As this unprecedented global pandemic descends upon us, it’s accompanied by  a vast and unprecedented economic calamity.  Some businesses will see much more of a devastating hit than others, and those businesses which rely upon air travel, tourism, short term rentals, or are connected with the hospitality or service industries, will be particularly hard-hit.  This includes vacation rentals and short term rentals and Airbnb hosting.

The losses we are seeing now, shine a light on an issue that I’ve been concerned about for some time, which is my observation that many property owners, once they amass a certain amount of capital, seem too eager to reinvest those funds into additional properties, and “put my money to work for me.”  I think what we are seeing now demonstrates that if you send your money out to work for you, your money might get laid off and fail in the task which you sent it out to do.  Your money might disappear.

There are 5 people I’ve known personally who have lost their homes in foreclosure over the last dozen years or so, and each was a terrible tragedy.  None of these losses was inevitable: they could all have been avoided with more financial prudence.

In one case (#1), during the 2008 recession, a neighbor couple who owned two houses was having financial problems.  They sold one house, but somehow still could not pay their bills.  I suggested that they get a roommate or two, as they had space for this.  “I wont’ have someone messing up my kitchen”, one of them countered.  Well, soon enough they had no kitchen, as the bank foreclosed upon their home.

In another case (#2), a friend who owned his house outright, refinanced and took out a mortgage on his house so he would have some cash.  He made foolish decisions with his expenditures, and within a year he lost his home.  He then began living in a van.

In two other cases (#3 and #4), two acquaintances who both owned their homes outright, (million-dollar homes in the San Francisco Bay Area) wanted some extra cash, so they refinanced their homes and took out a mortgage. Unbeknownst to them, the lender they were both working with, had a history of engaging in mortgage fraud.  According to their statements, they paid the mortgages they owed in a timely way, but the lender claimed they had not paid, and foreclosed on both their homes.  One of these friends became extremely distraught and never recovered, and died of a heart attack a couple years later.  The other ended up homeless, living in his car, until he moved to Ohio and obtained Section 8 subsidized housing and now lives on welfare in that area. 

The 5th property owner (#5) owned a rental home in Berkeley.  She did not choose her tenants wisely, ended up with entitled and hostile tenants, foolishly got involved in a heated argument with them, at which point they contacted the city and complained of code violations.  The city shut her down, refused to allow her to rent out her property until a few issues were resolved that could have been fixed without much expense.  But she was unable to get the tenants, now refusing to pay any rent, out of her home in a timely way, and with the loss in rental income, she became unable to pay her mortgage, and lost the home in foreclosure.

Now, during this pandemic, I’ve read accounts of a number of hosts (#6) who fear losing their properties if they have no income for a few months and are unable to pay their bills.  It’s my hope that government relief will come in to forestall that, but even so, these individuals are revealing that they are operating without enough of a cushion of savings.

The problem that all of these people had, was either that they didn’t actually have enough savings or enough of a cushion for the situation they were in (#5, #6) , or that they mistakenly expected things to turn around and their income to be back to normal soon (#1), or that they borrowed/overextended themselves too much, or from the wrong lender (#2, 3 and 4) to accomplish their goals.

There’s a drive in many Airbnb hosts that I’ve seen, and which I feel quite uneasy about, to not be content with a modest business, but to want to buy more and more, and to build “empires”.  Building a bigger business isn’t necessarily a bad thing, but it should not be done out of an unexamined ego-driven urge to just get more and more stuff,  and more and more income.  I think too many of us are unthinkingly propelled by an urge to get more and more, while the things that are of real lasting value in life — relationships with our friends and families, spiritual practices, fulfilling hobbies and all that brings us joy in life — ends up pushed to the side.  No, building your business bigger and bigger is not in and of itself of any value at all.  When we get to the Afterlife, aka “Heaven”, how much money we made and how much stuff we had, will be of no relevance whatsoever, in relation to our Eternal Soul.  Rather, with the perspective that we gain once we are there where all truth is revealed, we will realize we’ve been incredibly stupid if that’s all that we focused on in life.  Let this instance of a global pandemic help put these matters into perspective.

Let’s be content with a modest income and a modest lifestyle, and be happy that we have enough.

Let me tell you a story about my own situation which illustrates how I assess decisions about whether or not to grow a business.
I own one house, my own house, and rent rooms in my house to Airbnb guests. So this is quite a modest business.   Though on paper I could afford to buy a second home and do the same in another house, my own sense of this is that such an investment would be too risky for me as (1) it would take too much of my savings to get started, (2) properties in my area (SF Bay Area) are so high priced in relation to potential rental income one could bring in for them, that only unusually low-priced homes would make sense to use for this purpose, and those are in scarce supply or not near enough to where I live to be practical for me to run.  Eg, if you buy a home for which the monthly operating costs are $3000 to $4000, and you can only expect to bring in $3500 to $4500 a month income at the most via rental income, then this is not a viable business model.

At one point my parents, proud of the rental business I’d created within my own house, offered to help me buy a 2nd home to expand my business.  I still felt uneasy about this. I would still need to put a significant amount of my own money into the pot, and devote a lot of time, energy and finances to this additional house, particularly if it were a more affordable “fixer-upper”.   I did not really see the point of this, when as things were, I was living modestly but comfortably already.  I worked, but had sufficient free time now to do the things I liked to do, which was really important, as the things I liked most and which gave most value to my life, were not related to my paid work or my rental business.  As I saw it, if I bought another house, I’d have much less free time, so much less of my life would be oriented to doing the things I most enjoyed doing.  I’d end up being a slave to my business, locked up in “golden handcuffs”, rather than having a business which supported me to live the life I wanted to have. 

As well, I think one clear lesson of this pandemic, is the value of having adequate cash savings.  Not assets, not properties, not stock or mutual funds investments, but actual plain old cash.  Some people are pretty good at figuring out the best options for investments that will provide a decent return, but I’ve not been so successful at investment.  I tried investing a rather small amount in two different “standard” investment options, and lost funds in both situations.  Given that I’m also a low-risk person generally, it just began to seem a lot more sensible to leave money in the bank rather than risk losing funds in the hopes of a good return.

Having enough savings to be able to go 3 to 4 months or longer, without any income, would provide a lot of protection now from stress and panic.  Many hosts are anxious that they will lose one or more properties or perhaps even their own home, during the economic tsunami that is hitting us now.  Few people in my opinion have enough savings.  I have a friend who is a homeowner, and is over 70 years old, but he cannot retire because he has no savings.  He goes to work every week, (by bus, since he has no car and doesn’t drive) and lives virtually paycheck to paycheck.  He literally does not have enough money to tide him over should he come down with an illness that requires him to stay at home for a month.  Yet he’s spent a lot of money on foolish things: building an elaborate treehouse in his yard, building a large greenhouse, adding solar panels to his home, buying lots of cute patio furniture and garden decorations that he doesn’t really need.  At one point, in order to obtain more cash to spend in more foolish ways, he refinanced his home and now pays an even higher mortgage than previously.  I’ve urged him to take in one or two roommates so he would have some additional income in case he can’t work, but he’s refused, as he enjoys living alone.  When a shelter-in-place was announced in my area, he was angry and insisted he had to go to work because “who’s going to pay the bills?” a question which he fails to see the irony in, since as he ages, it’s less likely he will be able to continue doing the work he is doing and pay his own bills.

There’s a lot of value in being able to see “the big picture” and look beyond the present moment, and in having sufficient imagination to understand that things might not always be the way they are at present.
Even in ordinary times, the vacation rental and short term rental business is built on unstable ground, as STR regulations have been lacking in many areas, and new regulations have continually been passed which prohibit doing this business in many places.  The result of that has been that many vacation rental and STR owners have ended up operating illegally, which is certainly a very risky way to do business.  Vacation rentals are oriented to those with disposable income, who can afford vacations and trips, and in times of financial downturn, there are fewer such people.

All in all, I would encourage people to be content with a modest income and avoid feeling compelled to “build an Airbnb empire.”  You don’t need an empire: what you do need is time in your life to pursue those activities and passions which bring deep meaning and contentment to your life.  Making more and more money is not this.

Since nearly the beginning, Airbnb has had a policy called “Extenuating Circumstances“, whereby guests who would not normally be eligible for a refund when cancelling a reservation (the contract they enterered into has a cancellation policy that doesn’t allow that), are issued a full refund, at the expense of the host, when the guest’s situation fits within a list of approved “extenuating circumstances.”  As most hosts are now aware, Airbnb has now expanded this policy to cover virtually all Airbnb reservations, anywhere in the world, from mid-March to mid-April, and perhaps longer, as the pandemic could last until August or beyond.

https://www.airbnb.com/help/article/2701/extenuating-circumstances-policy-and-the-coronavirus-covid19

https://www.forbes.com/sites/johnkoetsier/2020/03/15/airbnb-coronavirus-cancellations-guests-cancel-for-free-hosts-pay-the-costs/#1201c7b2131b

Even worse, Airbnb has now actually begun to go back to past, completed reservations, those which ended in February or January, and override hosts’ cancellation policies for those and issue unwarranted refunds for those past cancellations.  See these videos for info about that:

And

My argument from the get-go, for many years, has been that this policy is wrong and unfair to the host, and that Airbnb should be selling Travel Insurance to guests, rather than essentially coercing hosts into being unpaid travel insurers.

During this Global Pandemic caused by the coronavirus, which is causing travel and tourism to come to a complete halt, many hosts who feel obliged to fully refund their guests who have to cancel their stays, are saying “If this isn’t extenuating circumstances, then what is?” 

Of course it’s true that if there is any Extenuating Circumstances policy, then this situation most assuredly fits within that policy! However, this is the wrong argument.  Rather than saying that coronavirus fits Extenuating Circumstances, and that therefore it is correct for Airbnb to fully refund every Airbnb reservation, anywhere in the world, that was set to begin during mid March to mid April, and perhaps for many months beyond mid April, we should be aware that what’s happening now with the devastating tsunami of Airbnb clawbacks of all hosts’ income for a month or more, exposes more clearly than ever before the fundamental unfairness and illogic of the Extenuating Circumstances policy.

The application of  Extenuating Circumstances policy has completely destroyed many hosts’ businesses already.   It has placed the entire economic burden of the global pandemic on hosts, while completely protecting guests so that they dont’ have one penny of loss.  Further, it’s made it virtually impossible for Airbnb hosts to have confidence in keeping any reservation that is on their calendar for the next few months, as all those may end up being fully refunded as well.

These posts on Airbnb’s own Community Center highlight hosts’ great anger with Airbnb’s approach to this pandemic

https://community.withairbnb.com/t5/COVID-19-Discussions/Airbnb-completely-threw-their-hosts-under-a-bus-regarding-Covid/td-p/1257864

https://community.withairbnb.com/t5/Hosting/Airbnb-completely-threw-their-hosts-under-a-bus-regarding-Covid/td-p/1263191

And their concern about whether future reservations still on the books represent illusory income:

https://community.withairbnb.com/t5/Hosting/Will-we-get-to-keep-our-future-reservations/td-p/1261053

Anger expressed by a host on Twitter — this one seems rather overdramatic — perhaps it’s really satire:

https://twitter.com/weeaboo/status/1241555854446518272

The Extenuating Circumstances policy was already unfair in “normal times”, and has become exponentially unfair in these unprecedented times.  Airbnb has in essence taken the types of situations for which Travel Insurance is designed — flight cancellation, needing to cancel a trip due to illness or a death in the family, even in many cases disasters like hurricanes, earthquakes, fire and floods, acts of God   — and has, through coercion and rhetoric, forced hosts to financially cover such situations in guests’ personal life, all without being paid any of the premiums that travel insurers are paid. 

The rhetoric from Airbnb, which ripples through the host community as well as hosts berate other hosts they view as not “hospitable” enough, is that if hosts really cared about their guests they would have no problem providing these full refunds for guest in the instance of a death in the family, an illness, a sudden gust of wind, a hangnail.  So, hosts are being set up to be seen as “haters” if they are not on board with supplying full refunds for what, in practice, has at times been a policy abused by guests enabled by Airbnb to come up with a fiction that they need to cancel for health reasons, when in fact they are cancelling because they found a cheaper place to stay.

Many guests and observers will argue that “Hotels allow a full refund for a cancellation within 48 hrs of arrival.”  But hosts are not hotels, which is a concept that many guests, the general public and Airbnb may have trouble comprehending, or in fact not wish to accept.  With the exception of a highly unusual situation like a pandemic, hotels could easily get replacement guests.  They have high occupancy levels and walk-by business.  Hosts in private homes are not in the same situation.  A guest who’s been holding a spot in the calendar for many months, has prevented that host from getting other bookings, should not be allowed to cancel at the last minute and get a full refund, depriving that host of needed income.  Again, travel insurance could protect both the guest and the host in this situation.

Doing the Math

The situation arising now in the global pandemic, readily exposes the unfair math of this policy of Extenuating Circumstances.

Take the hypothetical host who runs one standalone vacation rental property which brings in $8000 a month in income, and which involves $5000 a month in operating expenses for mortgage, property taxes, insurance, utilities, maintenance, cleaning, and supplies, and for which the average guest stay costs about $1000. Let’s assume the host has about 8 guest stays per month averaging 3 days each.

During this pandemic, which began for the US in mid-March, and is estimated to last until mid-August, this would involve 5 months of lost income for this host, which means $40,000 lost.  During this time, his expenses would be $25,000 for the property, perhaps a bit less such as $22,000 if no utilities or supplies are used and no cleaning is needed.  Some of those expenses may be deferred as the government sets up economic relief plans for the nation, but they will not be forgiven: these are costs that one way or another, will eventually have to be paid.  At the same time, consider that this host likely cannot live on the profit from one vacation rental, and has another job, and that he may have been laid off from that job during this time, for instance a job in retail or the restaurant business.

Compare this $40,000 loss of necessary business income for the host, needed to pay their bills, to that of individual guests, each using the discretionary funds they had available for vacation, each losing about $1000. 

Why is it viewed as more laudable and proper, for one host to assume one huge loss, rather than for 40 individual guests to have many smaller losses, particularly as these guests are using funds that are “extra” or discretionary, vacation money that is not necessary income they need in order to survive?

Even a 50/50 refund, where guests were refunded only 50% of their payment, would have been far more fair than refunding them fully.

One of the problems with the ways that Airbnb policy is formed, on this and many other issues, is that this whole business is viewed by the public and by news media, through a heavy bias towards the guest.  It’s guest complaints about interpreting a decline as an instance of racial discrimination, not host complaints about guests using racist language, which are featured in the news media.  It’s guest complaints about not getting a refund, which are given prominence in online blogs and media, not hosts’ complaints about being forced to accept guests whose real name and photo are being intentionally hidden from them.  It’s guests’ complaints about having to pay a high cleaning fee, not host’s anger that they were not reimbursed for damages or vandalism by the guest, which the news media seems to prefer reporting.  So the whole way the hosting business is perceived and represented to the general public, unfortunately plays into a bias towards guests, and supports Airbnb creating policy reflecting that bias.

That said, keep in mind that one focus of identity politics and the “social justice” movement, is to expose “unconscious bias” and various types of bias.  Are some types of bias deemed acceptable, such that we’re not only not expected to question them, but we’re expected to support these biases?

Over the years I’ve observed many hosts making illogical arguments about this and other Airbnb policies.  Their arguments do not come from an objective assessment of what seems right or wrong, but are arguments based on what these hosts think is reasonable to expect that Airbnb will do.  Such arguments are wholly illogical, and are much like saying to Sally, who’s complaining that she’s been abused by her elementary school teacher, “Well you’re only a student and he’s the teacher and has more authority so what do you expect? Just shut up because it’s not reasonable to expect an adult to change their ways based on the complaint of a child.”

So here’s a clue for those who dont’ see the flaw in this argument: unethical acts  are not automatically right and justifiable just because you think you don’t have any power to  change them.  

List of logical fallacies:
http://utminers.utep.edu/omwilliamson/ENGL1311/fallacies.htm

These are some of the illogical or fallacious arguments used to support Airbnb’s Extenuating Circumstances Policy

 #12, Appeal to Tradition (“Extenuating Circumstances policy has been in place from the beginning therefore it must be right.” )

#14, the Argument from Consequences   (“If we didn’t personally refund the guests, they might have a medical emergency and not get their money back, and that would be wrong” )

#17 Argument from Inertia (“It would be too hard to drop Extenuating Circumstances now, therefore it’s only logical to continue it”)

#19 Argument Ad Baculum  (“You have to agree with our Unfair and Unethical Terms and Conditions, or you can’t use our platform” is an example of this illogical argument.

#23 Bandwagon Fallacy (“Most hospitality providers will issue full refund for last minute cancellations, therefore you should.”)

#27 Blind Loyalty (“Airbnb policy is that Extenuating Circumstances apply, therefore they apply!”)

Perhaps by examining the list of logical fallacies, you can find even more that pertain to this issue.

There is a strategic and likely quite intentional reason why Airbnb has a bias towards guests. This becomes more obvious when one listens to hosts wishing there were another Short Term Rental platform they could join and support, which was more fair and gave hosts more power to run their own business, develop their own policies, and not have their business contracts meddled with or overidden by a third party.  Imagine there were another STR platform seeking to compete with Airbnb, which promised hosts a lot more power to run their own business.  So that one was not as heavily biased towards the guest.  Now, between that new platform and Airbnb, which one do you think most guests would prefer to use?  And therein you see the problem.  Unless there’s a real boycott of Airbnb and a move towards another viable platform, guests will tend to prefer the platform that gives them the most.

Yet with hosts’ businesses being destroyed around the globe by this pandemic, it just may be that one result is Airbnb ending up with less power over hosts than it had before, as hosts will be increasingly unlikely to want to fill their calendars with bookings that may well represent illusory income.

Airbnb Automated presents his thoughts that this pandemic could “very well be the end of Airbnb”

He thinks that if hosts take Airbnb to task for clawing back all our income for recent cancellations, this could bankrupt them if they are ordered to pay us back.

UPDATE:  On March 30 2020, Brian Chesky, CEO Of Airbnb, addressed hosts and said that Airbnb would be giving hosts 25% back for their cancelled reservations which were cancelled in accordance to Extenuating Circumstances applied to the coronavirus pandemic from March 14 and later.

The problem for many hosts is that Airbnb did not even follow its own updated Extenuating circumstances policy, and gave full refunds to guests who cancelled BEFORE March 14 2020.