‘A Bargain With the Devil’—Bill Comes Due for Overextended Airbnb Hosts
After reading this well written (and researched) piece in the Wall Street Journal, I can’t help but think of this quote from Warren Buffett from his 2001 Chairman’s letter:
“After all, you only find out who is swimming naked when the tide goes out”
– Warren Buffett
The coronavirus has up-ended a lot of companies and industries including Airbnb, the company, and in particular, it’s property owners. As the article references, many of the property owners have fancied themselves as “entrepreneurs” and real estate investors relying largely on debt financing to purchase these properties. This paragraph could be applied to many other companies in addition to Airbnb…
“The coronavirus’s spread has exposed swaths of the U.S. economy that were ill-suited for a crisis—great for offering inexpensive goods and services quickly, terrible in an economic disaster.”
Further down the article is this paragraph….
“Hosts should’ve always been prepared for this income to go away,” said Gina Marotta, a principal at Argentia Group Inc., which does credit-risk analysis for real-estate loans. “Instead, they built an expensive lifestyle feeding off of it.”
In short, many of these hosts we’re enjoying the wealth of a robust economy, low-interest rates, and a booming real estate market without fully comprehending the risks.
I found it interesting that a third of the hosts operated more than 25 properties! While I haven’t followed the company in great detail, I was surprised to see that there were companies (“startups”) that were sprung from renting out Airbnbs. The article then followed by this last sentence – “Many of those companies have furloughed or laid off staff in recent weeks.”
The article then goes into further detail on these subjects and is worth reading in its entirety.
Tom