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The Ins And Outs And The Ups And Downs Of Airbnb

Terry Story, Ups and Downs of Airbnb

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams about the rise in popularity of Airbnb, a company that allows people to open their homes like a hotel or bed and breakfast. The two discussed where in the country the most Airbnbs exist and the rules regulating them. They then talked about the mortgage industry and the true story behind The Big Short.

Airbnbs—As Always, Florida Is In The Mix

Regardless of the category—and specifically when it comes to real estate—Florida is always at the top of the list. True to this, Florida has the most Airbnbs of any state. Miami Beach, despite fairly strict rules regarding Airbnbs, has among the most of any city. Also on the list: Orlando (which makes sense because of Disney World), Kissimmee, and Sarasota. The cities are measured and listed based on an Airbnb-to-resident ratio.

Terry clarified some points for homeowners about offering their home on Airbnb, such as the fact that they can prohibit guests from doing things such as smoking in the house.

The Big Short

In the early 2000s, a group of hedge fund guys viewed the real estate market as becoming a little crazy. They decided they could take advantage of the situation by betting against mortgages by selling short. (This was immortalized in the book-turned-movie, The Big Short). Basically, they delivered borrowed mortgages which they would eventually have to return to the market to buy equivalent mortgages in order to close out their short-sell transaction.

The theory behind their selling short was that they would be able to buy back the borrowed mortgages sold when mortgage prices were much lower. When you sell short, you make money when the asset price goes down. These guys took an incredible amount of risk,  especially during the early 2000s when the market was in a bubble. Many people believed housing prices would continue to go up and that selling short was a terrible idea.

Although they were wrong for a long time and had to weather severe financial distress to maintain their short position in the mortgage market, ultimately, they were proven right. The housing market crashed, mortgages prices tanked, and those guys made a fortune.

Something of notable concern now is that one of the “big short” investors is betting against mortgages again. Previously, the reason for the short sell was the fact that people were getting mortgages that never should have been given one in the first place; the market was bound to crash. Today, his reason for short selling is his belief in climate change. More specifically, this short-seller thinks that there are a lot of homes susceptible to flood damage that may occur as a result of climate change. Many of those homes are in Florida, as well as in California and Texas. His belief is that the mortgages on many of the homes are simply too big relative to the risk of losing the home to flooding. Only time will tell whether he’s right again.

If you’d like to learn more about Terry or buying or selling a home, head over to the Keller Williams website.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

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Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: So, I’m starting to use Airbnb more. I’m a really late adopter because I know it’s been around a long time. Actually, we went to Charleston, and we stayed at an Airbnb and it was not a pleasant experience. Actually, we once went to Boulder and stayed in an Airbnb and it was not a pleasant experience. But we’re doing a family reunion in Asheville next year and I think this should work out pretty well.

Terry Story: Oh, you got me scared because I just going Airbnb for my daughter’s wedding in Newport, Rhode Island.

Steve Pomeranz: You know, I like hotels. I like everything set up and protected and all that stuff. There’s too many unknowns with an Airbnb. Anyway, that’s not what we’re talking about.

What states in our beloved country have the most Airbnbs?

Terry Story: You already know the answer before you asked the question. Florida hits every category. No matter what the category is, Florida is going to be one of the states.

Steve Pomeranz: I know. We’re a vanguard. We’re ahead of the game.

Terry Story: We’re always ahead of the game. Yes. So, believe it or not, Florida is number one.

Steve Pomeranz: Yeah. What areas, what cities in Florida are the most?

Terry Story: It actually kind of surprised me—Miami Beach.

Steve Pomeranz: I thought they had strict rules there.

Terry Story: I thought so too. But apparently not. Or at least, when they hear this on the radio, they’re going to find out that they have a bunch of Airbnbs that they weren’t aware of going on. I kind of thought that they would be real strict about it. Kissimmee, which is where Mickey Mouse lives.

Steve Pomeranz: Yes. So, Walt Disney World gets over 50 million visitors per year.

Terry Story: I think that’d be a good place to invest.

Steve Pomeranz: Yeah. And so Kissimmee. You say Kissimmee? I say Kissimmee.

Terry Story: Kissimmee. Why Kissimmee? Is it Indian?

Steve Pomeranz: It’s Indian. Yeah. Yeah. Anyway, they have the most Airbnbs in the State. I mean, they’re one of the three?

Terry Story: Yeah. Orlando, Miami, Sarasota.

Steve Pomeranz: Sarasota. Okay, so that’s interesting. So, they measure this by the number of listings, the Airbnb to resident ratio is what they call it?

Terry Story: Right.

Steve Pomeranz: So there’s some math there. Also, Florida’s Daytona Beach and North Carolina’s Asheville. As I said, we’re-

Terry Story: Those are the leaf peepers. What do you call them? Leaf peepers. They go up there in the fall.

Steve Pomeranz: Yeah, yeah. We’re actually doing it in June. Fort Lauderdale, as well. So, these are all in the top 10. So, I have a question for you.

Terry Story: Sure.

Steve Pomeranz: Let’s say that I have put my property up as an Airbnb, and I have done it in a state which allows recreational marijuana use. Should I be allowed to refuse that use on my property?

Terry Story: I’m going to say yes to that for the very simple reason. As a landlord myself, I refused to allow people to smoke cigarettes. And I don’t even think it says cigarettes. I think in the lease it says smoking. So, cigars would fall under that category. Marijuana.

Steve Pomeranz: I think it’s a trick question because the question is it is legal in the state.

Terry Story: And so is smoking cigarettes.

Steve Pomeranz: That’s my point, anyway.

Terry Story: And cigars.

Steve Pomeranz: Okay. But as a homeowner, I would reserve the right to say no smoking in my house.

Terry Story: No smoking.

Steve Pomeranz: No smoking of any kind.

Terry Story: And actually, in the lease that I have, I’ll allow you to smoke out on the patio. So, I just would say no.

Steve Pomeranz: Okay. All right. Changing subjects here. You remember the book and the movie The Big Short?

Terry Story: Yes.

Steve Pomeranz: Okay. So, this is about a bunch of hedge fund guys, basically, who decided that the real estate market was getting crazy in the 2000s, and they figured out a way to bet against mortgages with the idea by selling them and selling something they don’t own. So, when-

Terry Story: They shorted them.

Steve Pomeranz: They shorted them. So, that means that when it came time to deliver, they were delivering some borrowed mortgages and then at some point they’d have to go into the market and buy those mortgages to close out the transaction. So, the thought is they’re buying those mortgages at a lower price than what they sold. That’s what shorting is. So, you make money when the asset goes down in price.

Terry Story: Right. You’re selling them in advance and you’re buying them cheaper.

Steve Pomeranz: That’s exactly right. So, the big short was this huge amount of risk that these few individuals took, and they went through a very tough time because the market was frothy, the market was hypnotically in a bubble, thinking that real estate prices were going up forever, and these guys were wrong for a really long period of time. When you’re wrong, going short, it really hurts, and I won’t go into why, but it really does. Timing is incredibly important when you short something.

Well, as we all know, the tide turned, the shift happened, and these guys made a ton of money, and they became very famous and someone wrote a book and they made a movie. The point of all this is that one of those big short investors is now betting against mortgages again, and that’s kind of scary, right?

Terry Story: It is.

Steve Pomeranz: That doesn’t mean they’re going to be right, but it’s a little bit different this time around.

Last time it was because the housing market was overpriced and crazy, and people who shouldn’t have been buying homes were buying homes.

Terry Story: Exactly.

Steve Pomeranz: This time, it’s not that. It’s all about climate change.

Terry Story: Right.

Steve Pomeranz: It’s all about the idea that you have these properties that are susceptible to water. I guess, flooding.

Terry Story: Florida.

Steve Pomeranz: Florida, it’d be a good example. California.

Terry Story: Texas.

Steve Pomeranz: Texas. Okay. And the pricing of the mortgages in the homes, it’s not priced in. These homes, the mortgages are too big relative to the risk.

Terry Story: The risk. Yep.

Steve Pomeranz: So, this is interesting. So, I live in Delray Beach, and I do not experience any flooding whatsoever in my community.

Terry Story: You’re on an island.

Steve Pomeranz: No, I’m not on an island. I’m just in a community that has a lot of lakes.

Terry Story: Right. So, it’s controlled flooding.

Steve Pomeranz: I’m 8 to 10 feet above the lake, and I guess you could say I’m kind of at a high point, I guess. I don’t know. But it doesn’t feel like a high point in Florida.

Terry Story: Exactly. High point in Florida.

Steve Pomeranz: Yeah. Eight feet is a high point in Florida. So, I don’t personally experience it, but I know that when I was looking for a place in 2013, I was looking heavily on the beach, and I saw what was going on there and I said to myself, “You know, I think this is only going to get worse. Why would I want to own property there?” But people are.

Terry Story: Yeah, and you’re not the first person to say that to me. As a matter of fact, I’ve got a client right now who’s very specific. We had to pull out the flood plain maps and show him where the flood zones were because he’s adamant that he does not and will not purchase a property if it’s in a flood zone.

Steve Pomeranz: Well, he’s been kind of smart about that.

Terry Story: I guess. No one else ever brings this to-

Steve Pomeranz: I think you’re going to start hearing about that more.

Terry Story: We’re going to hear a little bit more of it, and one of the things just noting in driving down A1A the other day, we have what’s called a king high tide right now. And I can’t explain it anything more than this time of year, they’re very high.

Steve Pomeranz: The moon or whatever.

Terry Story: The moon, whatever are very high and driving along A1A, there’s water on the road that is coming from the Intracoastal.

Steve Pomeranz: From the Intracoastal?

Terry Story: From the Intracoastal. You can see the water coming above the seawall and into the middle of the road. And now I’m driving my car through this salt water. Now, it’s not real deep. I mean it’s just very-

Steve Pomeranz: But it’s going to get up underneath.

Terry Story: But over time. Yeah. So, I can see. I don’t know if it’ll be in my lifetime or not. I think of Venice.

Steve Pomeranz: Yeah. This particular individual is basically saying that he’s betting because we’re in a period of time of climate change denial, so things are not being priced correctly and that’s where he’s expecting to make his money. Unfortunately, we are out of time. My guest, as always, is Terry Story, a 31-year veteran with Keller Williams located in Boca Raton and she can be found at terrystory.com. Thanks, Terry.

Terry Story: Thanks for having me, Steve.