Underrecognized zones where AirBnb+Ridesharing has altered how homes should be valued

The combination of AirBnb and Ridesharing has given certain residential properties, within a certain geographic range, unique and unforeseen utility that has forever changed the way these homes should be valued. The properties effected are large suburban/ rural homes within close proximity to a popular or unique destination. The desire for tourists to stay within this specific geographic region could be a one time event, seasonal, or year round. For large suburban/rural homes within these special zones the potential to monetize demand for lodging must be factored into the property’s value. 

Less than 30 years ago these special properties were inaccessible. Less than 15 years ago only a limited supply was available via Craigslist. Today, AirBnb has increased the total supply of homes available while Ridesharing expands the geographic zone which guests find desirable. Ridesharing allows guests to put less emphasis on the physical proximity to their destination and focus their attention on finding lodging that caters to their unique preferences. Ridesharing eliminates the need for guests to have a vehicle and they no longer need to worry about finding parking or securing a sober designated driver.

Popular vacation hotspots have certainly benefited from this powerful trend but there has always been a supply of rental units within these zones. The areas most effected are those were there was previously little to no supply. The AirBnb and Ridesharing combination is what gives these special properties their increased value.

Why large suburban/ rural homes specifically?

These properties offer a unique value proposition that hotel’s can’t replicate. They are sought out by groups of friends, coworkers, or families who put a premium on the experience of lodging together.

Data from two personal experiences highlight how lucrative it is to supply housing within these special zones. AirBnb charges up to a 20% guest service fee, a 3-5% host fee, and taxes on the subtotal, which includes the ever so subjective cleaning fee. Taxes are usually a combination of a states sales tax, local sales tax and a lodging tax- typically summing to upwards of 15% of the subtotal. With these fees considered I calculate a rough estimate of the profitability for a host as I was curious what percent of their mortgage payment would be covered by my three day stay on their property. I assume a 20% downpayment and apply the same local taxes/ expenses to both properties. (Both stays were from Friday afternoon- Sunday morning)

  • Ledyard,CT – $1700 total paid for a stay in a 330K house ≈ 65% of their mortgage payment
  • Amherst,MA – $900 total paid for a stay in a 425K house ≈ 37% of their mortgage payment

Objectively speaking both properties would be undesirable if it were not for Ridesharing. The Ledyard property is a 5-10 minute ride to either Foxwoods or Mohegan Sun casinos and the Amherst property was 10 minutes from the Umass Amherst campus. The Amherst host was solely capitalizing on the demand for housing during alumni weekend and was only able to offer 4 beds. Alternatively, the Ledyard Superhost had optimized his property for groups seeking lodging and stuffed the house with 12 beds.

The stay in Amherst was exemplary of how these special zones can emerge suddenly due to a local event while the Ledyard location capitalizes on year round demand. The Amherst location is much more akin to AirBnb’s original mission of monetizing underutilized space in your home while the Ledyard location represents what a lot of properties have morphed into; superior hotel alternatives.

Moving forward, the catalysts for growth seem robust for both the AirBnb platform and qualifying properties within these special zones. Millennials currently account for 60% of AirBnb’s business and as the cohort begins to enter their peak earning years they will likely seek even more vacations than they currently do [1]. Social media and peer to peer payment systems will continue to be essential friction reducing tools promoting group gatherings. Individuals will continue to value these gathers in both a genuine sense and disingenuous sense. In the FOMO era it would be difficult for an individual to miss an opportunity to broadcast their group experience via a social media post. These group lodgings are a prime opportunity to build social capital [2].

Home owners and realtors must recognize the immense trend currently at play. Appraising large suburban/ rural homes in these special zones must include the potential to monetize the property. Ignoring the influence of the AirBnb + Ridesharing combination would be costly.

[1] https://ipropertymanagement.com/airbnb-statistics/

[2] https://www.eugenewei.com/blog/2019/2/19/status-as-a-service

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