Homeowners Relying on Short-Term Rental Income Hope Bookings Increase

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NEW ORLEANS – Owners and operators of short-term rentals in New Orleans have lowered prices, relaxed their rules and become expert sanitizers in an effort to attract more guests – but many are still waiting for demand to return and prices to rise. They’re also experiencing mixed results when applying for funds from the federal loan programs designed to keep small businesses afloat during the coronavirus pandemic.

It’s hard to pinpoint the exact number of homeowners in the city who rent out a spare room or apartment using Airbnb, VRBO or other online platforms. The daily newspaper estimated there were about 9,000 in 2018 although the number may have changed this year after new laws went into effect raising taxes, boosting prices for permits and banning STRs from parts of the French Quarter and all of the Garden District. 

The rule changes cut down on the number of STRs being operated by absentee landlords and left the market to homeowners who have come to rely on the extra income. Like other hospitality-based enterprises, however, STR operators have been hit hard by the stay-at-home orders that went into effect in mid-March.

Jenny Stolier, an attorney who lives Uptown, said the cancellations came swiftly for the rental behind her house, where she lives with her husband and their three kids.

“When the pandemic began, our guests cancelled from March all the way through the fall,” she said. “I just got a cancellation yesterday for September. The only reservation I have is a short one in August and these people might cancel on me too. We basically just got devastated during the big money-making part of the year.”

Stolier said she heard something on the news last week that was difficult to reconcile with her personal experience.

“My head popped up because it was the head of Airbnb [Brian Chesky] on CNN saying that they compared this month to June of last year and there were more bookings this year,” she said. “I was shocked because I haven’t even had one inquiry. He said what they were seeing might be pent-up demand and people just dying to get somewhere.”

Stolier said about a third of her bookings come from Airbnb, another third from VRBO and the rest come from friends and family. For the last three months, however, she’s had an entirely different tenant: herself.

“This entire quarantine I’ve been using the place as an office even though I really can’t afford to use it like that,” she said.

One silver lining: Stolier said she benefited from an Airbnb program that paid hosts 25% of what they would have received under their normal cancellation policy for certain lost reservations.

“We had a guy who had rented the entire month of April,” she said. “It was a major loss but then they came up with the program of paying 25 percent. I didn’t ask for it; the money just appeared in my account.”

Longer Stays, Lower Prices

La Divina owners Katrina and Carmello Turillo – who rent space in their Uptown house – have been relatively lucky. Like everybody else, they lost the bulk of their reservations when the pandemic began but they’ve been able to replace those with some longer-term guests – albeit at reduced prices.

“We had stopped completely for a while and had a big gap where no one was coming,” said Katrina Turillo. “Then we were able to get some people who were working in the city to come long term. We had a construction worker who originally was going to be here for two weeks but now may be here through the end of the year. I had a travel nurse for a time but her gig got cancelled. Now we actually have a family who’s here for about two months staying downstairs.”

The asterisk is that all of Turillo’s guests are paying about half of what they’d normally pay – and Turillo says she’s only getting that much because she doesn’t let the rental platforms set the prices but instead uses a combination of third-party software and elbow grease to figure out what to charge.

“We’re not letting Airbnb set the rates because then they’d always be super low,” she said. “I use Wheelhouse and do my own market research to see what other people are charging and also a little bit of it is trial and error – where you set your rates and where it actually gets booked.”

Demand Varies Based on Location

Alvin Cavalier, a West Bank native, is now stationed at Fort Benning Army Base in Columbus, Ga., where he serves as a simulations officer. As a side business, Cavalier operates dozens of Airbnbs scattered across the country (but not in New Orleans). He also posts content online to help other hosts.

Cavalier said he lost 60 to 70 percent of all reservations within 30 days when the stay-at-home orders kicked in but it wasn’t the same across the board.

“In towns where you had traditional vacation rental markets before Airbnb came into existence, those remained relatively OK,” said Cavalier. “We found that if people were flying and coming into town for an event, 100 percent of those folks cancelled, but if they were driving to a vacation destination, for the most part they kept their reservations. Then we also picked up a lot of local bookings for people who wanted a change of scenery.”

Surprisingly, Cavalier said his apartments are back up to 70% percent occupancy in just about every market except for Columbus.

“Here we normally have military graduations every week so we’d have families that come in,” he said. “It’s a pretty significant event for families when they have a soldier coming out of basic training so we built four Airbnbs here specifically to take on large families and they did well. We were booked every week for graduations but when COVID hit the graduations stopped and the target market also stopped. Unlike most of America we haven’t started reintegrating those graduations yet.”

To Lend or Not to Lend?

Many short-term rental operators are confused about whether or not they can apply for loans or grants from the Paycheck Protection or an SBA disaster loan. Those who did apply have seen mixed results.

Michael Ricks, the district director of the Louisiana District Office of the U.S. Small Business Administration, said that people who operate STRs are eligible for both programs – but the rules change depending on how they pay themselves and report the income on their taxes.

“If they have it set up so that they pay themselves through a W-2 as salary, or they take a draw on a K-1 as a ‘partner’ then it works just like any other company applying for the loans,” he said. “Payroll and payroll expenses are calculated the same.”

If operators file taxes using a Schedule C to report income from an STR, however, then the rules are different, said Ricks.

“Since they are categorized as an independent contractor, the amount shown on line 31 of the Schedule C would be the basis of pay determination under PPP, and they must use only income from 2019,” he said. “But they would not be eligible for this full amount. There is a separate calculation for this … and it would be slightly less than 75% of this amount.”

Ricks pointed out that all lenders aren’t following this official SBA policy and they are not required to.

“There are lenders who are not making PPP loans to STR entities, and it is the lender’s prerogative to do this,” he said. “This could be where some of this misinformation is coming from. We can not and will not force lenders to make loans they are unwilling to commit. I can not tell you which lenders are doing these loans since specific loan data by lenders to individuals is not available.”

One bit of good news: There was a rule that any money received from an EIDL advance had to be deducted from eligible PPP loan amount, but Ricks said new rules give the lenders and SBA more flexibility.

Dorito Crumbs

Federal loans, especially those that can be forgiven, will be especially useful to operators whose bookings have not returned.

Jill Condon runs a four-bedroom rental in a commercial building near Carrollton and Canal in Mid-City. She experienced the same sudden loss of bookings as most other operators.

“We had some long-term guests that were going to stay for a month but they departed right when the shutdown happened,” she said. “I refunded them what was due. We kept our fingers crossed and hoped it would pass quickly but then as the pandemic continued, my Airbnb notifications started pinging all the time: next guest cancelled, next guest cancelled. Finally everybody cancelled.”

Condon said she’s had a few inquiries since the pandemic began but none were serious.

“They weren’t really legit,” she said. “It was just people shopping prices, saying, ‘What can you for me? How low can you go?’ – so that source of revenue has totally dried up and makes you consider what to do with the property.”

The house previously served as an office for Condon’s husband’s naval architecture firm. She said she’s considering converting it back to office space but “those aren’t a hot commodity because nobody wants to congregate in an office building” right now.

Condon said she got help from available programs. She applied for an Economic Injury Disaster Loan from the SBA and received a small grant. She also received partial payment from Airbnb for several cancellations although nothing from VRBO.

Meanwhile, the only guests who have stayed in the place since mid-March left it a lot messier than usual. She couldn’t complain too much, though, because it was her own teenage kids and their cousins, who spent a weekend getaway there in May.

“We had ‘Cousin Fest’ and all the families put in money for the cleaning fee,” said Condon. “But the woman who runs our cleaning service was horrified because there were Dorito crumbs in the bed and soaking-wet towels in the dryer. She said, ‘I don’t know who these people were but you should NOT rent to them again.’”

With that in mind, Condon said she’s lowered prices, and increased the discounts for weekly and monthly stays – but other than that she’s “patiently waiting as things open up to see if things will return.”

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