Uber has emerged as one of the most promising companies in the transportation sector yet many still see it as a technology company.
On the other hand, Airbnb is a travel company that runs a peer-to-peer online marketplace and homestay network enabling people to rent short-term lodging in residential properties. The owner of the property sets the price of accommodation while in the case of Uber, the platform owners set the rates.
Now, while Airbnb operates as a hospitality company, property owners may see it as an opportunity to invest in real estate. Most people who have signed up with Airbnb to rent their properties for accommodation target traveling clients (tourists and business people), which makes the market more inclined to the hospitality industry.
As per this Quora user, who also happens to be an Airbnb property owner, Airbnb investors make more money when they invest in properties located in places frequented by tourists and business travelers. As such, cities like Paris, Miami, New York and Los Angeles sound ideal for Airbnb investment. However, investors can also find interesting opportunities in beach house investing. For instance, Gulf Shores real estate opportunities may not present the attractiveness of Miami or Paris. However, a simple search on the Airbnb website shows that the rates per night are close to what one would pay in San Francisco.
Real estate is certainly one of the best investment vehicles for people looking for alternatives to the stock market. However, as is the case with Uber, there are various headwinds that can count against investing via Airbnb.
Uber has faced strong resistance from various locations across the globe with some governments moving to protect their own short-distance travel industries. Uber drivers have also complained about the low rates charged to passengers as compared to what they would otherwise have charged for a given distance.
Now, when it comes of Airbnb, most places restrict rentals to a minimum of 30 days, and this has become an issue for many Airbnb property owners. For instance, a good example is San Francisco, whose HOA (Home Owners Association) rules require a 30-day minimum for leasing and a maximum of 90 days for rentals whose host is not present.
In addition, “the Office of Short Term Rental which is part of the city government is proactively policing AirBnB, VRBO and Flipkey for units and issuing fines when they pinpoint the building location,” points out the Quora user in his reply to an Airbnb question. He claims to have been fined twice already.
As such, while Airbnb presents a lucrative market place for investors looking to invest in real estate via the hospitality industry, there are clear hurdles that mirror those faced by Uber drivers. Therefore, with Airbnb, the host can be likened to an Uber driver as technology continues to revolutionize the travel and hospitality market.
Despite these obstacles, Airbnb has grown to become one of the world’s largest companies with a reported valuation of over $30 billion since beginning operations in 2008. On the other hand, Uber, which launched in 2009 has a reported value of about $28 billion as of 2016. Both companies have been tipped to go public next year, but not everyone sees value for money going forward. For instance, Warren Buffett (Trades, Portfolio) indicated earlier this year that if Uber was to go public, his company Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) may not invest in the innovative travel company. When asked if Uber goes public would Buffett buy the stock, Buffett said, “No. It would go public at a price that would be — it would be very hard for me to decide that the discounter value of all the future cash that was going to be produced was going to be attractive in terms of the price.” He also added that “modern deficits don’t matter.”
However, Buffett’s view on Airbnb was slightly different after endorsing the company’s business model and the need for cheaper accommodation options in March last year.
Conclusion
In summary, investing in real estate can be done through several channels. However, Airbnb’s innovative marketplace appears to have popularized the business model and now more investors are looking for opportunities in this space while more startups continue to crop up.
Nonetheless, just like is the case of Uber, another online-based platform which capitalizes on assets owned by individuals, Airbnb continues to face several challenges in a bid to expanding its global reach.
Disclosure: I have no positions in any stock mentioned in this article.
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