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Investors With Vast But Flimsy Rental Empires Now Face Financial Ruin

A report from News 4 Jax in Florida. “The short-term rental market has been hit hard by the coronavirus pandemic. Short-term rentals are a big driver of tourism in St. Augustine, where a large number of homes have been converted to short-term rentals. The ‘for rent’ signs are becoming ‘for sale’ signs as more and more short-term rental owners are looking to sell their rental homes because no one is staying in them right now. ‘These vacation rentals are not being occupied, and the owners, they’re hurting for money,’ said short-term rental owner David Breezing. ‘I live upstairs and I have two vacation rentals downstairs, and it is about half of my income. That is gone.'”

From Fox News. “Rental owners nationwide are dealing with the impact of the coronavirus while their properties sit empty. Jenn Cook has two rental properties in Florida that were booked into the summer season before the pandemic began. Cook’s income from her rental properties has drastically declined and she doesn’t know when things will get better. ‘We usually make about $12,000 a month between the two vacation rentals that we have. We’ve lost March, we’ve lost April…and we don’t know how bad it’s going to be,’ Cook said.”

“Thousands of rental owners are in similar situations. Rich Munroe, a rental owner in Georgia said it feels like they are living in the unknown. Munroe owns 16 rental properties in Georgia and the majority of them are sitting empty. ‘Ninety percent of our bookings were canceled and as of right now we still have about 60 percent that are empty,’ Munroe said. ‘Many of our hosts have mortgages to pay or rent to pay on their spaces and have invested a lot of money.'”

The Uptown Messenger in Louisiana. “New Orleans has seen an explosion in short-term rentals in recent years. In fact, an estimated 8,500 units were in operation until restrictions were passed in 2019. As COVID-19 continues to shake the real estate world, Airbnb units seem to have found a new home in the long-term rental category. In March 2020 we saw a 246% percent increase in furnished rentals.”

“In addition to working with Satsuma Realtors, Jenny owns Carriage House Concierge, a concierge property management agency. Q: You manage a number of number of short-term and long-term furnished rentals. How has that market been impacted so far? A: There are more furnished rentals on the market than we have ever seen in Orleans Parish. As of right now, we have 348 furnished rentals listed on the MLS. In January, we had 170 active furnished rentals. We’re seeing 2-3 times more inventory in New Orleans than we’ve had over the past 5 years.”

The Globe and Mail in Canada. “Short-term rental services Airbnb and Vrbo are seeing business evaporate in Canada as travel has all but stopped and several provinces have restricted the use of their services due to the pandemic. The country’s major Airbnb markets took a big hit, with revenue in Toronto and Vancouver sinking nearly 70 per cent over the past three months, and declining 42 per cent in Montreal, according to AirDNA. New bookings in the three cities were down between 55 per cent and 67 per cent from late February to late March.”

“Industry watchers say the decline could lead some property owners to put their short-term units on the long-term rental market – which could cause rents in major cities to ease – or put them up for sale. ‘We are seeing people who were Airbnb investors deciding to just ditch it and go onto something else,’ said broker Carl Langschmidt.”

“The slight dip in prices for long-term rentals is occurring as thousands of new condo units and apartments are scheduled to be completed in the greater Toronto area this year. The addition of Airbnb and Vrbo properties could further reduce rents.”

From CBD News in Australia. “The city’s rental market is flooded due to the coronavirus (COVID-19) pandemic causing the short-stay market to collapse, according to real estate agents and short-stay operators. Belle Property’s Carlton and Melbourne business development and leasing manager Suzie Inglis told CBD News the CBD market was ‘absolutely flooded mostly with furnished properties that would usually be on Airbnb and other short term stay platforms.'”

“Ms Inglis said on April 21 there were over 2200 apartments online in the CBD alone. ‘In our busiest period this number will usually never exceed 1200, so you can clearly see the huge and rapid increase happening,’ she said. ‘The 1000 extra properties are all furnished and have all come online in the past two to three weeks which is simply unheard of. This heavy competition teamed with the fact there are hardly any prospective tenants in the market anyway has forced owners to significantly drop prices in order to be competitive.'”

“Tony Penna, a short-stay operator in Southbank, said he had 30 empty properties he was trying to move into the rental market. ‘There’s literally no revenue, every booking I had for the next three months is cancelled. I’m absolutely trying my best to put medium- to long-term tenants in them as fully furnished apartments,’ Mr Penna said. ‘When you look online for two-bedroom apartments in Southbank there’s around 800 already available. There’s definitely a saturation of rental properties going onto the market, and many are fully furnished so you’d guess they’re likely from short stay.'”

“Rus Littleson, a representative of property owners and long-term resident advocacy group We Live Here, said COVID-19 was an ‘apocalypse for the whole short stay industry.’ ‘We have residents telling us that short-stay operators are collapsing throughout the city,’ he said. Short-stay companies that have been around for more than a decade have not been immune – they’re crumbling under the pressure of paying above-market rents with near-zero income. We Live Here is hearing that short-stay operators are invoking the small print in their rental agreements and bailing out, abandoning their apartment owners in the long-term rental market.'”

From Wired. “According to AirDNA, new bookings on Airbnb are down 85 per cent; cancellation rates are close to 90 per cent. Revenue generated by Airbnb’s platform in March was down 25 per cent year-on-year, wiping out $1 billion in bookings. With much of the world still on lockdown, those numbers are unlikely to pick up anytime soon. Hosts are calling it the Airbnb apocalypse. But it’s more akin to an enema.”

“Airbnb maintains that it’s ‘powered by local hosts,’ but the reality is quite different. Yes, there are many hosts on Airbnb who live in the properties they list on the platform. But, in many markets, including the entire of the United States, the number of ‘professional’ hosts seemingly outnumbers those listing on Airbnb to earn a bit of extra cash from their cosy spare room.”

“Airbnb’s hosts range from retiree holiday home owners to investors with vast but flimsy rental empires. While the former will lament the loss of a reliable secondary income, the latter now face financial ruin as their business model – a sort of ponzi scheme built off the back of Airbnb’s market-busting rental yields – turns to dust in the grip of coronavirus.”

“Look behind these numbers and you get a glimpse of the real issue: tens of thousands of rental bills and mortgages that need paying and, potentially, no income with which to do so. As coronavirus lockdowns came into force, the Airbnb effect became more visible than ever before. In cities across the world, long-term rental websites have been flooded with identikit one and two-bedroom apartments, replete with bedrooms adorned with neatly-folded towels and prominently-displayed Nespresso coffee machines.”

This Post Has 41 Comments
  1. ‘Look behind these numbers and you get a glimpse of the real issue: tens of thousands of rental bills and mortgages that need paying and, potentially, no income with which to do so’

    I am considering preparing 3, or 4 more posts just today. That’s how much crater there is out there. I keep thinking, I’ll save that for tomorrow, then the next day it’s more crater.

    1. Citizen journalism at its finest.

      This blog has saved many people from making the worst financial mistake of their lives by not buying overpriced used houses.

      1. Citizen journalists have scooped the MSM again. Can’t even waste time to watch major networks and papers; corporate paid news is dead and not a minute too soon.

  2. ‘We are seeing people who were Airbnb investors deciding to just ditch it and go onto something else’

    It was a little over a year ago that it was reported Sedona AZ had 20% of the town in STR.

  3. ‘Ninety percent of our bookings were canceled and as of right now we still have about 60 percent that are empty…Many of our hosts have mortgages to pay or rent to pay on their spaces and have invested a lot of money’

    Easy peasy Rich, the REIC says you can sell and it’s hotter than ever!

    DONG!

  4. Agoura Hills, CA Housing Prices Crater 24% YOY As Foreclosures Rot Southern California Housing Market

    https://www.zillow.com/agoura-hills-ca/home-values/
    *Select price from dropdown menu on first chart

    As one Los Angeles broker conceded, “If you’re a buyer, the broker is lying to you. I know a liar when I hear one. I’ve been lying my entire life.”

  5. In early February I got an overwhelming feeling that I had to sell my get- away condo and get out of FL ASAP. My feelings were right and now it is sold and done. Whew!! Thank Goodness!

  6. I’m seeing “cratering” data on the *amount* of sales…i.e. transactions being way, way down…but that does not necessarily equate to “cratering” prices.

    Would love to see actual, recent, updated data on PRICES falling. Please post more of this type of info if you have it.

    If you or others do not have it, then I think the jury is still out on prices being down.

    1. “I’m seeing “cratering” data on the *amount* of sales…i.e. transactions being way, way down…but that does not necessarily equate to “cratering” prices.”

      – In a normal housing market, sales (volume) leads price, but this isn’t a normal market, and hasn’t been since housing bubble 1.0 burst, and that obviously wasn’t a normal market either, since since it was also a bubble. Welcome to the bizzaro world of financialization and serial bubbles.

      – The Fed is going to do everything it can to keep stock, bond, and housing asset prices inflated, but recall that they weren’t successful in the last two bubbles (2000, 2008), and one of those was a housing bubble (2008). Is it different this time? It usually isn’t.

      – Add to this: 1) Employment just cratered, and 2) Lenders just tightened lending standards. A lot. There’s little on the demand side and the supply side will likely be seeing a tsunami of new listings over the next several months due to (1) and 3) The need to unload STRs, since no longer generating income.

      – The global economy was already rolling over in 2019 due to the end of the credit cycle, which had been extremely extended by central bank interference. Add to this the popping of the stock, bond, and housing bubble 2.0. The pandemic came along right as this was happening and only accelerated the downturn. We now have a perfect storm. I don’t see how we can avoid a greater depression, which can’t be good for the housing market. Recall that before the pandemic, the majority of Americans didn’t have even $400 for emergencies and were heavily indebted; they were living paycheck to paycheck. This was before the virus.

      – Check new home sales (NHS) data out tomorrow. About 10% of market, but leading indicator.

      – Check pending home sales (PHS) data due out next Wed. Another leading indicator.

      – It’s possible that this doesn’t get ugly, but I don’t see that as the most likely scenario.

      1. It’s possible that this doesn’t get ugly

        Sure. 25 million suddenly unemployed. How many millions of self employed no longer working? Rent and mortgages not being paid. The BK domino game is on. If that’s not ugly enough, take Nancy’s top end ice cream stash.

    1. Here’s another.

      Colorado Springs, CO Housing Prices Crater 10% YOY As One Brokers Concedes, “Appraisal Fraud Is Rampant”

      https://www.zillow.com/colorado-springs-co-80908/home-values/

      *Select price from dropdown menu on first chart

      As one Colorado Springs broker conceded, “If you’re a buyer, the broker is lying to you. I know a liar when I hear one. I’ve been lying my entire life.”

      1. Mafia, I think a lot of this data is ‘noisy’ and not necessarily accurate and reflective of reality. For instance, you often post ‘San Mateo’ up in the Bay Area…I know the area well, and have relatives a zip code or two over (in an equally nice city to San Mateo). Zillow shows their zip being up, along with their house. And when I’ve said “Zillow” in the past the daggers have come out, but in this case, I’m saying the links you are posting do not present an accurate view overall of that area. Finally, the one you listed the other day for San Mateo I think…when I clicked on it it showed that “Listing Prices” were down by as much as you stated…not SALE price. Thing is, “Listing Prices” can be super-whacked out (i.e. way too high) to begin with, so dropping listing prices are only so meaningful. SALES price is what we all want to see fall.

        1. In fact I just looked it up…using your source, Zillow, both ‘Median list price’ and ‘Median sale price’ are UP for San Mateo since November 2017.

    2. The Reston and Sterling area of Northern VA are not hurting – one property in Reston sold 25k over asking — in April!

      1. This is nothing! There were 3 houses next to me sold for 89000K over asking! They even wrote love letters and feed the rodents in the backyard. Oh the Horror! It was a good thing I spent all my commission checks on hookers and beers!

      2. Those buyers are what we call ‘special’ people. It’s not nice to stare at them. They were born with their disability.

        1. Well in the DC metro area, the Fed workers are immune (no pun intended) to normal business cycles. They are permanently protected by their union and the taxpayers. So, it seems that it really is different there.

  7. Ordinary folks who are feeling depressed upon opening their first quarter 401(k) statements can console themselves with the knowledge that Wall Street professionals also had their @$$es handed to them.

    1. The Financial Times
      Hedge funds
      Hedge funds suffer worst quarterly outflows since financial crisis
      Performance-based losses take industry to less than $3tn for the first time since 2016

      A police officer walks past the Federal Reserve
      As markets plunged the Fed stepped in with supportive measures, but that did little to assuage investor fears of an economic crisis
      © Bloomberg
      Ortenca Aliaj in New York
      5 hours ago

      Hedge funds have suffered their worst quarterly outflows in more than a decade after market volatility and uncertainty during the coronavirus pandemic prompted investors to flee.

      Investors pulled $33bn from hedge funds in the first three months of the year, according to data group HFR. This marked the industry’s fourth-largest quarterly outflow in its history, and the highest since the second quarter of 2009 when clients yanked $42bn.

      “Investors reacted to the unprecedented surge in volatility and uncertainty driven by the global coronavirus pandemic with a historic collapse in investor risk tolerance and the largest capital redemption from the hedge fund industry since post-financial crisis,” Kenneth Heinz, president of Hedge Fund Research, said in the company’s quarterly report.

      The shift in capital comes as even some of the industry’s best-known names have struggled to navigate the market rout induced by coronavirus and sustained huge losses.

      Renaissance Technologies, the computer-driven hedge fund founded by Jim Simons, delivered one of its worst quarters. The firm’s Institutional Equities fund declined by close to 18 per cent in the first three months of the year, while the Institutional Diversified Alpha fund fell 13 per cent, according to investors.

      Ray Dalio’s Bridgewater Associates also stumbled in the market sell-off as the value of the assets in its flagship Pure Alpha fund declined by about a fifth during the first quarter, investors said.

    2. “Ordinary folk$ who are feeling depre$$ed upon opening their fir$t quarter 401(k) statement$”

      1$t 1/4 = “twa$ a mere flesh wound$”
      … en garde! 🤺 … redouble!🤺

      3rd 1/4’$ # “ouch!, yous hurt me’$”

    1. “The Show-Me State is telling China to “$how me the monie$!” …”

      As Wasilla, AK $arah “thee.big.moose.hunter” Painlin would say:
      “Why eye can see their 🇨🇳🏳$urrender$ flag$ from right here$!”

  8. See Figure 2. in the article posted below and ponder what became of real oil prices from 1996 through 2020. And stay tuned for similar price charts to emerge from the COVID-19 quarantine rubble for other Everything Bubble risk asset classes (stocks, housing, cryptocurrencies, etc.)

    Oil is merely the canary in the coal mine.

    In One Chart
    About 150-years of oil-price history in one chart illustrates crude’s spectacular plunge below $0 a barrel
    Published: April 22, 2020 at 4:58 p.m. ET
    By Mark DeCambre

    1. I recall the highest price I ever paid for unleaded gasoline was 4.299/gallon around September 2008 after a hurricane disrupted a distribution pipeline in the Southeast. A month or two later it was down to about 2 bucks a gallon. That’s the steep decline in the graph in figure 2.

  9. Got’$ta hand it to Moscow Mitch, bringin’ legal Hemp back to the land.of.Abe & U$A was brilliant!

    (& a fun new avocation$ for Ol’ Hwy50)

    Mitchy now $ays, “by gollie$, THEE.BUCK$.STOP$.HERE!!!
    Wow$er’$!

    Politic$:

    McConnell Says He Favor$ Allowing State$ to Declare Bankruptcy

    Bloomberg / By Steven T. Dennis and William Selway / April 22, 2020

    Senate leader says his party oppose$ bailout of $tate pension$
    Hits ‘pau$e button’ on any additional pandemic aid to state$

    The host cited California, Illinois and Connecticut as states that had given too much to public employee unions, and McConnell said he was reluctant to take on more debt for any rescue.

    (👀👇)

    “There’s not going to be any de$ire on the Repubican $ide to bail out $tate pen$ions by borrowing monie$ from future generation$.”

    (PHA$E lV! 👇🤫🎉)

    McConnell may also find himself in conflict with President thee Donald Trumpy. The president said Tuesday after meeting with New York Governor Andrew Cuomo that states will need assistance. “And I think most Republicans agree too, and Democrats,” Trump said. “And that’s part of pha$e four.”

    No state has defaulted on its debt$ since the Great Depre$$ion and even after the last rece$$ion only a handful of citie$ went bankrupt, since government$ have broad ability to rai$e taxe$.

    (Woe$er & woe$er …) :

    The current economic contraction may leave states facing an even worse fiscal crisis than they did a decade ago, which has prompted growing calls from the nation’s states and cites for Congress to provide aid to help them make up for the taxes lost by the nationwide shutdown. Governors have requested $500 billion and cities and counties $250 billion.

    1. Does yer “lover.boy” Trumpy borrow$ for what like x6 day$, do you even know?

      Think! … ok, now think harder, you can do it Block$!

  10. “Airbnb maintains that it’s ‘powered by local hosts,’ but the reality is quite different. Yes, there are many hosts on Airbnb who live in the properties they list on the platform. But, in many markets, including the entire of the United States, the number of ‘professional’ hosts seemingly outnumbers those listing on Airbnb to earn a bit of extra cash from their cosy spare room.”

    The original idea was a fine idea, and there are empty nesters who do it in Brooklyn. That had always been the case. There was this one service where “creative” types in NYC and Europe swapped places for a couple of weeks or a month, to get a chance to live elsewhere. And this was legal. But AirBNB made it easier.

    This market, however, was just not big enough for the Silicon Valley ego.

    “Airbnb’s hosts range from retiree holiday home owners to investors with vast but flimsy rental empires. While the former will lament the loss of a reliable secondary income, the latter now face financial ruin as their business model – a sort of ponzi scheme built off the back of Airbnb’s market-busting rental yields – turns to dust in the grip of coronavirus.”

    Nothing wrong with that either. Lots of people in the Northeast have second homes in the country that they rent out when they aren’t using them. In theory, this business should be booming, except that all the owners have fled the cities and are not renting out.

    1. Nothing wrong with the vacation home rental I meant. The multi-home speculators were insane.

      1. “The multi-home speculators were insane.”

        And financed by low-interest, federally guaranteed subprime mortgage loans.

  11. I’m in Palm Springs ,CA and the place is a ghost town.
    There are thousands of VRBO’s in the Coachella Valley.
    I wonder how did the “owners” qualify for the loan to own numerous units.
    I doubt they had 30% down as if they were non owner occupied rental units.
    I felt that the VRBO market inflated the prices here by at least 30%.
    It’s going to get ugly
    Have popcorn

    1. Any kind of government assistance should be limited to primary homes. Many of these folks lied and put minimum down to escape the dreaded investor down payment. Time to pay the consequences.

      1. Time for the government to stand back and let the reckless specuvesters bear the fruit of their high risk gambling activity.

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