FORTUNE -- In the years following the financial crisis, the most unlikely homeowners have emerged: Hedge funds and private equity investors have been buying up properties at bargain prices and turning them into rentals until they become ripe for a profitable sale. This phenomenon has been widely reported, but less attention has been paid to individual investors who are doubling somewhere between landlord and hotelier.
Needless to say, these people have a lot less capital than institutional investors like Blackstone Group (BX) and Colony Capital. And rather than go to real estate brokers and such to rent their properties, they list them on Airbnb, a short-term home rental service commonly known as a place to rent out your apartment while you're out of town for a few days. The site, however, has also become a place where people buy homes and apartments just to rent them out to tourists and the like.
It's unclear how widely this idea has spread, but it's hard not to see how this could be the it investment strategy for the average Joe. And a California-based entrepreneur has written a pretty interesting how-to guide to bank on the investment.
In 2012, John Wheatley bought a 750-square-foot apartment in Las Vegas for $40,000. Wheatley put in $10,000 to decorate and furnish the place, which came with one bedroom and one bathroom, as well as comforts for the wearing traveler -- a shared pool and a hot tub and tennis court.
In one year, Wheatley says he made a profit of $13,608, which factors in the roughly $500 a month he paid to have someone clean and manage the Airbnb listing and other expenses. At that rate, he estimates it should take just under four years to pay off the price of the apartment.
Sounds pretty simple, right? This may very well turn out to be a lucrative deal as a one-off investment. Anything much bigger gets tricky, however.
Wheatley chose to buy in Las Vegas after researching Airbnb's listing, which makes public which nights are booked and at what rate. A little math -- and kaboom! There's your estimated revenue. Sounds easy, but it gets complicated in some states, which Wheatley fails to mention. New York, for instance, has been cracking down on Airbnb users, since renting to someone for less than 30 days is illegal in most residential apartment buildings unless the owners are present when they have the visitor. Of course, that doesn't mean New Yorkers aren't still cashing in.
Regulations aside, the right spot for an Airbnb investment also has to be in a city where real estate is cheap but also draws lots of tourists and transients. Think college towns or perhaps New Orleans or Nashville, Tenn., says Edward Glickman, executive director of New York University's center for real estate finance research.
"Whether this is a scalable business is questionable," he says. A few years ago when Glickman first arrived in New York, he searched through Airbnb for a temporary apartment and met a couple that owned multiple apartments that were all listed on the website. They seemed to do pretty well, he recalled, but it's still a lot of work if you're not either retired or a student or just have loads of time to spare.
What Wheatley hasn't factored in is the day-to-day wear and tear of the apartment. Unlike individual investors, hedge funds and private equity firms have way more capital to pay agencies to take care of this stuff. Appliances break, sheets and towels get old, and leaky roofs and what not need to be fixed. All that adds up. And if you have dozens of such Airbnb investments, maintaining them all can be a costly and logistical headache.
Of course, you can hire more people to manage your properties, but then that costs more. Which means you also profit less. So depending how it's done, those looking to Airbnb as a lucrative housing market could certainly bank it -- if they don't get too greedy.
Follow me @ninhaitseng
Re/Max CEO Margaret Kelly talks about the decision to go ahead with their IPO on day two of the federal government shutdown.
FORTUNE -- Wall Street may be getting jittery as Congress struggles to resolve the nation's budget problems, but investors betting on America's housing market don't seem fazed by Washington's dysfunction.
On the second day of the government shutdown, real estate brokerage Re/Max Holdings (RMAX) made its debut on the New York MORENin-Hai Tseng, Writer - Oct 3, 2013 9:56 AM ET
After the housing market collapsed, many economists predicted a similar fate for commercial real estate. Here's why it never happened.
FORTUNE -- Hilton Worldwide recently announced plans to return to the public market, after The Blackstone Group (BX) took the hotel giant private in 2007.
The private equity firm is eager to recoup some of the $26 billion it paid for the chain just before the credit crunch. Whether Blackstone will be MORENin-Hai Tseng, Writer - Sep 23, 2013 11:44 AM ET
Another major source of bank profits is on the rocks.
FORTUNE -- Have you called your mortgage broker in a while? If you haven't, you should. And you'll probably get her on the first ring. Being a mortgage broker has suddenly become a lot lonelier.
The number of people looking to refinance their home loan has plummeted recently. According to the Mortgage Bankers Association, the number of borrowers filing refinance applications fell MOREStephen Gandel, senior editor - Jun 7, 2013 6:00 AM ET
The government insurer, which may or may not be in need of a bailout, plans to generate $10 billion by locking middle class borrowers into high fees for decades.
FORTUNE -- This is what you call kicking 'em when they're down.
Consumers who don't have a lot of cash to put down when buying a house usually have to pay a higher rate than typical borrowers for the first few years of MOREStephen Gandel, senior editor - May 2, 2013 1:16 PM ET
A study by a Princeton University economics professor letting Wall Streeters off the hook for the financial crisis has a dubious premise.
FORTUNE -- If you believed poor mortgage lending and worthless securities were about to cause the biggest housing bust in American history, would you buy a house? I guess not.
That's the somewhat flimsy premise of a recent study by one Princeton economics professor and two others from the University MOREStephen Gandel, senior editor - Apr 1, 2013 1:22 PM ET
Mortgage applications were higher again in January. If individual buyers dominate home sales as opposed to investors, we might see a more sustainable housing recovery.
FORTUNE -- Investors armed with cash have largely driven the recovery of the U.S. housing market to date, but a few signs suggest that trend may be easing up. For the past five months, applications for new mortgages have risen, suggesting that regular buyers may be MORENin-Hai Tseng, Writer - Feb 8, 2013 10:34 AM ET
There's an upside to investing in property for the long haul. But beware the tax pitfalls.
By Janice Revell, contributor
FORTUNE -- With the housing market showing signs of stabilizing, investors are turning back to real estate. And an increasing number of affluent savers have been using their retirement accounts to purchase homes, rental apartments, and other properties. Done properly, such a strategy can generate good income with modest volatility. But MOREDec 18, 2012 5:00 AM ET
Why U.S. private equity firms are quietly snapping up buildings in Europe at bargain prices.
By Charles Wallace, contributor
FORUNE -- The Blackstone Group has raised a dedicated $4 billion European real estate fund; David Abrams, head of European real estate investment for Apollo Global Management, says his firm has made 30 investments this year in the U.K., Germany, Ireland, and Spain; the Carlyle Group is buying mainly in Northern Europe, MOREDec 17, 2012 5:00 AM ET
As Fortune predicted last year, a robust recovery in home prices is under way.
FORTUNE -- In spring 2011 this writer penned a controversial cover story titled "The Return of Real Estate" that predicted a strong rebound in housing. At the time, prices and sales were still tumbling, and the prevailing view among economists and pundits was that the slide would drag on and on. But Fortune's contrarian forecast proved right. MOREShawn Tully, senior editor-at-large - Oct 18, 2012 5:00 AM ET
|2 million Facebook, Gmail and Twitter passwords stolen in massive hack|
|Ron Paul: Bitcoin could 'destroy the dollar'|
|Fresh fast food strikes planned for Thursday|
|Top 10 U.S. cities for Chinese homebuyers|
|Apple completes key China Mobile deal - report|