Is Airbnb investing risky?

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What's up guys, it's James here. And today's video, we're gonna be addressing a concern that I get from a lot of people. And something that I hear a lot from people I speak to about investing in short term rentals. And that is that a lot of people see short term rental investing as being risky. A lot of people look at as being very volatile, you know, you can't really predict how it's going to go. And so you're kind of gambling with your money, it's a lot more speculative than, say, investing in a long term rental. And I want to kind of debunk that myth and show how I'm able to invest in short term rental properties with a high degree of certainty. But on the other side of it, I also want to debunk what a lot of people think, is investing with proper analysis, because I think a lot of people analyze short term rental properties the wrong way. And so I want to kind of debunk that side of it as well, and show you how you actually can invest strategically into short term rental properties in a way that isn't risky, and isn't relying on the wrong type of analysis. So to start with, let's start with the idea that short term rental investing is risky. I think this is primarily based on from the people that I speak with the idea that short term rentals, they fluctuate a lot month to month. So whereas with traditional long term rental investing, you're buying a property that's renting for a fixed amount, that means you're getting the exact same amount of money every single month, highly predictable. And I think a lot of people conflate that predictability, with safety with security, they think that it's a lot less risky because of that, when in reality, you still have a risk of your property being vacant for whatever reason, you still have risks of your tenants needing to be evicted and not paying your rent. But yes, it is going to be the exact same rent amount for over the course of a year. And then people look at short term rental investing, which obviously with a short term rental property, you're making different amounts of money every single month, and they associate that with risk. Now, certainly there is a risk with your property that it could sit vacant. But I would actually argue that the kind of vacancy risk with investing in short term rental properties is actually lower than the vacancy risk, or the non payment risk with a long term rental property. Let me explain with a short term rental property. Number one is it's kind of it's almost impossible, it's not completely impossible, but it's next to impossible to have your tenants or your guests not actually pay for the property. As long as you're booking through major platforms like Airbnb, VRBO booking.com,
it's really, really tough to have your property get booked, and for the guests to not pay if you're using the right strategies. Now, obviously, there are some mistakes, there are some things that can happen where your guests get refunded. But the risk of that happening over an extended period of time with a large number of bookings is very, very low relative to the risk of a tenant just stopping paying rent, you're also not putting all your eggs in one basket, because you have multiple guests all throughout the month, and all throughout the year, as opposed to putting all your eggs in one basket with one single tenant where they decide they're going to stick around without paying the rent. Now you've got to go through an eviction process. And it's really that that one single person is paying all of your rent, as opposed to multiple different people throughout the month and throughout the year paying your nightly rates. The other aspect of it is that just because the amount fluctuate from month to month does not mean it's unpredictable. I think a lot of people falsely look at short term rentals, they incorrectly look at short term rentals, and they see it as being highly volatile. Now, it's not necessarily stable, it's not going every single month the exact same amount, obviously. Now in some markets, you are going to see a lot more stability from month to month. But other markets, there are huge seasonal fluctuations. And the nice thing though, is that those seasonal seasonal fluctuations are actually highly predictable. You can actually look back at history, you can look back at the last number of years, last summer months. And you can see exactly how well properties like the one that you're maybe looking at investing into in the same market with similar amenities similar style, you can look at really good comps and see how well they're performing. And so you can see that it's actually highly predictable how things are going to swing. So for example, when I'm investing outside of Toronto area and Canada here, then I'm going to see seasonal fluctuations, where in the winter, my property is not going to perform as well as it is during the summer. Because more people are in Canada in the summertime more people are are going on vacations in the summertime to areas in Canada, but in the winter, it's undesirable people like myself don't want to be here in the winter. And so we oftentimes go elsewhere, because it's just so cold. Whereas in Florida, you're going to see something that's quite the opposite of that every single year, you're going to have a high season in the wintertime and you're going to have a low season in the summertime when there are earthquakes and there's extreme heat, you're going to see these seasonal fluctuations again and again and again. I mean, if you can actually predict them, then they're not risky because you know what they're going to be you can make sure that you're investing within the parameters where you don't need every month to be a top season month in order for the investment to make sense now on the flip Besides that, like I mentioned the beginning of this video, there's another kind of notion that I see going around that in order to analyze properties and figure out which ones are the best to invest you as short term rentals, that all you need to do is just go and look at similar properties on Airbnb, see what their nightly rates are, and estimate a conservative 50 or 60% occupancy rate.
So the theory here is that if someone has their property listed at let's say, $200 a night, then you can safely assume well, at least they're going to get booked up half of the month. So at that rate, that means they're going to bring in about $3,000 or so a month. And so we can then go and safely say that they're going to bring in $36,000 a year, right? Wrong. That's a terrible, terrible way to analyze properties for short term rental. And let me explain why First off, you are attributing, you're not taking account for the upcharge, the Airbnb marks up their prices that so when you see a place listed on Airbnb, for, let's say, $200 a night, what the host is actually receiving is less than that, because the host is obviously paying money to Airbnb, or rather, the host is setting a price. And then Airbnb is marking it up in most cases. And so that's how Airbnb makes money. Now a big chunk of that is money that the hosts themselves are never actually going to see. So right off the bat, your numbers are going to be off by about 10 to 15%. So that's one big flaw. Now the other big challenge is that any host on Airbnb can list their property for whatever price they see fit. That doesn't mean it's the optimal price, it doesn't mean that it's a price that the property actually gets booked at. Or that if it does get booked at that, that it should be at that rate. So I could go on right now. And I could list a property for $9 a night or $900 a night and not is no indication of what the property is actually worth on a nightly basis. That's just an indication of what I arbitrarily decide to set the price at. And the reality is that a large majority of hosts on Airbnb are basically just taking their best guess at what their price should be. And so you can look at their calendar, and let's say their calendars fully booked, well, then you don't actually know if that calendar number one is fully booked. Or if they just have dates blocked off in their calendar, you also don't know if they could be getting a lot more than that. Because oftentimes, when a calendar is booked up well in advance, it means the property actually could be performing a lot better than it is right now. Meaning that you'll likely rule out some properties that could be a really good investment investment based on this strategy for analyzing. And then the last big challenge with this is that you're looking at properties that again, you're assuming one single nightly rate usually extrapolated over an entire year. But in a lot of markets, there are these seasonal fluctuations, where I'll give you an example a property that we recently invested in, in the low season, it generates about 300 to $400 a night, in the high season, we're regularly getting all throughout July and August, we're getting booked at minimum $900 A night up to about $1,500 a night on weekends. So if you were to go in in the summertime and look at that property and go, Oh, wow, it's getting booked for $900 a night and their calendars booked out, you would be grossly overestimating the amount of income that property can bring in because it doesn't bring in that kind of income all year round. Similarly, if you went in a low season, you would drastically underestimate how much that property could bring in over a year, because it doesn't bring in just $300 or $400 a night throughout the whole rest of the year. That's really the lowest price that it ever gets to. So this whole method of going and looking at Airbnb and trying to extrapolate and trying to assume some kind of occupancy rate and assume some stability in the nightly rate and assume some correctness to the nightly rate that the host is set is inherently very, very flawed for a whole host of different reasons. That's why I recommend that you never use this type of method for analyzing properties for short term rental. Instead, what you want to do is use data mining sites like air DNA, that are able to analyze different properties on the short term rental market and give you an accurate read of exactly how much they're actually generating. And that's taking into account the real occupancy rate, the average nightly rate that is an average of all throughout the year. So you can look at these numbers that are actual real numbers. And then you can also sort by the best and worst performing properties in that area. So you can see, hey, you know, what are the top 50% of the market doing the people that are just average? What are they doing? And how are they performing? And then let's look at these top performers that are actually maximizing their revenue that are actually maximizing their bookings and optimizing their nightly rate, Hey, what are they doing?
So then you can get a really clear picture of what is a conservative projection for how well their property will do? What is a realistic projection for how the property will do and what is the best case scenario for what the property will actually do? You will also use a statistically significant data set doing it this way because it's very easy to look at multiple properties. I'm talking 3040 50 In some markets you can even look at hundreds, if not 1000s of calls, as opposed to just, you know, looking at one or two, because let's face it, if you're doing it manually going on Airbnb and looking at properties, you're probably only taking the time to maybe look at five to 10, absolute max. In reality, most people are going and looking at just two or three, what you really want to do is look at the data set as a whole, so you get something that's statistically significant. And then also, you can then go and look at specific properties and actually see the backend metrics of how they actually perform and how much the host actually takes home. And then compare that to your specific property. So that's my take on analyzing short term rentals and how to de risk them. So I have I do definitely view short term rental investing as not being risky as actually being a pretty safe bet. But that is highly dependent on the way that you go about it. Obviously, if you're using either no method for property analysis, you're just taking your best guess, or you're using incorrect methods for analyzing your properties, then yeah, it is going to be really risky. Because as with any investment, if you don't do your research properly, if you don't properly analyze it, if you don't have numbers and statistical significance to back up your decisions, then it is going to be a lot riskier. That's not a feature of short term rental investing. That's just a feature of poor analysis. So I hope this helps to shed some light on it for you if you're interested in investing in short term rental properties and doing it the right way. With the right tools and the right strategies. We do have a link down the description below for a free training that will walk you through the main pillars of how to invest successfully in short term rental properties. And if you're interested in working with us beyond that, you want to work with me directly to help you invest and purchase your next short term rental property and help grow your portfolio short term rental properties again the right way, then you'll have an operator do so after watching that free training video, you'll be able to connect with our team and see how we might be able to work together. We're also going to give you a completely free property analysis spreadsheet that we use internally to analyze properties for short term rental. So that's going to be free for you when you sign up and check out that training. I hope this helps and if you like this video, if you got value from it, give it a thumbs up hit that like button. Also subscribe to the channel. If you want to hear more. We post two new videos every single week. So I'd love this for you to have you stay in touch with our team and keep checking out our videos. Until next time, I'll see you and have a great rest your day.