Second, there is fierce competition among first-time buyers. The oldest millennials, who just turned 40, are vying for those few starter homes. A report from the National Association of Realtors said first-time homebuyers made up 34% of all homebuyers between July 2020 and June 2021. It found that 48% of 32- to 41-year-old buyers were first-time buyers, while for 23- to 31-year-old buyers that figure was 81%.
Third, property prices have skyrocketed during the pandemic. The median US existing-home price reached $375,300 in March, the NAR found, the highest sum since it started keeping track in 1999. That price level, up 15% from a year earlier, has left many first-time buyers priced out of the market.
These three factors together make it hard for first-time homebuyers to score a home that is traditionally suitable for them.
If young people have to settle for any home they can get, and it happens to be bigger, then they need to do something to bring down their monthly costs.
Enter the vacation-home boom. Purchases of vacation homes have boomed during the pandemic. A June 2021 report from the NAR found that vacation-home sales had risen by 16.4%, more than double the growth in total existing-home sales.
At the same time, vacation homes are becoming a popular investment strategy.
A report from the vacation-rental management company Vacasa said that 67% of buyers in the market for a vacation rental home in 2021 were purchasing their first investment property, an increase from 46% in 2019. Of the vacation-rental buyers surveyed, 73% were between 20 and 40 years old.
There's a willing customer base for all these homes: People are flocking to short-term rentals after two years of lockdowns and restrictions. Airbnb reported $1.5 billion in revenue for the fourth quarter, a significant increase from $859 million in 2020, marking a record year for the travel company. As Insider's Hillary Hoffower reported in February, America is about to go on vacation.
One homeowner is renting out a tiny home in her backyard
Homeowners are finding creative ways to cash in. Abby Adams, 27, a first-grade teacher, and her husband bought their first home in Austin, Texas, for $321,000 in July 2020. Their 672-square-foot home with two bedrooms and one bathroom was big enough for only them, but the couple saw an opportunity in the backyard.
"It had a massive backyard with a really nice side entrance," she said. "This will be perfect to be able to put a tiny house in the backyard and rent that out while we live on the property."
Now the petite black home with a pink door rents for anywhere from $85 to $160 a night on Airbnb.
A hot spot for tech and remote workers, Austin is growing. About 50,000 residents moved in from July 2020 to July 2021, according to census data. That was the fourth-biggest numeric population jump among US cities, after Dallas, Phoenix, and Houston. The Texas capital's tourism website says it welcomes over 30 million domestic visitors annually.
Adams and her husband have reaped the benefits. Revenue from the tiny house paid their mortgage in full, giving them enough money to renovate, then eventually buy another house. They now rent out the main house of their first purchase, too, for about $200 a night.
Adams said she and her husband dealt with some doubters at the start of their homeownership journey but feel vindicated now.
"At the time, my parents, and even a lot of our friends, thought, 'Oh my god, you guys are crazy for doing this,'" Adams said. "Now we're looking back, and our value of that home alone has gone up a significant amount within these past couple of years."
People should weigh the risks of the buy-then-Airbnb strategy
Matt Landau, the founder and CEO of VRMB, a vacation-rental-marketing blog, said one reason young short-term-rental investors are getting in on the action is the low barrier to entry.
Low mortgage rates during the pandemic allowed more people to qualify to buy homes, and there are many sites beyond Airbnb to rent out a property easily.
"It is a new avenue into building equity," he said. "Before the vacation-rental platforms went mainstream, you didn't have a way to supplement the cost. Therefore, if you didn't have the ability to purchase the home, you didn't purchase a home."
While Iyer and Adams both hold other full-time jobs, they're starting to see owning vacation rentals as a potential full-time career. Iyer is working on getting a real-estate license, and Adams is transitioning out of classroom teaching to focus on starting a property-management company.
Annie Sloan and Mikel Hubbard, cofounders of The Host Co., an e-commerce marketplace for short-term rentals, say that turning your home into a rental property is not as easy as it looks.
Iyer learned about some challenges the hard way. She first rented out her extra bedrooms to long-term tenants. Once she decided to switch to travelers, she shouldered more costs of decor.
"The furnishings, in my opinion, had to be a little bit more upscale, if you will," Iyer said. "People who are vacationing have higher expectations of the place or want fancier amenities."
Homeownership is expensive as it is. And while offsetting your mortgage costs by charging travelers by the night sounds like a no-brainer, it takes a lot of time and money to develop a professional-looking rental property.
"People think that a lot of this stuff is so easy and inexpensive because they see this all the time, and they see HGTV," Hubbard said. "They don't really understand what they're buying and getting into."
