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Extraordinary investment opportunities – Part 3

AirBnB!

Renting out houses and apartments has been around for ages, so this should be no extraordinary investment. Innovation within the accommodation industry has been limited over the years where renting out “empty” apartments/houses on a monthly basis has been the dominant business model. If you wanted a shorter stay you would look for a hotel room or a hostel.

But bim bam boom! A unicorn appeared – AirBnB! It shook up the industry and created opportunities for the happy treasure hunters!

So what do we know for sure about AirBnB? We know that the returns in the long run won’t be that extraordinary as apartment/home prices and renting rates will be subject to the forces of supply and demand over time. But we also know that so far returns seem to be extraordinary as AirBnB is special because of its new and hard for big money to replicate factor.

AirBnB is extremely lucrative for homeowners because their house or apartment usually is one of the largest assets and because the rate of return that has to beaten is pretty much zero. Before AirBnB, the return on having a home while being on vacation was closer to negative than positive. After AirBnB the home might generate so much cash that a cheap vacation potentially becomes profitable.

For people buying properties with the purpose of renting them out, AirBnB has also created opportunities for extraordinary returns. The new factor enables AirBnB landlords to take advantage of the new distribution channel and rent out homes at rates that often are higher than normal monthly rents. This happens as the landlord can enjoy both the higher price that comes with short term renting and a low vacancy that is normally reserved for long term renting. AirBnB simply solves the distribution challenge of short term renting.

Another reason why renting out on AirBnB most likely gives better returns than normal renting out is that it is hard to replicate for big money. The whole AirBnB concept is focused on local and personalised home experiences, which means that big money has a hard time exploiting the market. The AirBnB market therefore lives relatively untouched side by side with the big-money-accessible market that is pressured by fierce investor competition. In addition to this many AirBnB hosts have enjoyed many local/country advantages over hotels and institutional landlords in the form of licenses, taxes and other requirements.

It does seem that the legislation and prices are moving towards a more and more even playing field for AirBnB’ing and other types of renting out, but as far as we are told there are still extraordinary returns to be earned by AirBnB hosting. We haven’t been AirBnB hosts ourselves as our apartment isn’t suitable for it, but a good friend of ours has earned quite a lot by AirBnB’ing out his apartment while doing consulting gigs internationally. Until we move out of our current apartment, we have to stick to being guests and enjoy the experiences instead.

The internet seems packed with AirBnB success stories. Have you had any good or bad experiences with it?

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