building 2 more) and his rents are in the 0.9% range as that is what the area we live in warrants. If you're charging less than 0.8% you're probably not making the profit that is commensurate with the risk you take but again, that's your call and if you're happy, then all is good.
 

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As I said, it's not just Clark Howard (check out his radio show, he is not a salesman but teaches people financial responsibility and is a master at getting the best bang for your buck) but it's a general industry norm. If you're happy with the profit you make from your homes, all is good for you. I have a friend who owns 10 homes (and building 2 more) and his rents are in the 0.9% range as that is what the area we live in warrants. If you're charging less than 0.8% you're probably not making the profit that is commensurate with the risk you take but again, that's your call and if you're happy, then all is good.

Ok; I opened the site you recommended. The pertinent paragraph reads as follows:

"If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of your home’s value. If your house is more expensive, however, (meaning that it’s worth over $350,000) it’s a good idea to charge less rent so that you can attract more buyers. Charging rent that’s too high will make living in your house unaffordable for many people."

Don't think I've ever lived anywhere where the homes go for less than $100k. What the market will bear in both rental and purchase of homes differs from place to place as well as from target market to target market. IMHO, the industry norm is to charge what the market will bear, and in most places I have any experience in real estate it isn't a 12% return. I have had acquaintances that purchased and operated Section 8 rentals that were getting returns in that area, but there were other risks involved that compensated for the returns.
 

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Ok; I opened the site you recommended. The pertinent paragraph reads as follows:

"If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of your home’s value. If your house is more expensive, however, (meaning that it’s worth over $350,000) it’s a good idea to charge less rent so that you can attract more buyers. Charging rent that’s too high will make living in your house unaffordable for many people."

Don't think I've ever lived anywhere where the homes go for less than $100k. What the market will bear in both rental and purchase of homes differs from place to place as well as from target market to target market. IMHO, the industry norm is to charge what the market will bear, and in most places I have any experience in real estate it isn't a 12% return. I have had acquaintances that purchased and operated Section 8 rentals that were getting returns in that area, but there were other risks involved that compensated for the returns.

This may come as a shock to you, but FYI, all of America does not live in San Diego, LA, San Fran, or even all of California. There is a huge country out there with all kind of varying numbers. Who'd a thunk it?? Just because the general rule of thumb doesn't fit your two block radius doesn't mean it doesn't hold true for the vast majority of other Americans.

FWIW, the homes in the town I live in are roughly in the $100-250k range (abut 95% of them fits this profile). So while YOU may have never seen a sub-$100k home, they do most definitely exist in these United States.

Everything else you stated is just a rewording of what I have already stated, that local markets and conditions may alter the 1% general rule of thumb (even the article states 0.8-1.1%). Of course, just because you may be happy with your 3-4% profit margin, other owners would not be so happy.
 

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Please don't take it as a criticism or personal attack, it wasn't meant that way and it still isn't. This is a large country with a great number of different markets for real estate that have to take into account the local conditions. A 1% rule of thumb apparently works where you live and I appreciate that is a benefit to you to know. @simpsontruckdriver posted about housing prices in the Orlando, FL area, which seems to have a similar market based on his comments. All I said is that the 1% norm isn't really a norm that is universal.
 

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I live in an area of Canada with reasonably priced homes. Not a chance you could get $3K/month for my $300K home. If so, I would buy several and retire.

I own a vacation rental beach house that I gross about 10% annual rental income to value, but that is an entirely different beast than an apartment or house rental. I rent by the week and have significant additional operating expenses as a weekly rental (cleaning, insurance, advertising, etc). The annual operating cost on my 1400 sq foot beach house are much higher than my 2000 sq ft home.

At current interest rates, everyone would invest in rental real estate if gross incomes were 12% per year.
 

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I rent and its 0.4% so I guess I got a smoking good deal. The owner is happy to have a retired couple renting right now, income flow not affected by the economic shutdown. I know its paid off, it was his parents home, they moved into a senior apartment. Its 1.0% of what they originally paid for the home 25 yrs ago.

The place right across from me is up for rent, its been empty four months, he wants way over what homes are renting for around here.



Sent from my iPad using Tapatalk Pro
 

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Ok; I opened the site you recommended. The pertinent paragraph reads as follows:

"If your home is worth $100,000 or less, it’s best to charge rent that’s close to 1% of your home’s value. If your house is more expensive, however, (meaning that it’s worth over $350,000) it’s a good idea to charge less rent so that you can attract more buyers. Charging rent that’s too high will make living in your house unaffordable for many people."

Don't think I've ever lived anywhere where the homes go for less than $100k. What the market will bear in both rental and purchase of homes differs from place to place as well as from target market to target market. IMHO, the industry norm is to charge what the market will bear, and in most places I have any experience in real estate it isn't a 12% return. I have had acquaintances that purchased and operated Section 8 rentals that were getting returns in that area, but there were other risks involved that compensated for the returns.
We current rent the condo where we live. Having moved to FLorida from Ohio, we didn't want to jump in to a purchase. Our rent isn't 1% of the value of the condo it it much lower. Renting is like selling. You have to look at comparables. If someone is renting their home out for a given price, you can't necessarily charge a lot more just to be at the 1% since your home will likely sit empty. The home we moved out of was renting for more than 1% but could have been rented for more based on local comparable units. 1% may be a loose guide for lower value homes, but I agree that there is much more to setting a rental price than some arbitrary percentage. In reality, you need to always look at what area rentals are going for and price based on that.
 

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AirBnB is in trouble!

———-

Airbnb’s Coronavirus Crisis: Burning Cash, Angry Hosts and an Uncertain Future
With travel nearly at a standstill, the home-sharing giant is facing increasing losses and doubts about its planned public listing

Everything was supposed to come together for Airbnb in 2020.

The hottest stock-market debut of the year. A valuation of more than $50 billion. Riches for hundreds of employees holding options expiring at year-end. And vindication for co-founder and Chief Executive Brian Chesky’s decision not to go public earlier.

The coronavirus pandemic has made all those scenarios next to impossible.
With global travel nearly at a standstill, the home-sharing giant is expected to lose $1 billion through the first half of the year, and its private-market valuation is dropping, according to people familiar with the company’s finances. On a videoconference with employees in late March, someone asked whether layoffs were coming. “Everything is on the table,” Mr. Chesky responded.....

 

klpca

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I've been a landlord with homes in the San Diego, NYC, and Maryland areas and have never heard or used a rental rate of 1% of the value of the home per month. I'm not sure what area that holds true for. That would make a 12% per annum return on a home that is fully paid off; IMHO a return of 3-4% is more likely. Mine are all single family homes, though, so it could be that this "norm" is for apartments. 12% return would get me a very profitable rental from my house in San Diego.
Yes, I wish that it was 1% of value!!
 

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Yes, I wish that it was 1% of value!!
Totally. If I only knew! I would have retired 5 years earlier than I did!
 

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It's my understanding from old books that the 1% rental figure is a rule of thumb applied to large commercial and apartment buildings.

In Connecticut, it would have been very rare to obtain 1% rent on a single family house or condo. The money was made on appreciation.
 

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AirBnB raises $1billion, will this benefit hosts?
Apparently long-term stays will become the core focus of the company.
 
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