Ever feel like you can’t get a break? American homebuyers are definitely starting to feel that way.In addition to rapidly rising interest rates and a shortage of affordable inventory, new potential hurdles are making home buying difficult — short term rental investor.
Real estate in cities like New York, San Francisco, and Los Angeles was already notoriously out of reach. The average home price in Los Angeles is over $1 million. About 25 years ago, a million dollars could have bought you a nice house in Malibu. Now, if you’re lucky, you can buy Fixer Uppers in your upstart neighborhood.
That caused a massive population exodus, and when people left these cities, they flocked to Sun Belt states like Florida and areas of the Gulf Coast. is. As more affluent buyers visit these areas, demand for short-term rental housing increases. After all, their family and friends need a place to stay when they visit, right?
when Airbnb Inc. (Nasdaq: ABNB) launched as a home-sharing app for vacationers looking for a more comfortable option than a hotel, it seemed like a godsend. Suddenly, travelers could rent a house for the week, the weekend, or the whole month. The price is similar to being trapped in a hotel room with none of the comforts of home.
In a classic case where imitation is the most sincere form of flattery, Airbnb’s business model has been copied by many other companies. The company has gone from being a pioneer in house-sharing and short-term rentals to just his one operator in a sea of competition. Below is a partial list of other nationally recognized short-term vacation rental providers.
One Fine Stay
This listing is in addition to a number of vacation destination property management companies that specialize in short-term housing. It’s an industry worth over $1 trillion a year. This trend has had an unintended impact on the housing market by shrinking inventory available to traditional homebuyers.
Single-family homes as short-term vacation rentals used to be a niche market. But after the success of the home-sharing platform, astute investors started taking notice. It didn’t take long before both homeowners and investors realized they could make money from their homes by renting them out during the tourist season.
In the Sun Belt state, which has summer and winter tourist seasons, it makes sense for investors to pay $10,000 a month for six to eight months a year for a home that might cost $150,000 to $200,000. It started looking like a proposal. Soon, a daily homeowner was using his equity to buy vacation homes with the sole purpose of turning them into short-term rentals. Then investment funds got involved.
Funds and Institutional Investors
Historically, most institutional investors and real estate investment trusts (REITs) focused on multifamily commercial real estate, industrial buildings (medical, manufacturing), retail facilities, and hotels. These large investments have provided solid returns and fairly stable returns.
But when short-term housing bookings picked up, the same fund realized that buying large tranches of single-family homes and switching to short-term rentals could make a big profit. For example, a portfolio of 200 vacation homes paying an average rent of $10,000 per month equates to $2 million in monthly rental income.
Institutions and funds are too smart and well-capitalized to ignore these kinds of returns. One prominent example is his Ohio-based ReAlpha. The company is raising funds to purchase his $1.5 billion home across the Sunbelt, with the express intention of operating the property as short-term vacation homes. By some estimates, the capital they are investing will allow them to buy 5,000 homes.
They are not the only players.Besides institutional funds and his REITs, online investment platforms such as here and the Jeff Bezos-supported Arrived home Jumping into the game, making short-term home fractional ownership an investment opportunity for everyday Americans.
As you can imagine, investors aggressively buying single-family homes and switching to short-term rentals are driving home prices up quickly. To further complicate matters for prospective homebuyers, these funds are all-cash, non-contingent offers. No need to wait for appraisals or loan approvals to close a deal.
This is great for home sellers, but it’s great for home buyers looking for a starter home rather than adding to their portfolio. I was competing with a buyer. Now they are competing with large funds looking to close hundreds or thousands of deals in one fell swoop.
This trend has the effect of making many prospective homebuyers feel stuck between a rock and a hard place. They find themselves competing with buyers for a seemingly endless supply of cash.
it’s a complicated problem
The truth is that buying a home is always difficult. Even in a time when FHA fundraising was booming and there was no competition from institutional investors and investors, buying a property was an event fraught with challenges and many disappointments before prospective buyers found success. . But the new situation adds more complexity to what was already difficult.
Further complicating matters is the fact that most American cities are zoned primarily for single-family homes larger than required by modern standards. All those yards become a lot of space that could accommodate more affordable housing. For that reason alone, the public and private sectors need to work together to solve the problem of rising housing prices.
What should homebuyers do in the meantime?
So what’s the solution for traditional homebuyers looking to purchase single-family homes in a market full of investor cash? Solid real estate investments can increase purchasing power. If his $50,000 saved for a down payment isn’t stepping in, you can try increasing that money.
Fractional real estate investment We provide individual investors with an easy option to buy shares in income-generating properties, such as short-term rentals, long-term rentals and even commercial properties.
Looking for ways to increase your returns? Check out Benzinga’s article on alternative real estate investing.
Or see current investment options based on your criteria Benzinga Offering Screener.
photo courtesy Mark Winfrey at shutterstock
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