Airbnb will naturally drive up rents in places where it’s being used. If a tenant has the capacity to pay (e.g.) $2000 for an apartment, but now can get an additional (e.g.) $300 a month, the tenant’s capacity to pay is now $2300.
A savvy landlord or condo association would want to capture this. Because it’s new, it’s seen as a disturbance. A little bit of thinking would reveal that there is now $XXX new money coming in the door (due to better utilization of the property).
It’s in the owners’ ultimate interest to figure out how to either a) accommodate this explicitly and safely, and capture some of the new revenue or b) prohibit it because the tenants prefer it, but know that the price of a “non-shared” building will carry a premium.
One way a condo association might adopt the idea is to point out that Airbnb’ers $$ might be used for building upgrades or to reduce condo fees.
An HOA board which explicitly allows Airbnb listings, and especially one that profits from it, is in for a world of pain. You cannot get financing for a mortgage in a short-term rental community. That will discourage new buyers who can't get financing and drive down re-sale values.
Why would a lender be troubled by this? The property, due to a new source of income, is worth more. Seems like more income = less risk from the lender’s point of view.
Fannie Mae and Freddie Mac have extensive rules on what mortgages they'll buy. These are known as conforming loans and get buyers the best terms and easiest approval (thus raising sale prices). For condos these rules are especially complex. Any property which has commercial use or rentals is already flagged for extra scrutiny and there are some uses which flat-out get it disqualified.
Lenders not only want to be able to have Fannie/Freddie buy their loans eventually, but they also want the home to be easily sold. And traditionally home buyers want the "white picket fence" dream. Once the property turns into a an apartment/vacation/commercial complex, their market of buyers totally changes. There's nothing wrong with that inherently but it means that different people need to be underwriting and making those loans who can properly assess the value.
Good point. I assumed the rents were driven up because fewer apts became available (tenants renting out their old place, or even landlords not signing up new tenants and taking the AirBnB revenue stream without the headaches or leases or evictions) but as you outline, the extra income may allow landlords to drive up the rents without much of a risk of turnover...
Comments
Airbnb will naturally drive up rents in places where it’s being used. If a tenant has the capacity to pay (e.g.) $2000 for an apartment, but now can get an additional (e.g.) $300 a month, the tenant’s capacity to pay is now $2300.
A savvy landlord or condo association would want to capture this. Because it’s new, it’s seen as a disturbance. A little bit of thinking would reveal that there is now $XXX new money coming in the door (due to better utilization of the property).
It’s in the owners’ ultimate interest to figure out how to either a) accommodate this explicitly and safely, and capture some of the new revenue or b) prohibit it because the tenants prefer it, but know that the price of a “non-shared” building will carry a premium.
One way a condo association might adopt the idea is to point out that Airbnb’ers $$ might be used for building upgrades or to reduce condo fees.
An HOA board which explicitly allows Airbnb listings, and especially one that profits from it, is in for a world of pain. You cannot get financing for a mortgage in a short-term rental community. That will discourage new buyers who can't get financing and drive down re-sale values.
Why would a lender be troubled by this? The property, due to a new source of income, is worth more. Seems like more income = less risk from the lender’s point of view.
Fannie Mae and Freddie Mac have extensive rules on what mortgages they'll buy. These are known as conforming loans and get buyers the best terms and easiest approval (thus raising sale prices). For condos these rules are especially complex. Any property which has commercial use or rentals is already flagged for extra scrutiny and there are some uses which flat-out get it disqualified.
Lenders not only want to be able to have Fannie/Freddie buy their loans eventually, but they also want the home to be easily sold. And traditionally home buyers want the "white picket fence" dream. Once the property turns into a an apartment/vacation/commercial complex, their market of buyers totally changes. There's nothing wrong with that inherently but it means that different people need to be underwriting and making those loans who can properly assess the value.
Higher risk of the tenants destroying the property, which might not be covered by the insurer.
Good point. I assumed the rents were driven up because fewer apts became available (tenants renting out their old place, or even landlords not signing up new tenants and taking the AirBnB revenue stream without the headaches or leases or evictions) but as you outline, the extra income may allow landlords to drive up the rents without much of a risk of turnover...