Airbnb IS CRASHING - Sellers Are Getting DESPERATE

I just have to say that I am so thankful for neighborhoods like this one where there's all this foliage and all this tree cover now that it's starting to feel like summer here in Miami, because it is such a relief walking through spots like this and just being completely 100% out in the open. And as it turns out, the Airbnb fire sale is here and it looks like ground zero for this Airbnb fire sale is taking place in Galveston, Texas. In case you don't know, Galveston, Texas is a beach community not far from Houston, Texas. And this is one of the tourist destinations that Texas has. So naturally, you're going to see a lot of people get into short-term rentals in an area like this. There's a couple that bought a home, a Victorian home, spent a lot of money renovating this house. They spent two years and hundreds of thousands of dollars restoring the Victorian house. And even though the home has been wonderfully restored back to its original glory, now that they're trying to sell it, they can't. Their house has been sitting on the market for over 120 days. And the average Galveston, Texas home now sits on the market for over five months. And now it's looking like Galveston could be the largest buyer's market in the greater Houston area as of right now. Now, this couple says that they have bought and sold several homes in the area before and never experienced anything like this in terms of the delay that it's taking to sell a house. And this is that wake-up call that I've been saying that sellers are finally going to be getting. Yeah, this is it right here. People that have been, you know, buying and selling houses for decades in the same metro region never went through any sort of a slowdown until now. And they're finally starting to see the reality of today's market on how unaffordable housing is and how few buyers are out there looking for what you have. And this proves my point right here. What's the asking price for this home? 1.05 million. And here's the funniest part of all of it. Their real estate agent says, I don't think that the price is really what's stopping anyone anyway. No one's even really been looking. Okay, well, why do you think they're not looking, dude? You think if that house was half the cost, you think maybe somebody would be interested? Probably. So for a real estate agent to say that, that is just misleading and stupid. In fact, one of the things that I learned very early on in my real estate career, when I started at my first office, we used to have sales meetings every Tuesday morning. And one thing that was kind of drilled into our heads was this, if you can't sell a listing, you need to lower the price. It's always the price guys, because there will always be a buyer for any home you can imagine for the right price. It might not be the price that the seller desires, but there will be a buyer if the price is right. And so for any real estate agent to say, well, I don't think it's the price is why it's not selling. Like, yeah, it is man. And this real estate agent's a fool because they're going to end up not getting their commission because this home is going to sit on the market. The listing's going to expire and the house isn't going to get sold. So their ignorance or stupidity is going to land them in a situation where they don't get a sale. Now in Galveston, Texas, the number of homes for sale has surged 42% in the past year, hitting about 1000 listings, according to the local MLS. That's more than double the amount of homes for sale in the area two years ago, when there were just 431 homes for sale. So it turns out that shortage during the pandemic that everybody's been talking about. Yeah, that's over. And check this out. A lot of the supply of the homes for sale are from investors who purchased during the height of the pandemic, when the low interest rates and flexible remote work policies made second homes and vacation rentals more attractive. Oh, and also let's not forget, everybody was pumped full of cash and was able to go and spend a bunch of money they didn't have on staying in Airbnbs, which gives people confidence to buy short term rental properties. And you know, a lot of people are going to be losing a lot of money over these deals gone wrong. And I'm sure a lot of you out there don't really feel bad for them. And I don't either, to be honest, because when you're buying based on a completely temporary situation and thinking that this endless money train is just going to go on forever, well, that's pretty foolish, just like the real estate agent saying the price isn't the problem. And check this out. The situation in Galveston is so bad that they have now 17 months of housing supply. And don't forget, four to six months is considered balance, which is where we're at on the national housing market right now. You're that YouTuber. You're the leaf blower guy. What's up, man? How are you doing? I watch your videos. I always see you guys in the videos. I'm like, yeah, there's the leaf blower guy again. You can't hear a word I'm saying. That's all right. We all got a job to do, man. Yeah, I watch your real estate videos. I appreciate it, man. Thanks for being a fan. No, I don't live here. I'm just doing a video here. All right. Yeah, the usual. Yeah. What's your name? Eli. Eli. Nice to meet you, Eli. Nice to meet you, too. All right. Take care, man. Bye. Finally, nice to meet the leaf blower guy. Shout out to Eli. Even though we talk about a lot of controversial topics on this channel, I think one thing we can all agree on is we would all like our information online to be more private. And that's why today's video is sponsored by Delete Me. Delete Me is a hands free subscription service that will remove your personal information that's being sold online. Delete Me's privacy experts remove you from hundreds of data brokers all year long. Since I personally have been using Delete Me for over a year now, they have reviewed over twenty seven thousand listings on my behalf to make sure that my information is not just hanging out there on the Internet. Take a look at this report. I have currently eight removals in progress, but they have removed my information from hundreds, if not thousands of other data broker websites. They remove things like my name, my address, my past addresses, my work history, all different sorts of things that should be private. So make sure to get 20 percent off your Delete Me subscription by joining today using my link down below at join delete me dot com slash board and arrow or use the QR code on the screen. And just so you're aware of how far out of hand things got in Galveston, especially people buying these short term rental properties, is before covid you would buy a house there for about three hundred thousand dollars. And during the height of the market in the pandemic, they were selling anywhere between six hundred thousand and seven hundred fifty thousand. So trading more than double what they were before for people trying to cash in on the short term rental gravy train. And they talked to a real estate broker there, and he says that back in those days he was getting up to six calls a week from prospective short term rental investors, and many of them were banking on unrealistic revenue projections from vacation rental platforms. Wow. Hmm. Sounds like buying for the wrong reasons. They said the buyers weren't looking at the comps. They weren't looking at anything. They didn't even know the area or the island. They were just excited to buy. So in twenty twenty three, Galveston, Texas, had a registered forty nine hundred and seventy four short term vacation homes. And that's just registered. Think about that. How many people do it under the table, too? Right. But that was a 78 percent increase from twenty twenty. And you guys can see when you look at this chart here going all the way back to twenty seventeen, there was barely two thousand properties registered with the area and it exploded to basically five thousand in just the next few years. Guys, that's how much of a fever this whole thing was. But a lot of these investors were unprepared for the seasonal tourism patterns where booking surge on the weekends and around festivals and holidays. But they dip in the middle of the week or in the off season. And that's something that needs to be accounted for if you're a professional real estate investor, particularly if you're doing short term rentals. And now the problem is surprise, surprise. People who paid these double home prices, six, seven hundred thousand for a previously three hundred thousand dollar home are having a hard time turning a profit on their investment. Well, you don't say. On top of the dwindling profits, expenses for these properties have been increasing just like they have everywhere because the home values have gone up so much in Galveston. Guess what else has gone up along with it? Property taxes and vacation rentals are not eligible for homestead exemptions, which means that you are going to pay an even higher tax rate than somebody who lives in the area. Then on top of that, in twenty twenty four, Galveston County began treating short term rentals as businesses, adding a tax on the furniture and personal property inside rental homes. You got rising insurance costs to go along with it, and the average insurance premiums in the area rose twenty three to twenty six percent between twenty nineteen and twenty twenty three. And this is why I tell people if you're going to buy an investment property and you're banking on short term rentals alone, that can be a huge mistake, guys, because as you can see, local cities, counties and governments can levy new taxes and fees at any time they want on these type of rentals. So if you go into an area and you buy based on short term rental income alone and that property doesn't math out as a long term rental, then anything that changes, even if it's just your expenses in the local county and city does nothing like their expenses have gone up tremendously for these Galveston properties. You can now be in a situation where even that short term rental income isn't enough to float that property anymore. On top of that, if you're a homeowner in Galveston, you need to have three different types of insurance. You need homeowners insurance, flood insurance and wind insurance, especially if you have a mortgage, you're required to have all of them. They gave an example here of one vacation rental owner who bought a seven hundred thousand dollar property in Galveston and they had a ten thousand dollar per year quote for combined windstorm and flood coverage. And each policy carries separate deductibles between seven thousand and twenty one thousand dollars before any insurance kicks in. So you're basically uninsured for the most part when you have deductibles that high, guys. Besides a catastrophic loss, you're going to be pretty much on your own for anything major that happens to that house. Now, the only good thing about this Airbnb fire sale starting to take place is if you are an investor looking to jump into the market right now, there might be some opportunities out there, especially when it comes to being able to pick up these properties for less. If you're able to nail somebody who bought one of these three hundred K houses for seven hundred K and get that house for five hundred K, well, then maybe it could be worth doing. The numbers might math out for you. That's up to you to decide. But the point is that opportunity could be on the rise, as a lot of these investors might start getting desperate to get out of these properties, because if you're sitting on a house for five months on the market, guys, and things aren't selling, anybody who's going to be serious about selling is going to have to substantially lower the price if they really want to get these houses sold. And one of my viewers, Tom, he brought something to my attention that I want to bring up here on the channel, because, you know, a lot of people are going broke right now and they just don't have the money. And a lot of people also bid off way more than they can chew when it comes to how much house they bought. They bought houses that were just too expensive, too expensive to maintain and can't really afford it. And that brings up the question of all these houses that were bought during the covid era and people overpaid for these homes and don't even have enough money for anything else. Well, how well are these people maintaining these houses, especially now that they're looking to get rid of them, even these short term rental houses, especially right? The owner doesn't live there. You guys have seen my Airbnb experience videos that have been absolutely awful because no one's there maintaining the property. When you combine poor maintenance habits with owners that are going broke, how good of conditions are these homes that are coming up for sale really in these days? Things like the roof, the HVAC system, the pool, concrete foundations, they may all have major issues that homeowners are unwilling or unable to address because they're short on cash. So the question is, will this deferred maintenance on these homes lower the value of the houses even further? And I say, yeah, absolutely it could, especially if these deferred maintenance issues are discovered during the due diligence and inspection period of the home, then it will definitely affect the value for sure. Wow. Take a look at this place. Definitely not a flip as it was purchased back in 2008 for only $32,900. How that was possible, I have no idea, especially in a nice neighborhood like this. Well, fast forward to February this year, they listed it for $2.3 million, but no takers there and have since had a $200,000 price cut on this property. So even though this one is not a flip, even if your price expectations are unrealistic, the house still goes unsold guys. I mean, being listed since February, we're already in May. This house has been on the market for three months. It's time to cut it even further, most likely. But it just goes back to what I was saying earlier about the short-term rentals. How desperate are you to sell? You know, if somebody like this is hanging onto this house, they paid practically nothing for it. Probably the annual property taxes are higher than what they paid for this house now. Maybe they can afford to hang on to it. But the point is that it doesn't translate into a sale because the price is unrealistic. But if you're buying a house that especially was bought over the past few years, I really encourage you to make sure you are doing your due diligence and make sure the type of condition that house is in, because the person who bought this house five, six years ago might have spent all their money on the house and zero on upkeep and maintenance along the way, especially if it's one of these short-term rental properties. And you might be entitled to an even bigger discount than what the market is telling you due to the condition of the property. Now, one thing I don't talk about too often on this channel, but it's worth bringing up again, now that I saw this story is appraisals. And now that home values are dropping across many areas of the country, appraisals are no longer coming in where buyers expect them to. And this actually happened to me a few times when I was practicing as a real estate agent. This story talks to a guy who was looking at buying a house in Charlotte, North Carolina. It's a $750,000 four-bedroom home that's 2,700 square feet. And he says that this house is close to his family, so he doesn't mind the steep price tag. But when he went to go buy it, there was a problem. There was an appraisal gap. When he got the appraisal done on the house, it came in at $698,000, which was $52,000 less than he agreed to pay for the property. And whenever you face this situation in real estate, there's a couple of different things you can do. Depending if your contract had an appraisal contingency, which I would advise people to do, especially now that home values are coming down. But say you have an appraisal contingency. What that does is it protects you as the buyer. Say in this situation, you offer $750,000 on the house. If you have a $750,000 appraisal contingency and the deal doesn't work out, well, then you can easily walk away with no consequences to you, get your escrow deposit and move on. But what oftentimes happens, even if there is an appraisal contingency, the buyer and seller still want to get that house sold and they try to work something out. So in that case, if there's an appraisal gap, then the buyer can come out of pocket with that $52,000 or him and the seller can split it half and half and the seller can drop the price by half the amount. But before doing any of that, one thing that I advise people to do is to have a second opinion because that's what happened to me a few times when I sold some houses and the house didn't come in at the appraised value. It's especially problematic like the house in this example story. They said that there were no comparable properties that came up for sale in the neighborhood over the past few years. So that definitely makes it harder to pin the proper value on the property. But another thing that happens is lenders send in appraisers from all over the place, guys. And a lot of times these appraisers don't know the area. Like for example, I was selling a house in Miami Beach. I don't remember the sales price or what the appraisal difference was, but it was pretty big. It was a pretty big gap like this $50,000, $70,000 off from the price that the buyer agreed to pay. But they sent in an appraiser from like Boca Raton. So they sent somebody in that doesn't know the local market at all and is going by comps, but doesn't really look at the rest of it. Because the thing that made this house an outlier that I sold is that it was by far the largest house on the block. We're talking like double the size of basically every other house nearby. So the comparable sales, yeah, they sold for less, but those houses were also a lot smaller. We're talking a thousand square feet smaller. And obviously size equals value when it comes to homes. So what this guy in the story did and what we did also is we got a second opinion. We had the lender get a new appraiser out there and see if they would have a difference of opinion. And sure enough, in my case, they did. And they also did in the case of this buyer in the story as well. And a lot of people did foolish things, not besides buying the short-term rentals for way over asking prices or way more than what these homes were worth. People also waived their appraisal contingencies on these homes and were willing to just pay whatever just to get their foot in the door with Airbnb. So I would tell you that you should never waive an appraisal contingency ever. If you want to, you can as long as you have your inspection period and you can cancel your contract for a different reason. Wow, look at this place. That is something. But I would also use this situation as maybe a warning sign as well. Because if you have an appraisal come in that much lower than what you're offering to pay for the house, then it also could be right. That's why it's also important to get a second opinion. So say you get a second opinion and that second appraisal also comes in low, then that's probably what it's really going to be worth, guys. You can say it's worth whatever you want it to be. But if you got two appraisers in the row that are within that close of a margin to each other, that's not a coincidence, especially if the second appraiser is more familiar with the area than the first one is. Now, in my case, they sent in a local appraiser from Miami and the house appraised. And the same thing happened to this guy here in the story. He was able to get a second appraisal done and the house ended up appraising for purchase price. So they were able to move forward with the deal without having to renegotiate who's going to pay for that gap. Right now, about nine percent of homes that are being bought are being appraised below the contract sales price. And that's as of June of twenty twenty four. So there could be even more by now because that was almost a year ago. And honestly, it's your money. It's your house purchase. I can't tell you what to do, but paying over the value of the appraisal, especially if you get two of them done, probably isn't a wise idea because you're already kind of losing equity right up front when buying this house, if you do that. And I would especially be cautious if you have a real estate agent or a mortgage broker that is encouraging you to cover that appraisal gap and just move forward with the purchase, because clearly people in that position work off of commission and they are desperate for deals right now, considering the real estate markets in the tank. And I would also even say that if you are a cash buyer, if you just want to ear on the side of caution, I would pay the four or five hundred dollars, whatever it is, to get an appraisal done before buying the property and still have an appraisal contingency in your contract, even though you're paying cash. So that way it prevents you from overpaying for the property, because just because you have cash doesn't mean that you should pay more than somebody else. In fact, in real estate, traditionally it's always been the opposite. Guys, cash has always been king and you should be paying less than a finance buyer due to less problems with a cash transaction. So it might be worth it to spend some of that cash on an appraisal to make sure you are getting the proper deal for that house, because when you're financing, it's required. The lender will require you to get that appraisal, but when you're paying cash, it's optional. So it's something that you might want to think about if you're in that position. So if you enjoyed this video, make sure you subscribe to the channel. And if you don't want to wait for my next video to come out, check out this one on the screen right over here and I'll see you in the next one.