How Will Coronavirus Impact Vacation Rentals and Airbnb?

When deciding to invest in vacation rentals, I knew it was risky because when the economy goes south people take fewer vacations. Or, they substitute vacations that involve flying with ones they can drive to. 

When evaluating our Hawaii vacation rental investment property, I looked at how much tourism declined in Kauai during the Great Recession. It declined of course, but maybe about 10% (if I remember correctly). Our vacation rental in Hawaii could weather a financial downturn where occupancy declined 10-20% and things would still be fine.

But I didn’t really consider the scenario of a pandemic where people stopped traveling by airplane entirely. 

If a case like that happened, visits to Hawaii would drop by 100%, which would be cataclysmic for the vacation rental industry on the Islands. A pandemic like the Coronavirus (COVID-19) could wipe out the vacation rental industry in any market where most of the visitors take an airplane if it were no longer safe to take airplanes. That’s a situation I never thought about when considering the downsides risks of the investment.

Our other property in Sonoma has a mix of visitors that fly there or drive there from the Bay Area. Hopefully that makes the market more resilient to a decline because of the Coronavirus, but we will see. Markets like China have supposedly seen an 80% decline in Airbnb bookings this year compared to last year. If the Coronavirus hits a location, people will stop going there, even by car.

Luckily, our properties are mostly fully booked out the next few months and we haven’t had any cancellations yet. Hopefully that will be enough for the disease to be contained and people to start traveling and planning trips again. 

But if things get worse, things get worse. Mortgages, property taxes, and gardeners still need to be paid. The question is will the revenue from travelers be there?