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Airbnb Needs Millions More Hosts -- Is It an Investor Opportunity?

Apr 26, 2021 by Matt Frankel, CFP
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Home-sharing and vacation rental platform Airbnb (NASDAQ: ABNB) has a problem. There are about 4 million hosts currently using the site to rent out their properties, but this isn't nearly enough. CEO Brian Chesky recently told CNBC that the company will need to add millions of new hosts to the platform if it wants to keep up with demand.

This is certainly a good problem to have -- a massive opportunity to go after and a ton of consumer demand that should help convince hosts to use the platform. But it's still a problem for Airbnb, as not having enough hosts on the platform to accommodate demand will not only cost the company millions or even billions in lost revenue but could also be a turnoff to potential customers who can't find accommodations.

Specifically, Chesky anticipates a "travel rebound coming that's unlike anything we've ever seen." And Airbnb is currently trying to recruit new hosts as quickly as possible.

Could this be an investor's dream scenario?

At first, this might seem like a great situation for real estate investors, especially those who might be interested in buying a vacation home. After all, the CEO of the largest vacation rental platform in the market is telling you that there's going to be massive demand for vacation rentals that cannot be met with the current inventory on the site.

However, it's not exactly a no-brainer, so don't run out and start buying as many vacation properties as you can. The real estate market certainly realizes that there's a ton of pent-up demand for people to get out and about, and this is being reflected in many popular vacation rental markets around the U.S. And this is on top of the already strong real estate market fueled by generally low inventories and record-low mortgage rates. In fact, the typical home value in the United States has increased by 10.6% over the past year, according to Zillow (NASDAQ: Z) (NASDAQ: ZG).

It's also worth pointing out that because of high demand, many vacation homes are selling for more than their appraised value, which can lead to financing issues. In many cases, if a property doesn't appraise for the sale price, the buyer needs to come out of pocket for the difference (meaning that the down payment could be significantly larger than the 20% many buyers expect).

The point is that vacation demand has increased over the past year or so, but so has the value of real estate that could potentially be listed on Airbnb. Don't get me wrong -- buying a vacation rental could still be a smart investment, especially considering the expected wave of demand that's coming. But it's important to make sure the cash flow you expect to receive justifies the higher price you'll likely pay to buy a property. And, if you're seriously considering becoming an Airbnb host, it's a smart idea to look into what being an Airbnb host entails, as all types of real estate investing have their pros and cons.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Airbnb, Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.