Short-Term Rental Investments Aren't as Easy as You Hear on TikTok

Taylor Jones, a Florida real estate investor, tells us the key to making money from an Airbnb you invested in is the purchase price for the property — and how much revenue you can extract from the property.

While that may seem like an elementary point, it is often overlooked. “It’s all about what you buy it for,” Jones told the Short-Term Rental Report. He admittedly has skin in the game, running Techvestor, which helps people passively invest in short-term rentals.

He tweeted the other day about a 6-bedroom home in Indio, California that was up for sale for $1.6 million. “This Airbnb made $194,000 in revenue last year,” Jones wrote. “If you buy it for the current asking price, you’ll LOSE MONEY.”

He broke down how he calculated that the home at that sales price would mean negative cash flow of $21,683 for the year, assuming a 25% down payment, 7.75% interest rate, 40% in operating expenses, and an 18% property management fee.

• Gross income: $194,000

• Operating Expenses: $77,600

• Property Management Fee: $34,920

• Net Operating Income: $81,480

• Debt Service: $103,163

“Even if you self-managed, this deal is around 2.87% cash on cash return,” he tweeted. “Cheap debt made people think STRs are easy. They are not.”

Several people pushed back on his tweets. One argued that the amount of the estimated operating expenses were “absurd.” Meaning it was way too high.

Still, it’s clear that the financials of buying a home and converting it into a profitable short-term rental are much more complex than the easy money someone on TikTok tells you about.

Jones told the Short-Term Rental Report that the current owner of that Indio, California home “bought it for $675k. They are definitely making money and doing well. However, if someone buys it for the current list price, the math doesn’t make much sense.” D.S.

The interests of individual hosts and large property management companies have been at odds at times, and that tension has historically been reflected in the Washington, D.C.-based Vacation Rental Management Association. But in an interview, VRMA Executive Director Kimberly Miles explained how and why the association created a new category for hosts with just 0-5 properties. 

However, not everyone believes that the VRMA is addressing the needs of individual hosts. Jim Prugh of Lindsborg Vacation Rentals in Lindsborg, Kansas, told us he didn't renew his VRMA membership because the association was oriented toward services for larger property managers and lacks geographic diversity, especially in the U.S. heartland. 

Meanwhile, in another twist, the VRMA has begun working at times with the American Hotel & Lodging Association, which in the not-too-distant past battled the short-term rental and vacation rental industry on regulations in a variety of local jurisdictions.

In this exclusive interview, Miles detailed where VRMA is heading. D.S.

Vacation Rental Management Association Seeks New Allies and a Stronger Voice

In Case You Missed It

Vacation rental software firm Hostfully has a ChatGPT integration, too. It can present guests with AI-generated personalized travel plans based on queries about basic preferences like budget, trip duration, and preferred activities (e.g., museums, sports, and food). The integration merges this information with its guidebook's existing content plus an additional integration with Viator, allowing hosts and property managers to earn commission on tours included in the itinerary.

JMP Securities downgraded its rating on Sonder from market outperform to market perform due to factors including a lack of visibility into its business amidst macro headwinds, a longer timeline than initially anticipated to achieve positive free cash flow (FCF), and ongoing concerns regarding potential breaches of debt covenants. The potential for Sonder’s accommodation offering within corporate and leisure travel remains significant, JMP’s note said. However, it noted that there is limited expected increase in its share price over the next 12 months, particularly due to uncertainty surrounding the timing of achieving positive free cash flow, which is seen as the primary catalyst for stock performance. 

The City of Phoenix, Arizona plans to charge $250 in fees for permits and renewals to owners of short-term rental properties. Officials say that this fee will help cover administrative costs. Since early 2020, owners of short-term rentals in Phoenix have been obligated to register with the city to ensure primary contact information is readily available. According to Phoenix's Planning and Development Office, approximately 3,600 short-term rentals have been registered with the city, and this group alone could generate $900,000 in revenue.

Elsewhere on Skift 

Hong Kong has been the world’s least affordable housing market for 13 consecutive years. Public housing units are available for low-income people but the average waiting time is 5.3 years. Families and the elderly are favored, so the chances of one going to a young single person are close to nil.

For most young adults, moving out of home is a rite of passage but in Hong Kong – notorious for its chronic lack of housing – it’s usually an unaffordable dream.

Hong Kong’s solution to fix this is its hostel program. Ramped up last year under pressure from Chinese President Xi Jinping, it is aimed at tackling youth frustration with housing – a factor Beijing believes contributed to the anti-government pro-democracy protests that rocked the city in 2019. It’s also aimed at nurturing what the government considers to be responsible citizens and providing opportunities for self-development.

Applicants must be younger than 31, earn less than HK$25,000 ($3,200) a month and have less than HK$380,000 ($48,500) in assets to be chosen after interviews. They are also required to do 200 hours a year of community service or approved activities to keep their rooms.

Hong Kong Hostel Program Aimed at Tackling Housing Shortage and Political Dissent

Srividya Kalyanaraman writes the Skift Short-Term Rental Report. Contact her with news tips and feedback.