Booking Airbnb rentals used to be a quick, easy way to find accommodations. But since the coronavirus reared its head, it has caused big headaches for travelers and Airbnb hosts alike. While the spread of COVID-19 in the US has affected all aspects of the real estate industry, data shows that the impact has been most sizeable for short-term rentals.
As coronavirus cases and deaths have increased, numerous states have issued stay-at-home orders and clamped down on nonessential activity, including travel. With the global travel and tourism sector grinding to a halt following travel bans and flight cancellations, many owners of Airbnb rental properties are struggling to plug the hole in their monthly income.
Recent Airbnb data from Mashvisor displays major declines in Airbnb activity in March 2020 compared to March 2019. As booking cancellations increased, Airbnb occupancy rates have experienced a major drop in popular cities for Airbnb.
For example, occupancy rates of Airbnb rentals dropped 19.3% in New York, 20.4% in Seattle, 22.5% in San Francisco Bay Area, 23% in Los Angeles, and a whopping 29.1% in Miami. This was also accompanied by declines in the average daily rate which, as a result, lead to significant drops in monthly Airbnb rental income.
According to a recent Airbnb hosts survey by iGMS, 22.9% of hosts reduced their nightly rate by 60% or more. With uncertainties about how long the coronavirus pandemic will last, it seems like these downward trends will continue in the coming months.
Needless to say, 2020 has quickly become a challenging year for Airbnb hosts. Those who depend on their Airbnb rental properties for income are wondering what they can do after they were hit by the effects of coronavirus.
Airbnb’s Support for Hosts
In an attempt to curb the spread of COVID-19, Airbnb announced a global extension to its “extenuating circumstances” policy. This policy states that all guests booked for check-ins between March 14 and May 31 would be eligible for full-refund cancellations, overruling stricter cancellation policies chosen by Airbnb hosts.
The company said it “did not want guests making the decision to put themselves in unsafe situations and creating a public health hazard because of a commitment to their bookings”.
However, many Airbnb hosts were angered by this decision believing it’ll only cause them more financial hardship. In March, Airbnb was flooded with complaints regarding their cancellation policies from hosts saying the burden should be equally shared between guests, hosts, and the company during this crisis.
In response, Airbnb CEO Brian Chesky acknowledged the major impact this policy would have and apologized to hosts. The company also set up a $250 million host relief package to help out hosts who were affected by the massive coronavirus cancellations.
As part of the host relief fund, Airbnb hosts can claim 25% of the usual booking cancellation compensation when guests with check-in dates between March 14 and March 31 cancel their stays due to the COVID-19 pandemic.
Moreover, the company has also set aside an extra $10 million to help its “Superhosts” — those who are experienced, have high response rates and high overall rating scores. Airbnb Superhosts will be able to apply for grants of up to $5,000, but only if they meet certain criteria, like having a maximum of two active listings on the short-term rental site.
Provisions Under the CARES Act
In March, the US federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2 trillion coronavirus stimulus package will provide emergency financial relief to individuals and small businesses affected by the economic impact of the COVID-19 pandemic.
Under a few different provisions of the CARES Act, Airbnb hosts in the United States may be eligible to apply for small business loans, unemployment assistance, and more.
Most importantly, Airbnb hosts diagnosed with COVID-19 or whose family members are infected can apply for unemployment assistance. The amount of money one receives depends on the state unemployment compensation law and will include an additional $600/week for 4 months.
In addition, sole proprietor and self-employed Airbnb hosts are eligible for small business loans with low interest rates. If you suffer from lost income, you can use these loans to cover costs such as payroll costs, interest on mortgage payments, utility bills, and others.
Besides, if you hire independent contractors like cleaning services or property managers for your Airbnb rentals, you may also be able to apply for loans to pay those workers. So if you’re staring down an empty calendar and a vacant Airbnb investment property in 2020, you can benefit from this coronavirus stimulus package on top of the new support Airbnb is offering to hosts. You can read the entire CARES Act 2020 document here.
Switching Rental Strategies
While the coronavirus pandemic is certainly causing new challenges for Airbnb hosts at several different levels, there are things they can do to protect their real estate business. One thing that hosts who previously listed their units exclusively on Airbnb are now doing is to advertise on other websites as well like VRBO, HomeAway, and even Facebook Marketplace and Craigslist.
Most have also reduced prices in the hope of attracting guests who need to travel during this time. However, after the demand for short-term rentals has suddenly dried up due to COVID-19 and travel bans, this scramble for bookings might not be the most efficient way to make up for the lost income.
On the other hand, one mechanism that seems to be working for hosts to cope with the current situation is to turn Airbnb rental properties into long-term rentals. This is something that real estate investors have been doing for years in markets where running non-owner occupied short-term rentals became illegal, like Las Vegas, Boston, and Chicago.
Due to the short-term loss in demand and coronavirus cancellations, cutting rates and extending the duration of stays hasn’t been working for some hosts, giving them a tough time finding bookings. Hence, these Airbnb hosts turn to long-term rentals instead of listing their rentals for short-term stays.
Long-term rental properties are recognized as safe real estate investments during times of uncertainties. The CARES Act is helping financially struggling tenants who file for unemployment pay their rent. Meaning, as a landlord, you can still generate long-term rental income and real estate cash flow that’ll help you stay afloat on your mortgage.
Airbnb hosts turning to long-term rentals can return to the short-term rental market when the health crisis is over and their tenants’ leases have ended. If you found yourself enjoying the stability of long-term rental properties, this can be a great solution for the long-run.
Hosting New Airbnb Guests
Although long-term rentals are an option, many hosts would prefer to continue with short-term bookings. Although long-term rental properties provide more reliable rental income and cash flow, Airbnb rentals typically generate much higher revenues.
If you’d like to keep your Airbnb investment property running, consider renting out to a new category of Airbnb guests: first responders dealing with the COVID-19 outbreak. Airbnb announced an expansion of its Open Homes program (established in 2012) which lets Airbnb hosts provide free lodging in emergency situations. Airbnb waives service fees on these transactions, but hosts don’t have to offer their properties for free.
A lot of Airbnb hosts have turned to this solution, which recently became known as “Quarbnb”. Many are listing Airbnb rentals at reduced rates to front-line personnel like medical professionals and police officers who want to avoid a long commute or to isolate themselves while working on the frontline.
Hosts have also had luck renting out to employees who decided to rent vacation homes in less affected areas while they work remotely as more and more cities go under lockdowns. There are also cases in which stranded travelers and college students (whose campuses have closed down) needed a place to stay and, therefore, decided to quarantine in short-term rentals.
As you can see, this could be a good solution as there is a whole range of new kinds of Airbnb guests to whom hosts can cater to. Airbnb hosts should still keep in mind that location also plays a role in the success of this strategy.
For example, Mashvisor’s Airbnb data shows that while hosts in major cities are struggling with cancellations and a lack of new bookings, smaller, isolated places are reporting an increase in demand as many consider them safe havens. Plus, if your Airbnb rental is in an area that’s less affected and is close to hospitals, you’ll have higher chances of attracting guests as these are the most in-demand Airbnb rental properties.
The Bottom Line
It seems that it’s not all bad news for the short-term rental market. After all, this is not the first time that the Airbnb industry faces a challenge, even if the Coronavirus pandemic is of unprecedented scale. While the present time is definitely challenging for Airbnb hosts heavily dependent on Airbnb rental income, there is light at the end of the tunnel and ways to protect their real estate business in 2020.
If you decide to convert your property into a long-term rental, remember that you need to make calculated investment decisions – especially now during times of uncertainty. So make sure to use tools like Mashvisor’s Investment Property Calculator that provides traditional real estate data and Airbnb analytics to help you make the right move during this time.