In this monthly column, Anthony Askowitz explores a hypothetical real estate situation from both sides of the broker/agent dynamic.
A veteran agent is not sure what to make of short-term home rental services such as Airbnb and VRBO. On the one hand, they present easy revenue streams for investor-clients, but may also add to the reasons potential sellers hold back on selling their homes and increase an already “inventory-poor” environment. How should her broker advise her about dealing with this transformational phenomenon?
I’m very fortunate to live and work in a market with a healthy tourism base, where travelers and part-time residents are eager to visit throughout the year.
A good chunk of my business has always come from seasonal visitors looking to purchase second or third homes and from investors looking to capitalize on this perpetual interest by purchasing real estate intended for long-term profitability.
But the extraordinary popularity of online short-term home rental services such as Airbnb and VRBO has dramatically changed the game for agents like me. My investor clients who own otherwise empty properties now recognize the opportunity to cash in by renting them out on a temporary basis, creating extra and easy revenue streams.
This trend is even stronger as we emerge from the pandemic. According to AirDNA (a real estate data company that collects data on millions of Airbnb and VRBO rentals), occupancy rates nationally rose 21 percent in May 2021 compared with pre-pandemic May 2019, demonstrating serious pent-up demand over the past year.
Consumers eager to resume a sense of normalcy are seizing the opportunity to travel and the availability of less-traditional, more private options for short-term stays.
This seismic shift has transformed what these clients now want from me. Instead of helping them buy and sell properties as I have done for years, nowadays they want detailed ROI analyses on the “rent-ability” of their real estate investments, based on comparative offerings from these online services.
Part of me thinks this information could be useful in convincing a client to purchase an investment property — but another part wonders if this is maybe getting too far afield from my job as an agent.
I became a Realtor to help people buy and sell homes, and yes, to lease them out. And while I’m very comfortable advising buyers about a current property’s valuation based on market information, this kind of speculating and data-crunching makes me feel like a stock broker or accountant. (I also worry about how this “buy-hold-rent” mentality will impact a market that is already desperate for inventory.)
I need my broker to advise me if this short-term rental trend is worth my time, energy and focus — and if the risks are worth the effort.
I always advise my agents to embrace change, and this situation is no different. Although I realize Airbnb and VRBO are transformational entities that no agent really asked for, the fact remains that property owners and sellers have clearly demonstrated “proof of concept,” and the trend is here to stay.
Our early dealings with these short-term rental services have certainly been hit-or-miss. For every investor enjoying easy and steady revenue, there’s another dealing with unforeseen headaches. For example, we have seen “traditional” property renters surreptitiously offer out their homes on these services, creating huge and complicated legal messes for everyone involved.
Cities and counties are creating new ordinances to ensure that taxes are being paid on Airbnb-generated income. In areas where the property is an owner’s primary residence and homestead exemptions are applied to its real estate taxes, the owner could lose that tax benefit if they do not pay close attention to the guidelines.
What may be OK when an investment property is purchased may not continue to be OK, as some tourist-centric cities’ hotel owners lash back at the competition and insist that short-term rental owners pay their share of taxes.
Evictions are another thorny issue, especially with the pandemic, and made even more complicated by Airbnb’s new COVID-19 Renter Protection Policy, announced earlier this month. The company recognizes that some owners are leery of signing leases again after experiencing the frustration of the recent Centers for Disease Control and Prevention’s (CDC) ban on evictions.
In an effort to stop property owners from turning newly empty units into short-term rentals, Airbnb plans to work with cities to ban property owners from listing any property where the tenant was evicted due to nonpayment of rent caused by loss of income due to COVID. Very messy stuff!
Despite these challenges, I firmly believe the juice is worth the squeeze, and that the cost-to-benefit analysis an agent may perform for a potential Airbnb rental investor is very similar in scope to a market and comp analysis they would perform for any traditional buyer or seller, as long as everyone understands the agent’s limitations are subject to current market information.
The same questions need to be answered in either case: Is this the right time? Is this the right property? If I rent it out, what kind of profits and competition should I expect based on market rents and property management expenses?
The agent is correct in feeling she should “stay in her lane” and not veer into the field of a financial adviser. We cannot predict the future returns on investment or appreciation in value.
This is a brand-new area in real estate. We will likely see new certifications and education regarding the advising of buyers, as well as the special needs of property management related to short-term rentals.
How to resolve
The agent and broker should think of these online rental services not as “friends” or “foes,” but as new and shiny weapons to add to their arsenals. Although the skills, talents and knowledge used to buy and sell homes the traditional way may be different from those used to advise clients on rental properties, at the end of the day, it is all about helping them make smart decisions.
If the passive income derived from Airbnb makes a client more comfortable with investing in a property, then all real estate pros should be grateful for its utility in the decision. Agents may consider adding financial advisers to their sphere of professional connections, just as they now include lenders, attorneys, inspectors and title companies.
Technology has dramatically altered the real estate industry over the past 30 years, and it will continue to do so at a rapid pace. Agents and brokers can embrace proven trends and services desired by customers — or resist and get left behind.
Anthony is the broker-owner of RE/MAX Advance Realty, with offices in Hollywood Beach, Davie, North Miami, South Miami, Kendall, and the Florida Keys, and where he leads the activities of more than 170 agents. He is also a working agent who consistently sells more than 100 homes a year. For three consecutive years (2018, 2019, and 2020), Anthony has been honored as the “Managing Broker of the Year” by Miami Agent Magazine’s Agents’ Choice Awards. Follow Anthony on Instagram.
NOTE: Anthony is not an attorney and does not give legal advice. Please consult a licensed attorney regarding matters discussed in this column.