COVID Conjectures: Vacation Rentals

I’ve long preferred real estate over financial assets. The 2008 crisis taught me a lot of lessons about real estate investing. Most of them were expensive. But, hey, education is worth paying for.

However, unlike that last financial crisis over a decade ago, the current COVID crisis doesn’t have at its core a connection to real estate. In fact, real estate may prove to be a safe haven investment vis a vis financial and paper assets over the coming years.

But there’s a novel factor that didn’t exist in the last crisis that I believe will be pertinent in this one: the incredible prevalence of “sharing economy” and “peer-to-peer” vacation rental properties. It’s hard to believe that Airbnb was founded in 2008. Back then, when we vacationed, we stayed at things called hotels. They’re like really big Airbnbs shared with other families.

There are now tens of millions of these properties around the world. Airbnb alone had over 7 million property listings prior to COVID.

And now, very sadly, thanks to Coronavirus, the vast majority of them sit vacant.

So, how does that tie back to real estate?

Well, here’s my humble prediction. Spring and early summer will see long-term rental property inventory rising as owners pivot from nearly zero demand for nightly rentals. By late summer, those properties not rented or that may not appeal to long-term tenants will then go on the market for sale.

As they say, real estate markets are local, and this is an affirmation of that principle as markets with a higher proportion of vacation rentals will see much more dramatic inventory levels. Some beachtown neighborhoods have more nightly rentals than they do primary residences.

The good news? If I’m right, there will be some compelling buying opportunities in select locales. Yes, I still prefer real estate to financial assets.

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