Airbnb's Policy Update 👎

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Today’s top stories…

• Airbnb's policy update offers more flexibility during weather disruptions

• Real estate investors are richer thanks to a recent settlement

• The burst of a housing bubble can set off a domino effect

• 💰 Deal of the Day!: 5 bd | 4 ba | St, Greer, AZ

Today’s mortgage rate (30 Yr. Fixed): 6.91%

Airbnb's Weather-Proof Policy: A Shelter from the Storm for Vacation Rental Investors

Airbnb's game-changing policy update is here, and it's a hurricane of bad news for your vacation rental investments. Starting June 6th, guests can cancel reservations without penalties due to foreseeable weather events like hurricanes. This means lost revenue during mandatory evacuations, refunds for mid-trip cancellations, and hosts must cancel without fees if listings become uninhabitable.

It's important to note that this policy applies only to reservations made on or after June 6, 2023. For reservations made before that date, the original cancellation policy will still be in effect.

Airbnb is also removing all indoor security cameras by April 30th and aligning with industry standards for fair and consistent outcomes. This move not only enhances guest privacy but also ensures a level playing field for all hosts, regardless of their property's location or amenities.

So, what does this mean for you as a real estate investor? First and foremost, it means increased risk during hurricane season. With guests able to cancel without penalties you could find yourself with unexpected drops in revenue, especially in places like Florida. This policy update is likely to increase guest confidence and bookings, as travelers will feel more secure knowing they won't be penalized for weather-related cancellations. Might be good in the long run for the platform, but it’s always worrisome when Airbnb makes the decision for hosts.

Pro Tip: You can also invest in vacancy insurance in the unlikely event your home is uninhabitable due to a natural disaster. It could help you “weather the storm.” Ugh. Sorry about that one.

Cashing in on Commission Shake-Up

Quick update on the National Association of Realtors (NAR)’s settlement regarding commission price collusion. The biggest winners are residential real estate investors and owners. With the expected decrease in average real estate commission rates by 1% to 3% this year, sellers will retain an additional 1% to 3% of their home equity.

Even for those not selling, the value of their residential real estate holdings in their net worth calculations will see a boost of 1% to 3%. In the future, it's possible that residential real estate owners could see an increase in the value of their holdings by 5% to 6%, as competition pressures commission rates down across every industry.

To illustrate the potential gains, consider the following:

• A $500,000 property with a 1% commission rate reduction would result in a $5,000 gain for the owner

• A $2,000,000 property with a 3% commission rate reduction would result in a $60,000 gain for the owner

The only residential real estate investors who may not benefit from the NAR settlement are those unwilling to negotiate down a listing agent's commission. However, for the majority of informed and wealth-maximizing investors, negotiating lower commission rates will be a top priority.

It's important to believe in your ability to negotiate a better deal. In 2017, the author successfully negotiated their real estate commission down to 4.5%, and in January 2024, before the NAR settlement but after the verdict, they further negotiated their selling commission rate to 3.5% with an experienced team.

Residential real estate buyers may also benefit from the settlement. Some sellers may choose to share a portion of their commission savings with the buyer in the form of a credit at closing, helping to offset the cost the buyer now pays for their buyer's agent representation.

The Housing Bubble Burst: A Domino Effect of Economic Consequences

The bursting of a housing bubble is marked by a sudden plunge in home values, often triggered by a shift in market dynamics. As demand decreases or supply surges, homeowners find themselves in a precarious position, with properties worth less than their purchase price. This "negative equity" scenario, also known as being "underwater" on a mortgage, sets off a chain reaction of economic repercussions.

Foreclosures Rise, Market Saturates

As homeowners struggle to refinance or sell their homes, foreclosures become more prevalent. Unable to keep up with mortgage payments or seeing no financial sense in continuing to pay for a property that has lost value, many are forced to let go of their homes. This influx of foreclosures saturates the market with additional properties, further driving down home prices.

Consumer Wealth Evaporates, Spending Slows

The drop in home values erodes consumer wealth as the equity built up in homes disappears. This loss of financial security has a chilling effect on consumer spending, as homeowners feel less confident about their financial future. The decrease in spending can slow economic growth and potentially lead to a recession.

Financial Institutions Suffer Losses, Credit Tightens

Banks and other financial institutions that backed the mortgages also suffer significant losses. As a result, lending standards tighten, and the availability of credit reduces. This credit crunch can further dampen economic activity, making it harder for businesses and consumers to obtain loans for investment and spending.

Construction and Financial Sectors Contract, Unemployment Rises

The aftermath of a housing bubble burst extends to the job market. The construction industry, which often thrives during a housing boom, experiences a significant downturn, leading to job losses. The financial sector, including real estate, banking, and insurance, may also contract, further increasing unemployment rates.

Confidence Wanes, Investors Retreat

The psychological impact of a housing bubble burst cannot be understated. Consumers and investors lose confidence in the housing market and the economy as a whole. This loss of confidence results in decreased consumer spending and investment, as people become more cautious with their money, fearing further losses.

Local Governments Face Budget Shortfalls

A decrease in home values leads to a reduction in property tax revenues, a significant source of funding for local governments. This can result in budget shortfalls and cuts to public services and infrastructure projects, further exacerbating the economic challenges.

Global Ripple Effects

In today's interconnected world, the effects of a housing market crash in one nation can ripple through the global economy. Countries linked through trade and finance can experience adverse effects, as evidenced by the 2007-2008 financial crisis, which originated in the United States housing market but led to a global economic downturn.

The bursting of a housing bubble is a stark reminder of the importance of financial prudence and the need for regulatory oversight. As individuals and nations navigate the aftermath of such economic phenomena, it is crucial to learn from past experiences and work towards building a more stable and resilient financial future.

💰 Deal of the Day!

Price: $889,000

Address: 100 Main St, Greer, AZ 85927

This exquisite log cabin in Greer, AZ, provides a rare blend of seclusion and convenience, making it an ideal vacation rental; its strategic position by the national forest offers stunning views and direct access to natural beauty, while the custom design combines modern amenities with rustic charm, enhanced by practical features like Starlink internet and central heat, alongside a separate bungalow for additional privacy or income, all within walking distance to Greer Village's attractions.

Airdna data:

Estimated monthly payment: $5,229/month (if financed)

Estimated monthly revenue: $4,208/month

Cashflow excludes additional operating expenses. Always confirm local regulations, HOAs and permits before purchasing a property.

See you tomorrow!

✍️ Brett