How to Live in Airbnbs for the Price of an Apartment Lease
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Assuming a build up method of risk, which is a practical/theoretical way you can categorize returns across asset classes, you start with the "risk free rate" which often could be the US short term borrowing rate. Currently it's pegged artificially at 0.25%.
From there you add risk. So a municipal bond backing a school would earn a 2% "spread" or risk premium for a 2.25% return, and your "Uber but for XYZ" would be significantly higher.
Rather than picking arbitrary cutoffs it's helpful to think about returns in terms of where they sit relative to GDP growth. From 1750 to 2010 the equity and certain real markets track GDP growth (not in any particular year but in inflation adjusted terms). Which makes sense conceptually since asset markets should be a exchange rate adjusted money supply expression of GDP growth conceptually.
Why does this matter? Germany, for example, has negative rates. Rules of thumb absolutely break as you tangentially approach 0% base rates.
1 . https://www.bankrate.com/rates/interest-rates/federal-funds-... 2. https://www.bea.gov/data/gdp/gross-domestic-product
Funny you mention that... I was looking at my bank accounts yesterday and noticed that one of the non-transaction "saver" accounts offered 0.1% interest for deposits over $10,000 and 0% for less. (This is a major bank in Australia.)
I will suggest that they're way out on the tail of the distribution, and their experience of the lifestyle is unlikely to be a good guide for a randomly selected other human.
Why shouldn’t one feel comfortable in a permanently “rootless” existence?
The one thing that's difficult is that when you are already living out of a checked luggage + carry-on, its easy to do this. But once you've put down some roots once and accumulated any significant furniture or larger possessions, it's so hard to do it again. Unless you are truly motivated or you have nearby family with storage space to keep your most prized larger possessions. That and Airbnb prices in the markets I've looked at have gone way up in the past 5 years relative to longterm apartment rental prices in the same markets.
5 years ago you could move to NYC and find a room for rent for the same price a similar room would cost if you subleased from someone, with maybe a few hundred dollar premium extra for the convenience of Airbnb. Today it seems like the 'Airbnb' price for a month is $500-1000 more than the same room would have cost if you'd found it the old fashioned way.
One funny thing was that in 2016 when I did this (and I will admit I was fairly price-unconscious and more excited about adventure than about finance) it seemed like there was remarkable consistency of prices regardless of country. I kept paying right around $1000 USD a month to live in fairly nice to extremely nice rentals (they were all studio apartments) whether that was in gayfield square in Edinburgh or near Mariatorget in Sodermalm Stockholm (I think I got truly lucky on that one) or staying in city centers of second tier cities in Poland or at a beach hotel on the Black Sea or even staying in Mapo in Seoul or Chapinero in Bogota. I kept paying around $1000 a month at the time it felt like no matter the 'on paper' cost of living of the country. I think I was definitely paying a tourist tax in many of the lower cost of living place (whether I was paying 50% more or double what I would have if I'd booked locally or triple or what I don't know), but at the same time it's surprising I was able to stay in such nice places in higher COL places like Stockholm and Edinburgh without a higher tourist premium. I would guess though that the same accommodations on Airbnb would cost double today.
Airbnb seems both more hated and less useful today for longer-term stays than it used to. Still better for tourism than a hotel in most places though. Still waiting for something similar to Airbnb that was designed (from both product perspective but also legal/regulatory/compliance perspective) for long term month minimum to year long stays so that the antiquated apartment rental system was more instant and not so shady.
I wouldn't advise anyone to follow the '1-3 months in each city/country for a year' strategy after living it out myself unless you are doing it with a friend or loved one. I do think it broadened my perspective but went from the most exciting adventure at the beginning to a bit soul-crushing by the end in terms of how impermanent all of my friendships and relationships felt. First country I went to I invested in language learning to interact with shopkeepers, I made a decent network of couchsurfing/international meetup/language exchange friends, and had some youthful encounters with love and lust, but 10 months and several countries later it was like 'why should I try going out tonight to befriend that dude, I'll never see him again next month anyway' or 'I shouldn't text that girl, I'll probably just end up breaking her heart since I know I'm leaving in a few weeks' (which while not something inevitable with all of my prior experiences hooking up or dating while traveling, is a painful enough experience that at that time I couldn't easily brush off when it did in fact happen). By the end I was going to far fewer social events / mixers and far more sort of cerebral, maybe sentimental people watching walks through cities alone.
If I knew what I knew now and wanted to do a 'life geography reconnaissance mission', I would do much faster and shorter hops to far more places initially (even if it cost a lot more for transportation and cause of not getting long-stay discounts), and then after visiting 4-10 places quickly (maybe 5-7 days in each country/city to just get the initial/basic feel/vibe?) I would pick my top 1-3 and visit for longer. 6-12 months at my favorite one or two places from that year or travel would have been much more fulfilling (although maybe the goodbye would be even more painful?), but then again if I hadn't visited so many places I wouldn't have known which resonated most with me.
I'm no accountant, but the lack of an expense isn't the same as cash flow. If the investment is paying 31.5k/year, that's all you have. I don't magically earn $1mm a year because I don't own a timeshare in a Gulfstream jet.
Also, is this your plan once you hit advanced age? You want to be 75 years old, possibly with limited mobility, and be told your rental is expiring and you need to move?
I suppose you could buy your old house back but real estate appreciation means it's now going to cost you $600,000.
But you do save the time it takes to become a CEO/celebrity/what have you, via whatever path.
Biggest thing is the multi month stay discounts. Sometimes we get 60-70% off. We're in Florence Italy right now in a great location and paid roughly $2000 for 45 days (so significantly lower than our Denver rent). Once you get packing down really the biggest pain I've found is car rentals which seem stubbornly expensive and stuck in the stone age so we prioritize places with great public transit.
Suddenly you'd have to pay the higher/normal cost and change your plans at short notice. It feels like that's a risky thing to live with - I've not used airbnb so often, but even booking only a few weeks ahead I've had hosts cancel with essentially zero notice so I have to assume that's a pretty common occurrence.
I have little experience with airbnb as well, but don't they help you find another one in this case? Maybe with discounts even?
If anything, you’ve figuratively been hunting properties; the opposite of literally.
That was the biggest hurdle for me when I was doing the digital nomad thing. When you're settling in for the long term, you can take the time to do multiple visits in order to make an informed decision. When you're settling short term, you don't care that much if the accommodation you booked online isn't good. But when you're doing the temporary-but-mid-term thing, it's complicated because short term rentals are often icky about visits, while making a bad decision has more serious consequences for you: getting stuck for months in a bad accommodation isn't fun, especially if you plan to work out of it.
I should mention we're also super flexible on "where" we go. Mostly it's not the Paris and Rome sorts of place because they're expensive. We tend to stay in more regional hubs (Hence Florence) that are a bit cheaper and stay around there rather than take lots of day trips.
I loved it there. I hope you do too!
The traffic is crazy though and the busses in particular flying past you at full speed down the medieval streets with less than a foot of clearance is terrifying. It would surprise me 0% to hear what you experience is a regular occurrence (hope you were okay!)
How did you get featured on the Today show? Who initiated that?
>As of now, our two kids, my son-in-law, and my daughter’s four cats are in the house and it feels barely big enough.
That's a huge space for just 5 people. I'm baffled that someone would find a 335 square meters house "barely enough".
I went through password reset just for this.
But just as much as economics, consider a requirement to move every year or every few months. People, especially as they get older, tend to like knowing they have a home where they can spend as long as they want, where they know their neighbors, etc. It might not feel like a big thing until one loses it.
Personally, I would consider downsizing and if needed do occasional work for travel money. My 2c.
Are there that many 7% investments that are safe enough to gamble your savings and the roof over your head on?
A portfolio that includes some gold would have performed well enough during the 70s and 00s (gold wasn't a commodity in the same sense in the 30s).
2018: -6.24% 2016: 9.54% 2015: -0.73% 2011: 0.00% 2007: 3.53% 2005: 3.00% 2004: 8.99% 1994: -1.54% 1993: 7.06% 1992: 7.06% 1990: -6.56%
in all other years it was double digit in either direction (of course it more often increased than fell). So it's still a huge gamble, if you start this at the beginning of recession and/or need to eat into your capital it won't end great.
The best way to invest is to pick individual stocks in companies you have carefully evaluated.
Also I never said anything about taking out 7% a year.
Only if you're able to guarantee a priori that you're an outstandingly good stock picker. A substantial majority of retail stock pickers lose out significantly to broad-based index funds.
The alfphaantagelive calculator is reporting much lower numbers than the real value.
Yahoo has a symbol for S&P 500 total return: ^SP500TR Check out: https://finance.yahoo.com/quote/%5ESP500TR/chart?p=%5ESP500T...
Punch in December 2000 for start and today's date for end. You'll get 398% total return. 398/21 = 19% annual return.
Total return includes dividend re-investment.
The alphavatangelive calculator says 3.31%, but even without dividend reinvestment the S&P 500 reports 11% average annual gains.
This does not price in inflation which historically reported as 3% over long periods and was much lower until recently.
Damodran has as good historical financial returns summary page: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... . According to the spreadsheet linked to on that page, S&P 500 returns with dividend reinvested is 11.64% since 1928. Assuming 4% inflation, that's 7.64% annual returns.
So going all in on the stock market over a long time you can withdraw 7%. Even through world wars, depressions and stagflation periods. Some decades will be better than others.
I don't think you understand how percentages work. 19% annual return means on average every year you get 19% of the amount you have at the beginning of the year, not 19% of the amount when you began investing in December 2000.
If the 21-year return is 398%, the correct annualized return is pow(1+3.98,1/21)-1 which is 7.9%.
Note the spreadsheet from Professor Damadoaran : http://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls
The years 2001-2020 inclusive S&P 500 arithmetic average inflation adjusted total return is 6.79% ( =average(o92:o111) ). Which is below the 1928-2020 average return of 8.5%. Inflation might be underestimated. 6.7 is a lot closer to your calculation!
if you have consistent costs every year to pay, you cannot rely on capital gains to fund it imho. Only coupon payments from bonds can do that - unless you're willing to take the risk that you might have to eat into your capital for down years.
I moved to an inexpensive property in another country, and put my home on Airbnb. It yields far more than 7% - more like 20%, and is comfortably enough to live on, as I bought the cheap home here outright.
If your cheap housing is far away from your asset, that will have a cost associated with managing the airbnb rental that you need to account for (either with time, or payment).
Another advantage is that many countries offer tax incentives to rent furnished holiday lets - in the U.K., for instance, your mortgage interest and utility bills become allowable expenses, offsettable against income from the property.
Turns out all I really need at this point in my life is clothes, my laptops (personal and work), and a handful of miscellaneous items.
The first issue is that I play guitar and percussion, and that's non-negotiable (I've played every day for decades). So that's already more than you can take on a plane. I bought duplicates on the east and west coast and use storage spaces; it's still an issue.
I also bike which is non-negotiable -- I'll be listless and unhappy otherwise.
Other things I like having, but can live without for a few months, but maybe not a year: real speakers (I dislike bluetooth/laptop speakers), a single kettlebell for exercise (there are gyms but it seems wasteful if that's all I need), rice cooker and toaster oven (eating out for every meal is invariably bad for your health IMO). This is not a lot of stuff, and it delivers tremendous value, but it's heavy and bulky compared to a suitcase.
I'll also mention that working on laptops for long periods is pretty bad for your posture (maybe people in their 20's won't notice YET), and it helps to have more than that.
I don't consider this a particularly elaborate lifestyle, but it's already way more than you can take on a plane, and it's actually even more than you can easily take to a Lyft to move across town, etc.
So I got to live in 8 different places in the Bay Area and NYC, which has been fun, but it's been a hassle in some important ways. I did pare down my stuff drastically month over month, especially after flying to the east coast. But at the end of the day it would compromise my lifestyle way too much to live like this permanently.
I'm surprised that so many people can live out of a suitcase permanently! I've done 7-8 months of major adaptation and I don't think it's for me.
The author spends effort calculating the return on the investments they could make if they sold the home, but doesn't consider that the home itself is also an asset.
It also neglects the impact of tax policy. The investment returns made would be taxable from the first dollar, but the first $250K ($500K if married filing jointly) of capital gains on a home are not taxable.
It might be that the author is really doubtful about the prospects for the real estate market but it seems like that's an important assumption to document for this analysis.
The author also makes a significant error in conflating the average long-run returns on an investment with a safe draw-down rate. If, over a 20 year horizon (for example), you plan on withdrawing 7% of the initial investment annually against a 100% stock portfolio, you have a 50% chance that your investment is going to be completely gone before that point.
This is because of the volatility of stock returns and, in particular, the risk of substantial losses early in the investment period.
N.B. none of the above is financial advice, YMMV, consult a registered investment advisor etc. etc.
Some countries do tax imputed rent, such as Belgium, Iceland, Luxembourg, the Netherlands, Slovenia, Spain and Switzerland.
Isn’t that pretty much the same as “imputed rent”, after subtracting costs?
(I haven’t seen an Belgian tax bill in over 20 years, but I remember that estimate income to be very low indeed.)
The first place I lived in Mexico was an AirBnb I rented for about $700 for two weeks. It had rave reviews. What I didn't realize from the pictures was that it was literally a shack in someone's driveway. A very nicely outfitted shack with a bathroom and a very secure fence and gate. But a small room.
I ended up moving to a place right on the beach for about $775 per month. This was the most touristy area though. Later found an apartment for only $550.
The place where I currently am is further south in Baja. Small apartment but exclusive gated community. Now it used to be an AirBnb that was renting for $70-90 per night. But AirBnb can be a pain to manage so the owner listed it with a real estate company. $500 because people are just not going to pay a lot more for a small apartment -- unless they are from the US and it's on AirBnb.
So I would say, consider getting an AirBnb at first, but use it to look at the local real estate listings. Or be a good guest and get to know the host and maybe they will want to make a lease in person.
I suppose the issue never is the money. Of course it is cheaper to live in cheaper cities that provide good value and comforts you are looking for. However, the real cost is the lack of feeling _real_ home. I can cope with the feeling that I will eventually leave this city, and all the friendships and relationships you build will come to an end. I don't think that kind of life isn't suitable for if you can't make you mind to turn a new chapter every few months.
That, and finding a good Airbnb can be very difficult, specially when you are not familiar with a city. In Ho Chi Minh City, for example, it took me nearly three months to find an apartment that would eventually suit my life, and the time in between isn't really that fun, nor inexpensive.
However the low inflation days might already be over. Annual inflation is already at 5.3%, and not forecast to go down.
So that 7% is already closer to 1.7%.
I've been living in Spain for the last couple of years with normal 1 year leases. This year however I didn't know if I would be able to commit to another year so I started looking for multi-month AirBnB rentals. My current 1 year lease is 920€/month (with utilities about 1000€) for a furnished 2 bedroom apartment with a great view of the beach. All of the AirBnB's I was looking at even with the ~50% monthly discount were showing around 1700€/month. I picked 3 I liked and messaged them through AirBnB that I was living in the area and I would like to check out the apartment in person but I can only afford 900€/month. All 3 replied to me with counter offers between 1100€ and 1300€. I picked the one I liked best, met it person, and we agreed on 1000€/month for a 3.5 month lease including all utilities. We signed a lease contract on the side and both avoided the fees.
AirBnB is great for booking a place when you are not in the city but I think you can get much better deals if you know the local market and are able to meet the landlords face to face.
TLDR: If I was going to look for a place for 3-4 months I would book the first month through AirBnB then apartment hunt in person in the target city for the remaining months at a steep discount.
The biggest downsides so far are: 1. Periods of loneliness. I don't mind this too much as I can just use the time to work on interesting personal projects. And I make my trips coincide with friends traveling there too, or already living there. 2. As some have stated here: your own bed is better. The biggest problem I have so far is that some airbnbs don't have proper curtains so I am wide awake at 6 am. A quality sleepmask works wonders here. 3. A lack of a proper place to work from. Often airbnbs will list a desk when in reality it's a shitty table with a bad chair. But this has been much better since COVID restrictions lifted and I have a list of good libraries to work from.
The upsides are amazing, and not really worth listing because I think these should be kind of 'obvious' to you if you were to consider such a lifestyle to begin with. One thing I will note here is that there is something amazing about closing your laptop after a good stint of work and walking straight into the most beautiful nature, or an amazing local restaurant.
EDIT: I get that the article is kind of pushing this as a money-saving trick to live in the same area. I think it's probably not worth it for that purpose. But if you care to do so then downsides 2/3 above may still apply.
Hrm, this person is not average.
"According to Zillow, the typical value of U.S. homes is $269,039 as of January 2021, a 9.1% increase from January 2020." [1]
[1] https://worldpopulationreview.com/state-rankings/median-home...
I would think that most people have a mortgage and do not own their property free and clear.
This is one of the best uses of AirBnB currently! It circumvents or avoids most local prohibitions against short term stays (airbnbs) because these are long term stays over 30 days. Its one of the best options for having a furnished place already.
If you aren't budget constrained its a great way to mix things up.
By that I mean maybe you are still renting at a homebase elsewhere without even bothering with subletting, or maybe you do home improvement things in your airbnb such as getting a fan or pillows or dining sets that you are going to leave there, but improve your life while you are there.
This isn't stuff you have to be rich for (by US standards), but it is something you have to be in a fairly privileged place for financially, so that's nice. And honestly, didn't these last few years teach you all not to delay satisfaction, don't worry about the most optimal financial situations if you in fact can financially accept the consequences. Doing something like that for a few months or even most of a year doesn't impact your ability to save up for a house or get yourself stuck in a mortgage for an additional thirty years, I mean that's many of you all's plan right? So just live a little and do whatever you want.
I mean... in some markets price on housing can do something like 10%/yr... so real estate _is_ the relatively stable investment that you can also live in...
This only really makes sense if you don't have enough starting capital to enter real estate...
Sneak preview: it's awesome, sort of. Traveling and living short-term in different places has many wonderful aspects, but it's not perfect. There are also many downsides/hassles.
I also suspect the number of people who will want to do this for a long period of time (>1-2 years) is fairly low. Then you have to figure out where you want to live and if it's not in your home country, you have to deal with where you really want to live versus where you can get residency.
- Just because you can get a tourist visa "on landing" does not mean you can work in the country (even remotely), so unless you apply for proper work visas everywhere you go you're likely working illegally.
- Many countries like the US base their taxes on your _global income_, so have fun navigating tax treaties, getting double taxed (multiple tax residency locations), and/or (most likely) inadvertantly violating some tax code somewhere...
- Even moving between states/provinces in the same country sometimes has these issues.
And inside this the ways those days are counted varies with different rules...
Not to forget that from which country the company pays you. Or if you have some entity where it is based...
It is not like taxentity hasn't thought about these things... Taxation is complicated and varied, specially when you increase number of entities involved above two...
A larger supply of medium-term rentals, more remote-work options, and streamlined legal processes for living a global life, would all contribute to that lifestyle being more common.
What about them?
With that idea there could be cameras everywhere: hotels, bathrooms, your phone can spy on you, etc