AirBnB Destroyed The American Dream Of Owning A Home
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A friend of mine recently planned a last minute vacation to Gatlinburg, TN in the Smoky Mountains. If you’re not familiar with the area, it’s a real tourist hotspot that’s typically clogged with vacationers and travelers. He wanted to book a cabin through AirBnB, but was worried that trying to book just a week and a half out it would be difficult, if not impossible, to find one for three nights.
Instead, it was the complete opposite. Available cabins were plentiful all across the area. Even the three night stay wasn’t an issue. In fact, several places offered 15-20% discounts for booking a stay. Perhaps some of this was due to vacationing in August when some families had already finished up their summer trips and kids were beginning to head back to school. But it certainly couldn’t explain all of it.
The AirBnB phenomenon is a perfect example of how an interesting idea gets completely over-leveraged by people who see nothing but dollar signs. Then we get the inevitable bust that implodes and resets the entire market. We saw it during the tech bubble in the early 2000s. We saw it during the financial crisis. It looks like we could be setting up to see it again in real estate.
The Boom in AirBnB
AirBnB started out as a relatively simple idea. If you’ve got a spare room or area of your house that you don’t use, you can rent it out to others as an alternative to booking a hotel room. For a lot of people, it turned into a nice little side hustle or a way to earn some extra money on the side.
But then people started getting greedy. If you’re able to rent out a room for X dollars, you can make even more renting out the entire house. And if you can do this with one house, you can do it with five houses. Then, the sky becomes the limit in terms of the income you can generate on AirBnB properties.
So hopeful real estate moguls start buying up properties left and right to convert them into AirBnB rentals. A lot of them figured they could use the income from these rental properties to finance the mortgage on their permanent residence, effectively making their homes (and hopefully properties as well) “rent-free”.
It’s a fine idea that works for a while until too many people try to pile in and it renders the entire market unstable. That’s what’s happening now and it threatens to take down the entire real estate sector with it.
Where It’s Going Wrong
In simplest terms, it’s a growing imbalance between supply and demand.
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