Airbnb is changing up the real estate market in L.A.
Airbnb is a website for people to list, find, and rent lodging for short term trips and vacations. Airbnb runs on a marketplace platform model where they connect hosts and travelers and enable transactions without actually owning any rooms. They currently have over 1,500,000 listings in 34,000 cities and 190 countries. Airbnb has grown to a value of over 25 billion dollars since their start in 2008. To give some perspective, Marriott International Inc is valued at 21 billion dollars.
WHAT DOES THIS MEAN FOR YOU AS A PROPERTY OWNER?
Millions of people from all over the world have started using the service to rent out their properties to vacationers. Anyone can log on and rent your property by the night or by the week instead of a hotel in the area. Currently there are more than 6,000 Airbnb listings in the Los Angeles area alone. As a real estate owner, you might want to consider using your property as an Airbnb rental versus a traditional full time tenant. The profits from short term rental can be over four times more than you are making on that same rental today. We took the time to analyze how a traditional rental unit could profit using Airbnb.
Airbnb can increase your rental profits with any type of unit leading to a substantial monthly income over your properties. The influx of Airbnb in Santa Monica and Venice, CA have driven apartment buildings with two to four units up in price about 25% currently. This is spilling over into the Culver City and Mar Vista areas as well. Two to three years ago, before the prices jumped, investors were seeing returns upwards of 10% by converting these types of units to Airbnb. If you are considering investing in some additional real estate and using those properties as short term rentals, buy now before the prices increase in your area.
“With a potential of over 8% cash on cash return, there is serious profit potential today with Airbnb. If you own a two to four unit apartment building already, consider converting to Airbnb or sell to an investor who is interested in making the conversion. ”
GOVERNMENT REGULATIONS
The influx of Airbnb rentals in the Los Angeles area has recently caused quite a stir with local laws and regulations. In May of 2015, Santa Monica actually approved a tough set of rental laws specifically targeting short term rental agreements. There have been some increases in sales tax on short term rentals as well as door to door inspectors in Santa Monica. Be sure to check on your local laws and regulations before investing or listing your current properties on Airbnb.
HOW DO NEIGHBORHOODS BENEFIT?
There are also various benefits to the transition from traditional rental to Airbnb. The investors often clean up the buildings and give back to the neighborhoods. The use of a rental unit as an Airbnb property can also benefit the local tourism industry by offering affordable alternatives. Airbnb averages $195 per night in Venice while a Santa Monica hotel is almost $400 per night. The market is also gaining more overnight rooms through these Airbnb transitions.