This article is Part 3 of The Airbnb Series. Before you read this, check out Part 1 and Part 2, and when you’re done, visit Part 4.
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Well, it’s happened.
Eight crazy months, 42 guests, one police incident, and $19,000 in gross income.
I’ve packaged the adventures, ideas and full disclosure of the numbers into this blog post. Brace yourself, this is epic.
New to this blog?
Here’s the background: I own a handful of rental units. One of these is a 1-bed, 1-bath Atlanta apartment, a stainless-steel-and-granite beauty.
This unit could fetch $1,100 per month on a traditional one-year lease.
But I’m too antsy for the normal road.
So I launched “The Airbnb Experiment,” in which I compare running a vacation rental against a traditional, one-year lease.
The vexing question: Could I earn more as an Airbnb host than I could as a “traditional” landlord?
If so, HOW much more?
Huh? What’s Airbnb?
Airbnb.com launched during the depths of the 2008 recession.
Its co-founders were roommates in San Francisco who couldn’t afford the rent. To scrape the rent payment together, they started inviting tourists to sleep on air mattresses (“air beds”) in their living room, and they served their guests breakfast — hence the name, “Air Bed and Breakfast,” which later shortened to Airbnb.
By 2010, the company had 15 employees working out of the roommate/founder’s shared apartment. To make room for these employees, the CEO gave up his bedroom and started couch-hopping through Airbnb. He lived out of a suitcase until the company could cough together the funds for an office space.
Their sacrifices paid off: Airbnb grew at an astronomical rate, gathering more than 800,000 listings in 192 countries over the span of six years.
I list my apartment on two vacation-rental websites, Airbnb.com and VRBO.com, although most bookings come from Airbnb.
Three months into the experiment, I penned my first Airbnb update, and now … drumroll please … here’s the latest, 8 months into this project.
Shocking Adventures in the Vacation Rental Biz
Well, it’s official.
When you host 42 guests over the span of 8 months — an average of 5.25 guests per month, or a turnover every 5 to 6 days — you’re bound to get at least one nut job.
That’s precisely what happened. It would be unprofessional to spill the gory details on the Internet, but let’s just say “we called the cops” and leave it at that.
On a lighter note, I can now utter the phrase “we had a domestic” at cocktail parties. It’s my new favorite party trick.
(If I sound jesting or flippant, it’s because I use humor as a coping mechanism. Also, in fairness, 41 out of 42 guests were rockstars. It’s that rare 1 out of 42 that hogs the spotlight.)
Spill Your Numbers: What’s Your Airbnb and VRBO Income?
Drama aside, let’s cut to the chase. Time for all numbers to be revealed.
Note: This isn’t gratuitous “financial porn.” I’m sharing these numbers because I hope it will be an effective teaching tool — and I’ll expand on the lessons carried by these numbers in the rest of the post.
In the past 8 months, the gross income from Airbnb and VRBO came to $19,004.93, which is an average rate of $2,375.62 per month.
Here’s the spreadsheet. “HomeAway” refers to VRBO (it’s the parent company). “Withdrawals” are security deposits I’ve refunded. I’ve been renting this at $99 per night with near-full occupancy (and I’ll be raising the rate to $125+ soon).
But wait! “Gross” revenue is meaningless. Let’s check out the expenses:
The results are in: Being an Airbnb host allows me to earn, on average, $605.55 per month more than being a traditional landlord.
That’s an extra $4,844.37 above the “benchmark” in the 8 months I’ve conducted this experiment.
What’s Your Hourly Rate?
I’m glad you asked.
I didn’t keep great notes on the time I spent, but I think two hours per turnover is a reasonable approximation. That represents:
- 90 minutes of cleaning per turnover
- 30 minutes of emails, phone calls, etc.
(I hired a housecleaner on a few occasions, but I also dealt with miscellaneous oddities, so we’ll call it even.)
That comes to 84 hours, which we’ll round up to 90 hours to err on the conservative side.
An extra $4,844.37 across 90 additional hours of work comes to a $53.82 hourly rate.
A few notes:
- Consumables such as soap, coffee, shampoo, detergent, etc., cost less than I expected. Yay!!
- Utilities cost waaayyyy more than I anticipated. “When the landlord is paying, let’s crank the A/C!”
- Cleaning I’ve handled myself, unless Will and I are both out-of-town.
- Landscaping costs more than I’d spend on a traditional rental property, since I’m planting more flowers around the apartment entrance. (It creates a better guest experience.)
- Standard overhead (e.g. mortgage, maintenance, etc.) are the same regardless of whether this is a vacation-rental or a traditional-rental, so they’re excluded from this spreadsheet. If you’re curious, you can scope out those numbers here.
- Nerd Alert: The $1,100 benchmark is pre-vacancy, while the actual Airbnb/VRBO numbers reflect vacancy. I contemplated reducing the benchmark to adjust for this occupancy discrepancy, but decided to hold to an $1,100 benchmark because its a conservative estimate — the apartment may rent for anywhere from $1,000 to $1,250 depending on the time-of-year and market conditions. #GeekSpeak
Passive Income vs. Active Income: Showdown!
Travel is one of my greatest loves. These days, I’m out-of-state more than I’m home.
As a “traditional” landlord, this ain’t no thang.
Rental properties (done right) are wonderfully passive. In fact, I’ve coined a formula: “PM + PM = Passive,” which means “Preventative Maintenance + Property Manager = Passive.”
- Preventative Maintenance means spending lavishly on “Keeping Sh** from Breaking.” Tune your HVAC, re-caulk cracks, replace that prehistoric water heater before it triggers an emergency. Prevention also means enforcing strict tenant criteria.
- Hire the best property manager, not the cheapest.
A great-condition property with an incredible tenant and a kick-butt manager is a gloriously passive asset — on par with an index fund portfolio. Legit.
But here’s the problem with vacation rentals:
- Inability to properly screen tenants (as we chatted about above).
- Insufficient margin to pay a manager and still make a profit.
In fairness, some vacation rentals may carry this margin — perhaps some gorgeous villa on an exotic beach. But my Atlanta apartment, which costs $99 per night, can’t support that type of margin.
The only way to collect a so-called “profit” (ahem) is by managing the turnover yourself. And that means one thing: It’s NOT passive. Not by a long shot.
Here’s my conclusion:
Running a vacation rental is an awesome side hustle. But it’s NOT a passive investment.
You Should Be a Host If: You want the cold, hard cash.
- You’re looking for a side hustle.
- You’re trying to pay down debt.
- You’re restless and need a new project.
You Should NOT Be a Host If: You want a hands-off passive investment.
- You want to travel the globe, living on passive income.
- You have a crazy-hectic-busy-stressful job.
- You’re looking for an alternative to an index fund or rental property.
- You crave location independence.
For months, I fretted about WHY vacation-renting is so hands-on. “Is it me?? Do I suck at creating systems / checklists / automation?”
Then Will made an astute observation: “This isn’t the real estate industry. This is the hospitality industry.”
Duh!! He’s right. As an Airbnb host, you’re not a landlord — you’re a hotel owner. A hotel of one.
(That should be a commercial tagline. “I’m a hotel of one!”)
What the Heck is ‘Management’? Do You Mean ‘Cleaning?’
Whoa, are you still reading? Awesomesauce.
If you’ve made it this far, you must be either bored-off-your-skull or dying to know more. I’ll assume the latter, and explain what I mean when I talk about vacation rental “management.” Here’s an example:
We set up an air mattress anytime that:
- A guest requests one
- A guest makes a reservation for more than 2 people
Last month, our air mattress sprung a gigantic (un-patch-able) leak. We threw it away, figuring we’d replace it the next time we need one.
Two weeks later —
Will and I flew to San Diego (for the third time this year) for an arts and music festival. Before we left, we arranged everything:
- A 24-hour gap between check-out and check-in, to leave “wiggle room” for any problems.
- Clean sheets and towels stored within the unit.
- A two-hour housecleaning, coupled with a step-by-step checklist (e.g. “wipe the inside of the microwave …”)
- Keys stashed in a spot the guest can access without needing anyone’s physical presence.
In theory, everything is streamlined, systematized and automated.
In theory.
The guest checks into the unit and sends me a text message: “Where’s the air mattress?”
Uh-oh.
She booked a reservation for 2 adults. She arrived with 2 adults and 2 children. From her perspective, this is a minor oversight: She brought her kids, unannounced. What’s the big deal?
From our perspective — it was a very big deal. How could we set up an “extra bed” from California?
- Plan A: We couldn’t Amazon Prime an air mattress to her — it would take two days to arrive — and FedEx Overnight wouldn’t arrive until morning.
- Plan B: We called our roommate to ask for help. She couldn’t buy an air mattress, either, since she doesn’t have a car or bike, and the nearest Target is too far to walk. (She moved to the U.S. last month.)
- Plan C: We asked our roommate to haul the physical mattress from our bed. “Can you please lug our mattress to the vacation-rental unit? Pretty please?” She tried, but that mattress was too heavy.
- Plan D: Ultimately, she gave the guest our duvet, sheets, and as many pillows as she could conjure. The kids slept on the floor.
Needless to say, this was a lose-lose-lose situation:
- It stressed us hardcore.
- It gave our guest a sub-par experience.
- It burdened our new roommate. (“Welcome to America! Can you haul a mattress up a flight of stairs?”)
And that, ladies and gentlemen, is what I mean by “management.”
No matter how well you plan, no matter how many checklists you create, you need an on-site manager who can deal with unplanned situations.
How much will that cost?
Unfortunately, vacation rental management typically costs between 40 to 50 percent of gross revenue. (I hear your groans! But don’t worry: That’s super-fair, considering how many turnovers, inquiries, checkout inspections, cleaners and key hand-offs they need to manage.)
Lop 50 percent from the $19,000 gross revenue, and you’re left with $9,500. Eek!!
That’s not enough to cover the rest of the expenses:
Even if it could beat a traditional lease, the net profit (after management fees) would be too small to justify the added risk and hassle.
That’s why I believe vacation-rental hosting is a great job, not a great investment.
Update 11/15/2014: There are companies like Guesty that will conduct “virtual management” — e.g. dealing with online inquiries and booking — for only a 3 percent fee. But that’s the easy part. These “virtual management” companies can’t provide boots-on-the-ground support, when guests ask, “Where’s the air mattress?” or “Can I have more towels?” or “Help! I need a plunger ASAP.” There’s a startup called AirEnvy that provides “full” boots-on-the-ground management for only a 12 percent fee, but they only offer this in San Francisco and Los Angeles, as of today.
Epilogue
My goal (personally) is to create passive investments, so this Experiment must reach an inevitable end.
It’s an awesome side job for anyone who’s not traveling (yet) and wants extra cash.
The apartment is booked through December, so you’ll be hearing another update before the end of the year — which will feature specific tips that any aspiring Airbnb host can put into practice.
An awesome host-guest experience is a two-way street, so my next post will ALSO include tips for first-time guests, including how to choose stellar listings, what level of service to expect, and how to maximize your shot at an awesome experience.
Update 3/11/15: Check out Episode 4 of The Airbnb Experiment — Now at nearly $30,000 in gross income, at the one-year anniversary of launching this experiment.
~~~~ P.S. Use this link for a $20 Airbnb coupon, plus a list of top resources for Airbnb hosts.
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This might be a dumb question, but what about tax implications? I’ve heard (perhaps incorrectly) that you might be taxed higher on Airbnb income (like a hotel would be) than true rental income.
@Ryan — Great question — and great catch!
Scroll up to the “Expenses” spreadsheet; Sales and Occupancy Tax is the first expense listed, at $3,040.79. It’s a huge chunk of the $5,360 expense total.
When I emailed this article to my subscribers, that image cut-off the first line (so “Sales and Occupancy Tax” couldn’t be seen.) It must have made the $5,360 expense total look totally confusing!!
Thanks for the catch! I’ve fixed the image in the blog post so that it shows the first line. 🙂
Your experience confirms just about everything we’ve heard about from people that have owned and run vacation rental units. (1) The longer the stays the better the returns even if you have to give discounted rates to get someone to stay for 3 weeks or 3 months at a time. And (2) profit really only starts to roll in (once you have paid your trusted management staff) once the properties have been paid off and are no longer mortgaged, or if you’re lucky – you inherited them and never had to deal with that.
We even think of our rental duplex as a bit of side hustle in addition to an investment since Mr PoP is over there on a fairly regular basis mowing the lawn and taking care of little things since we’d rather keep the money that we could be spending on having someone else do that work.
@Mrs. PoP — I know what you mean on both accounts. My favorite guests have been the long-term (multi-week) ones: They generally keep the unit in better shape, tend to be less-demanding, and reduce the hassle factor.
I know what you mean about viewing traditional rentals as a “side hustle,” as well. We used to pour 20+ hours per week into our rentals when we were performing the repair/maintenance work ourselves. It “boosted our income,” so to speak, by lowering our expenses. We eventually got too busy to continue DIY, which is when we began outsourcing, but it’s nice to know that we have a “guaranteed job” waiting for us anytime we might need one! 🙂
Great post you nailed it. It’s a job. And one that you have to be on. I work as a full time Airbnb host. I have two listings which I offer in my home. Airbnb pays ALL of my bills. Whenever I get to travel I have to have three layers of back up people to make sure if anything happens, and it will happen, I’m covered. Even then this last December I was getting phone calls in Colombia because of a radiator valve broke in the apartment. I was able to deal with it remotely but yes, it gets stressful.
Would you consider Airbnb the rooms you rent to your roommates?
@Evelyn — I once used Airbnb to rent out one of the rooms in my own house (roommate-style). I hosted 3 or 4 guests, but I quickly went back to looking for a long-term roommate.
I made that choice for purely personal reasons: If I’m going to live with someone (sharing the same kitchen, living room, etc.) I want to be extra-picky about that person. 🙂 My new roommate (the one who just moved to the U.S.) is someone I’ve known for more than a year, so I knew in advance that we’d be fantastic roommates.
That’s awesome to hear your actual results. I’ve been following your “experiment” since the inception and figured it would be a good bit more work and stress than a traditional 1 year lease, but with plenty of extra money to compensate you for the headaches.
We’re trying to figure out what to do with our 4 BR house when we go on long term vacations during the summer, and from your experiences, it sounds like renting to short term renters through airbnb or vrbo isn’t the best way to go. Maybe I’ll look at renting it through craigslist for a month or three and do the traditional background check instead.
@Justin — Craigslist is a great way to find tenants. You could also list your property on Airbnb but require a 3-month minimum stay; this way you don’t need to deal with turnover (which is the riskiest and most time-consuming part).
Awesome post! Thanks for all of the useful details.
Be careful when renting for a month or more. Depending on which state you are renting in, this could constitute an implied long-term rental agreement which would mean going through the eviction process to vacate the tenant. In California it could take a few months and thousands in fees to evict…ever see the movie Pacific Heights with Michael Keaton as the professional evil tenant? For investors it was like Jaw’s was to beachgoers…lol. Here’s the trailer: https://www.youtube.com/watch?v=PrVtU25MSqQ
Unfortunately this happened to someone that I know that rented her condo for 2 months on airbnb. Not pretty. You can read the gory details here: http://www.biggerpockets.com/forums/52/topics/136498-evicting-renter-from-a-vacation-rental-property?page=1
When you post your figures, I noticed you don’t generally include the mortgage payment, insurance costs, or taxes. These are the biggest expenses owning a rental property. Based on your numbers above, it appears you’d be in the red substantially after factoring these in. Is there something i’m missing? Also, did your insurance premium jump radically when renting on a daily basis versus a yearly lease?
@Joshua — I addressed that in the section underneath my Expenses (subheading: “What’s Your Hourly Rate,”) in which I said:
“Standard overhead (e.g. mortgage, maintenance, etc.) are the same regardless of whether this is a vacation-rental or a traditional-rental, so they’re excluded from this spreadsheet. If you’re curious, you can scope out those numbers here.”
Sales and occupancy taxes are included in the Expense spreadsheet (line #1), property taxes are escrowed in the mortgage, and insurance remains constant.
I’ve had other friends tell me how the hustle to make extra cash is great at first but it also impacted their quality of life. The experience of those renting a room as opposed to an entire apt varies. The longer they have guests stay the more profitable. It was the turnover costs in dollars and time.
Thanks for providing such a detailed breakdown. I think it also goes far to show people how much their overnight stay costs someone. I originally studied hotel management and understand that people want somewhere affordable to stay – sometimes though you just can’t drop the price any lower or you would not be unable to cover the overheads.
Thanks for the great roundup. I’m still considering running one of our rentals as an Airbnb next year when we are back in the country but definitely not long term. I’m in Spain now and my property manager in New Zealand just emails me with any issues and sorts them automatically if they are under $200. The only issue we’ve had was when a property manager couldn’t get a new tenant signed up and we were approaching an 8 week vacancy and I was in Paris. I had to make a snap decision to move to another property manager who had it rented within a week. I’m pretty sure that wouldn’t have changed has I been in NZ as I took all their excuses at face value – tenants not being appropriate etc – but I have to learn to be less polite. It’s business after all!
I did this same experiment a few years ago with my rental. Waaaaaayyyy too much work as a side-hustle. I stopped VRBO’ing after my own “incident” which entailed a high-end prostitute coming down here to Tampa to do business and throw a raging party in my place during the RNC…..I thought she looked a bit odd for an IT engineer. My eyes were opened after that- lesson learned!
@D — Whoa, that’s crazy!! A prostitute?! These “incidents” give me a huge appreciation for all the weirdness that hotels and motels need to deal with. And it makes me extra-happy that traditional landlords can fully screen a tenant. Wowza.
Thanks so much for posting the raw facts of this experiment. It’s so great to learn from somebody else’s experience! As you eloquently put it…it just depends on what’s are looking to get out of it- quick cash, or passive income. I LOVE reading your posts!!!!
Fantastic job here! Thanks for all the info, analysis and insights. (Will is clearly also genius!) Appreciate your apples-to-apples comparison. Looking forward to next installment, 🙂
Thanks for sharing the Airbnb experiment, it will serve others who might need info on being guest hosts. The hourly rate is pretty good for the amount of work. Also at the end of the day the net income can be used to pay down the unit and it will cash flow better going forward.
I love these posts, thanks for doing them Paula.
I interviewed a friend on her experience with Airbnb, on Money Propeller. She is using it as a stop gap while she sells her rental house, and has found it to be pretty similar to what you’ve said. She’s airbnb’ing her primary residence and stays in the rental, so she can still show the rental. That seems like a really solid idea to me.
Paula i really enjoy reading all your postings…always learn a whole lot even that i dont have property to rent now but that’s one of my goals, so i like to read and learn what to do and what to avoid….thanks for your help. …ramon in stuart Florida
If you’re going to keep renting the apartment as an airbnb income this article from the NYT talks about the European style master switch key cards they use in hotel rooms. One place in NY used the concept but with a metal cylinder instead.
http://www.nytimes.com/2008/08/03/realestate/commercial/03sqft.html
Also – did you give your nutjob airbnb tenant a review?
@Robert — The nutjob came from VRBO, where there’s no function to review the guests. Boo! I called VRBO to report the incident, and emailed them a copy of the police report, but as far as I know, that guest could still be using the site.
I love reading your blog, especially since I can relate to many of your stories. And yes, I decided not to get guests from VRBO as well because of their stupid review system. I had a guest throwing a party for his family and friends when the the reservations was for ‘a quiet thanksgiving dinner with my partner’ and listed number of people as 2. It was for a one bedroom apartment and he at least had 25 people over. VRBO is useless when it comes to their customer (the subscribers). They pretty much side with the guests. I think they’re killing their own business slowly though.
I’ll have to book mark this. It does sound like a ton of work but when I do finally own a rental I probably won’t be traveling as much as you and it would be fun to run the experiment.
I actually want to buy in my old college town. I think its up and coming but would have a turn over every 3 months.
But that fast turn over is what forces the kids to not get traditional lower cost rentals.which means we paid way more in rent then they were paying in expenses.
Thanks for writing such a detailed article. When you first started planning your experiment did you worry about possible damage to your property, and was there more or less damage than you expected?
@Christine — Fortunately, there’s been almost no damage to the unit (knock on wood!) We’ve had guests accidentally break a wine glass or knock over a flower pot, but that’s all. It’s minor, innocent stuff.
In fact, I’ve noticed that there’s less wear-and-tear on the carpets than there would be in a traditional rental, and I suspect that’s because the carpets get vacuumed every 5 to 6 days (at every turnover), which is more often than they would be vacuumed in most normal situations.
We collect a $150 damage deposit from everyone, which is refunded assuming no damage. (Airbnb holds the deposit and automatically releases it unless you file a claim within 48 hours of check-out. VRBO sends you the deposit, and it’s your job to initiate the refund.)
Fantastic post and love the details!
Atlanta is actually a great city for doing this comparison because hotel nightly rates are much higher relative to long-term rental rates. In a city like San Francisco, long-term rental rates are so high that for many properties, especially multi-bedroom, it’s pretty much a wash.
A service like Guesty or Evolve Vacation Rentals can remotely manage your place and make it more passive.
For optimizing prices and occupancy, have a look at Beyond Pricing ( http://www.beyondpricing.com ). We are live in 7 cities and will soon be in Atlanta. The service completely automates updating prices and raising and lowering rates for peaks and troughs of demand, as well as to fill last-minute vacancies.
Shoot us an email – we’d love to trade notes on the VRBO vs Airbnb tradeoff as far as revenue and advanced booking.
@Ian — Services like Guesty are great for managing the “virtual” aspects of management (e.g. sending emails, fielding inquiries) but can’t perform any of the boots-on-the-ground work (e.g. when a guest says “I need a toilet plunger” or “Where’s the air mattress?” or “Can you bring me more towels?”) — and that’s the most headache-inducing // non-passive aspect of this business.
Thanks for reading and for your comment! Great point about Atlanta being a solid testing ground for a project like this. 🙂
Great explanation of your experience and profits. I have considered AirBnB for a while, but haven’t stepped into it yet. You may have motivated me. Thanks a lot and keep writing great content!
Very interesting. We’re planning on having small cabins to rent out on Airbnb on our future homestead and I’m hoping the fact that we’ll be on-site will make it easier. But, it also will reinforce the need to have some sort of screening mechanism for potential guests. I agree that it’s much more in the category of side hustle than passive.
I’ve been following along intently because I want to do this in NYC so BAD!
Okay a suggestion on the key thing: have you tried the locks where you can do a punch code? Those are pretty awesome. Also, since you have WIFI, etc in the apartment, have you thought about installing security where you can remotely unlock the apartment as well in case someone loses a key/code? Just a thought.
Have you experienced much theft of random things not including the regular consumables? Are you able to charge for that?
If this space wasn’t so close to your regular home would you consider this?
Thanks!!
@Sandy — Oh, the key hand-off isn’t a problem: I’ve set up the system in such a way that nobody needs to physically meet the guest in order to give them the key. I used a low-tech solution of “leaving the key somewhere” and emailing them info about how to find it. 🙂 The bigger problem is the unplanned one-off requests, like “Hey, I brought my kids. Where’s the air mattress?” or “I need a plunger ASAP.”
It sounds like you do a lot of work to grow this as passive income. On the other hand, it sounds awesome and you are definitely turning a profit. I say carry on another year and then reassess. 🙂
Your story was quite informative and is probably one of the ebst presentations of the pros and cons. Currently im about to buy a building with 3 short term rent units and i wonder if you believe it might be more profitable to have several units being used for such a purpose. Supposing you might transfer all of your units for short-term stays, wouldnt it be possible for you to have someone working specifically for that purpose (it obviously depends on how much that person would be payed, and i have noidea about US wages).
Anyway, if you can get an extra 600 dolars in each of your 5 units it would mean an extra of 3k. On the other hand, you might get simultaneous antries and leaves, which wouldnt allow one person to take care of the several houses
What are you going to do with the property after December?
@Kate — I’ll convert it back into a long-term rental (traditional one-year lease).
Thanks for the info. Though I am not close enough, timewise, to having a VacRental, I have been seriously considering one. Your VacRental diary has convinced me to abandon the idea. At least for a local situation like yours. I’ll still consider a destination (beach/mountain/NYC) rental, but there’s no way for me to do a local VacRental when there’s so much maintenance involved.
Thanks! Seriously.
Hi Paul,
Loved the post. The airbnb experiment is what originally brought me to your site so it is great to see another update.
I do have some airbnb geek questions to ask:
What average occupancy rate did you achieve?
I read in your article that you left 24 hours between guests to flip the property. Was this a rule where you would block out the next day or something that happened naturally with the bookings.
As you are someone who likes to outsource, how come you did not out source the cleaning of the property?
How much did you charge as cleaning fee for the property?
You said you held a security deposit? Did you ever claim any amount for damages or excessive cleaning?
Do you think you could of charged a higher rate if you did not require a security deposit?
Hi Paula*
Sorry for the autocorrect fail in my last comment.
@Lou –
1) Normally, I don’t leave a 24-hour gap between guests. Under normal conditions, I only leave a 4-hour gap: Check-out is at 11 a.m. and check-in is at 3 p.m. When I’m traveling, though, and trying to manage the turnover remotely, I leave the extra 24-hour gap.
2) I began outsourcing the cleaning, but — as I detailed in the Airbnb Update #2 (linked at the top of this post, in the introduction) — I had several incidents in which housecleaners would show up late, or worse, not show up at all. I found that whenever I booked a cleaner, I’d wake up feeling anxious about whether or not they’d show up on-time, and I’d start frequently checking in: “are they here yet? How about now?” It was less stressful to just do it myself.
If I were to continue being an Airbnb host long-term, I’d take the time to look for a more reliable cleaner, but since I knew I’d be killing this project within a few months, I just toughed it out.
3) The cleaning fee is between $55 to $75, extra for pets.
4) My guests have generally left the place in great condition. I only held a security deposit one time.
5) No, I don’t think the security deposit affected the rate. If someone can’t handle a temporary “hold” on their credit card for $150, they’re living “at their max” and probably wouldn’t pay a substantially higher rate.
Thanks for asking! Glad I can shed some insight into this experience. 🙂
Wow thanks for all the info, Found it very interesting as I often have thoughts of the same idea for my rental properties.
Seems like a lot of work and grief for those extra dollars. makes sense if you own multiple properties and that is your business.
Loved the article and every detail. It’s true, this is not an easy task, especially if you’d like to get some more freedom from this ‘job’. Not to mention a disgruntled guest could mess up your business forever, even if it’s not your fault.
Thanks for posting on this. I was just talking to my husband about renting out our house in the new year to take off on a 3 month road-trip (living out of our Chevy Tahoe) in the US and Canada. We were thinking that maybe renting it via AirBNB and hiring a cleaning company would work, but evidently not the best bet.
Hopefully we can get a reliable tenant in for a few months – it will be difficult to find but likely not impossible.
Awesome article. I had wondered about how this would work. Too bad it didn’t work out.
Wow, you are so right. I will not host anyone who is new after this latest experience. My experiences sound similar to yours- my issue with the people showing up with the 5 year old that they failed to mention is I have an unscreened pool outside the room putting me at huge risk. Agree that first time AirbnB guests are also the most demanding as they are sill in “hotel” mode. Different than you, I like the overnight guests. I also clean the room myself and overnight means they don’t “settle in” so it’s mainly sleep in the bed, use one towel, and are out. The extra money is nice but when you get that crazy- almost scary crazy- it makes you wonder if it’s worth it. Hugely hands on, no question about it and I don’t let them in the main house. This is not my main source of income- i work full time, too- so I can’t be available to them 24/7 and need to sleep at night. With this, you are on your own so more online support groups would be helpful. I may end up with the police before this latest one is over- i HOPE not as the police in my community would probably not take too kindly for me inviting in trouble. Thanks so much!! Jane in Miami
(Tranquility and Privacy)
There’s a part of me that would love to rent our house out on AirBnB when we travel — or even the extra bedrooms when we’re home — but our house is full of antiques and things that aren’t easily “put away” while guests would be there, so I just don’t think we could do it and feel comfortable. It would require a pretty dramatic change to the way we live in our house… so for now, I guess this won’t be among our income streams.
Thanks so much for sharing the details of your experiment with us all!
I’ve learned so much from your post, thank you! I wonder if one were to have a policy where guests must rent a minimum of, say 1 month or 3 months, what would happen to the vacancy rate? And in your opinion, what should be the minimum stay period to justify running background checks on an applicant, a month, 3 months or longer? Your insight is much appreciated.
@Silver — The only way to know the effects of a longer minimum stay (1 month, 3 month, etc.) on vacancy rates would be to test it — run a different experiment. In a setting like Atlanta, I suspect that longer stays would drastically increase vacancy, since most of my guests come for either weekend events (festivals, concerts, etc.) or one-week stays (visiting family, conferences and expos, etc.)
Neither Airbnb nor VRBO allow their hosts to run background checks on the guest. In order to process a background check, the guest would need to fill out a rental application, just as a “standard” tenant would.
Thanks, Paula! You’re the best! After my wife of course. 🙂
Holy geez was this a good article. Being from Green Bay I have a house within walking distance to Lambeau and I’m considering using airbnb to rent out the room during games and this was a very helpful template to run if I decide to test it out. You’re very thorough! Thanks for taking the time to share.
Cheers,
Ryan
Great article!
I have been thinking about trying airbnb as a host. I am considering renting a 7 bedroom house and rent each room individually in los cabos, mexico, prime location.
One of my goals is making the same amount of money by offering extra services as for renting the room. (extras:bike rental, tour, beach package, break fast, etc).
With your experience, what would you thought be?
Thank you!
@Giorgio — If you (or someone you trust) lives in Los Cabos near the house, and has time to take on the active management role, I think that’s a great plan. Otherwise, you’ll need to find a manager who can coordinate that. You’ll then need to see what their management fee is, deduct it from the top line, adjust for vacancies, toiletries, utilities, taxes and other expenses, and then make a mathematical-led decision on whether or not the remaining profit justifies the added risk.
Thank you so much, great article. Love your organization (both business and written).
Thank you for such a great article – and I even read to the bottom of the updates! I live in NYC burbs and I’m thinking of renting a NYC apartment, becoming an AirBnB host not for passive investment, but a) to be able afford to have a NYC pied-a-terre (which I couldn’t otherwise afford) and because I like meeting people from all over. However, it does take me about an hour to get into NYC. While I enjoy going in, I don’t think I could do it for every turnover so it sounds as if I will need someone to help with management. Do I really need to budget 40-50%? Thinking I should be able to get a grad student or someone like that to do this. Is that foolish? Also, do you think it’s viable/makes sense to offer and to charge for extra services – eg stocking fridge, getting tickets to something (metro card in advanc, for example)?
Thanks!
@Val — It depends. First of all: Would the housecleaners have access to laundry facilities that they can use during the turnover? You should have multiple sets of sheets/towels/etc., of course (so you can prep the unit with one set, while washing the other), but whomever is cleaning will need to finish washing/drying/storing during the turnover so that the other set can be stored in its usual spot. In my case, I have a w/d unit on-site, but I know that in NYC, that’s often not the case. Would you need to pay the cleaners to haul everything to a laundromat, and if so, how would that affect the cost? How many hours would that add to their task list?
One advantage to hosting in a city like New York is that you’ll almost certainly find people who live in the same building, who would be willing to host. However, when you pay a professional manager, part of what you’re paying for is their availability. A grad student might be on campus, or at the science lab, at the time that a guest calls to report that the refrigerator is leaking. Pro managers are paid to make themselves available 24/7, which is one of the reasons why traditional landlords use professional managers rather than a random person from Craigslist or TaskRabbit. (Liability is another reason).
That said, there are some startup companies — like AirEnvy — that are beginning to offer full-service Airbnb management for a much lower cost. (AirEnvy charges only 12 percent, but unfortunately, it’s only available in Los Angeles and San Francisco as of this moment.) I’m betting that NYC will either have some AirEnvy competitor, or AirEnvy itself, since it’s such a major market. I’d recommend looking for a startup like that — one that specializes in full-service, boots-on-the-ground vacation rental management.
If you charge for any ‘upgrades,’ make sure your management company can execute. I personally wouldn’t do it, because it sounds like a huge hassle to have to track which guests requested a stocked fridge and which ones didn’t. Thinking through that process: How would you get groceries into the unit? I know that you can get fresh groceries delivered in New York, but someone needs to be at the apartment to meet the grocery delivery guy. That means someone needs to get paid to sit at the apartment, waiting for that delivery (or to pick-up the groceries themselves). And someone else will need to manage that person — make sure they show up; develop a contingency plan in case they no-show or cancel. I can’t imagine that the profit margin on the ‘upgrades’ would be thick enough to justify all that tracking.
The only way that I can see it working is if you had a very, very trustworthy, reliable person who lived close to the unit AND had an extremely flexible schedule AND rarely leaves town. If that trifecta comes together, you’re golden. 🙂
Otherwise — stick with AirEnvy (or some similar service) and forget the “upsells.” 🙂
Thank you for this great article. I just started hosting on VRBO and AirBnB our ski condo that is 1.5 hours from our home. Since I just retired, I figured this would be a fun thing for me to manage and also bring in some much-needed income, at least to help pay the mortgage.
It is going well, but today I just got a reservation from a brand new AirBnB user who was going to have a parent pay the rent. Red Flag! So my question to you is… Do you state up front in your listing that you don’t take reservations from guests without positive reviews? If not, how do you handle their requests? I am still trying to develop my listing rating and also want to be as courteous as possible (I have many reservations lined up over the next couple months, but only two completed reservations so far).
@JC – Typically, if a guest contacts me, I’ll look at their profile right away. If they have positive reviews, I can see it. If they don’t, then I’ll continue the conversation with them. I’ll ask them if they’ve ever stayed in an Airbnb unit in the past. Sometimes, they’ll say, “No, I signed up yesterday,” at which point I tell them I prefer guests with experience. But sometimes, they’ll say, “Yes, I’ve stayed in two previous Airbnb units, my spouse/sibling/whomever made the arrangements.” From that point, I can look up the review that was written about their stay, which is published on the Airbnb guest profile page of the person who completed the booking.
Great article so I will try to contribute.
I run a professional cleaning service in Australia – in a party hub – in a nightclub district – so I have seen a lot.
@JC Parents who pay are often a proxy for an on-site party eg, 18th, 21st etc, the aftermath of which can be a nightmare.
Unless you have additional info, I would probably steer clear.
Thanks for sharing this information. I have no doubt your generosity is helping many people get started or improving their financial situations. My wife and I were looking at a traditional rental property but we’re now tempted by the Airbnb experience. To your knowledge, is there a way to access market info from Airbnb in terms of demographics, type of rentals and locations? I’m in a smaller community (400,000) in Canada and I’m not sure if “typical” visitors to our city even use this kind of service. Without access to market information it’s hard to properly do a solid business plan.
Thanks again.
Stephan
@Stephan – If I were in your shoes, I’d search Airbnb from the perspective of a renter (guest) who is looking for vacation rental units in your area. How many available units are in your area? What type of quality are these units? What’s the price? Then take a look at the “calendar” feature on Airbnb (you can view the calendar/availability for every listing). How booked are these units? What does the vacancy/occupancy look like within the next 2 months?
I do the same thing when I’m pricing my traditional long-term rentals: I search Craigslist from the perspective of a renter who is looking for a place to live within a specific neighborhood. Then I can see my “competition” and design/price/upgrade accordingly.
Thanks for all the fascinating information. I’ve been looking to get into the same thing and am encouraged to learn that your experience is almost exactly what I was expecting numbers wise. I’m chasing a foreclosure that hopefully is up and running within a couple months, and am optimistic that I can book it up by undercutting hotels if I had to which would still net 20k-30k a year, and during the busy season possibly collect significant premiums as the hotels and rentals get almost completely filled up.
Something I was wondering, is if you have considered using the rental income from airbnb to apply for bank financing on new properties. If you can prove with your bank statements that you have rental income, they would have to honor that data regardless of the source, right?
@Brian — Banks consider all of your income when they approve you for financing. That includes W2 income (from traditional jobs), 1099-MISC income (from freelance/contracting/client work), and rental income (including short-term rentals). However, banks weigh these types of income differently.
Typically, if you derive a lot of income from self-employment/entrepreneurship, a bank will look at your past two years’ of tax returns, add those values together, and divide by 24. They’ll use this figure as your “average monthly income.” Then they’ll either lend to you based on that income, or (if they’re really feeling like sticklers) they’ll lend to you based on a reduced percentage of that income. (This happened more during the strict-lending days of the recession; it’s not as bad now that standards are starting to loosen.)
My recommendations include:
Hope that helps!
Thanks for this follow up and your entertaining writing style.
I do the same in Boston right now and would argue that it can be a more hands-off gig if you let it. I hired a cleaner by posting on Craigslist – she is awesome, super affordable, and came with lots of references. She has been more than willing to handle letting people into my place – usually timing it so that cleaning finishes when the new guest arrives. If I could put a smart lock on my apartment door and main door I absolutely would. In terms of the “if sh$* hits the fan while I’m gone” situation, she is my go-to person and I’d pay her $15hr to handle stuff if it ever comes up while I’m away.
You need to find yourself a go-to person!
Also, I’m glad you pointed out AirEnvy because it validates my thought that there is a big need for this among hosts and I’m looking to offer it (thanks to my super awesome cleaner/go-to person) at that same 12% rate to people in Boston (and hopefully more cities in the future). MyUrbanBnB.com is the domain for now – building it on wordpress myself for now, so please don’t judge!
We’re finally going to start earning some extra income with our home by renting our second bedroom to an international student. It’s kind of a blend between airbnb and a traditional roommate- I like that it’s temporary (the first one’s only three weeks) and pays more than a traditional roommate. Plus, international students tend to be very respectful and we can talk to the agency should we have any issues. We may decide to do just a few airbnb reservations in between hosting students. Yay to extra income!
@Sally — That’s great!! A few months ago, I rented out one of the rooms in my home to a student from Japan who came to Atlanta for a two-month internship at Georgia Tech. It was great!! He was very respectful, really interesting to talk to, and just an all-around great guy. Even though I’ve traveled in Japan pretty extensively, I realized (by living with him) just how little I really know about Japanese culture! And in turn, of course, I introduced him to American phenomenons like grocery-store sushi. 🙂 I enjoyed it immensely — I hope you will, too! 🙂
P.S. I should add that they sell grocery store sushi in Japan, as well. But it’s … ahhh … different here. 🙂
Can you further explain the vacancy rate? In a 30-day month, how many days are vacant?
Thanks for the great article! Will there be a year-end follow up article? I hope you are writing one!
Cheers!
@Noob — It varies seasonally; I tend to have higher vacancies in winter and lower vacancies in the summer. On the whole, I typically have less than 4 or 5 vacant days per month in the late spring/summer/early fall, and perhaps around double that in late fall/winter.
If there’s an upcoming vacancy (within the next week), I’ll offer “last-minute” pricing: I’ll drop the cost of the room to anywhere from $25 to $50 per night. This gets “heads in the beds,” so to speak. (There’s a standard cleaning fee with every stay, regardless of the price/duration of that stay.) I haven’t had to offer last-minute pricing too often, but I’ve done it on occasion and it works pretty well.
The two weeks before and after Christmas were a tough time to get anyone to stay in the unit, no matter how low I dropped the price. I assume people are just staying with family around that time. By New Years, though, demand picked up again, and it’s stayed high through January (with the exception of about a one-week vacancy).
And yes, another follow-up is in the works! 🙂
Congratulations, a great article! I have been conducting a similar analysis here in Vancouver with a similar price structure. A couple things to add would be a price structure to drive traffic toward longer, more profitable rental periods and a House Manual. When I get a “no” feeling I never rent to that guest but DO rent to new users with no reviews if they complete all 4 verifications and after a gentle reminder to read the House Manual. Oh and Strict Reservation rules often dissuade the more “creative” guests out there!
Your writing style and attention to detail is greatly appreciated by this Airbnb Geek!
@Lynn — Thanks!! I have a House Manual that I leave on the coffeetable in the unit. It outlines everything from “How do I run the dishwasher?” to “Where’s the thermostat?” It’s great for reducing the number of questions that I get — making the experience more streamlined and passive.
I completely agree that Strict Reservation / Cancellation rules are the way to go. If I’m turning away other potential guests, I want to make sure that the people who are holding the timeslot also have skin in the game. 🙂
Great Read! We have our own gig in experimental phase and its great to read someone else.
I hope this blog is some extra passive too..
Thank YOU! I so appreciate this article! You answered MANY questions that had been floating around in my head for MONTHS! Now I KNOW! GREAT information!
Hey Lynn-
Stumbled across your blog while researching AirBnB. What a gift! Thank you so much for doing this experiment. You answered every question I could have possibly had. And your responses to people who left comments even added more value. Although I’ve spent an hour on your blog, it’s been worth every moment. Totally impressed.
Theresa
Oh wow. Just saw your profile and that your name is Paula. Sorry about that. Anyway, truly appreciate your style of writing and all the information!
Theresa
@Theresa — LOL; no worries!! I’m glad you liked The Airbnb Experiment and super happy to hear that it was helpful. I have a new Airbnb “episode” coming out soon (I’m putting the final touches on it now!) — sign up for the (free) email list so you’ll get it when it arrives. And if there are any questions that I can answer for you, please let me know. Thanks!!
Hi there.
Thank you so much for such an informative article. I was thinking about doing this–but on a boat. This article has convinced me it’s probably not the best idea, but I am still considering it as an experiment:)
I live in Seattle and would keep the boat on Lake Union, which is in the heart of the city and a great place for tourists–especially in the summer. I was thinking about purchasing a 36-42 foot, vintage trawler, and mooring it near all the houseboats on the lake. Based on comparable pricing in the area I am hoping I could get at least $200 a night, plus a cleaning fee.
I’d love to hear your thoughts on why this might be a good or bad idea. I also work full time–but within 5-10 minutes of where the boat would be. I have not called marinas yet to see if they would even accept this idea? I am in the early stages here.
Hi Stephany — I’m assuming houseboats have additional expenses that regular houses don’t carry. Weigh these when you’re making the decision.
Check out this article, and use it to calculate your Cap Rate and your Cash-on-Cash return on the purchase of a houseboat vacation rental. Crunch those numbers on your own houseboat to see what type of returns you can expect. Also, check out this article, Part 4 in the Airbnb saga.
Hope that helps!
i think I am a little late to the party, but we are looking to add a few more houses to our vacation rental business. Longer term is definitely the way to go, especially if you are in a seasonal area. If you can at least break even through your busy season (winter or summer) for the year on your expenses, you will do pretty well. That’s how I vet potential properties. I know for my seasonal months I can get at least a month stay (and I require that). I also add the cleaning fee so really all I do is put on my smile, go meet the guests and walk them through the house, as well as check the inventory when they leave.
You can do some pretty good tenant screening just by using the Internet to dig up some info on them. Also I have had great success marketing it as a “luxury” rental. That paired with a $1000 security deposit tend to scare away most potential crappy tenants.
If I can get the place rented for at least 10 days in my off season I come out ahead of being able to rent it as a yearly lease.
Cheers,
Louis
Awesome article! We have used AirBnB as hosts and guests and have had positive experiences on both ends. As hosts, we do accept new AirBnB users without prior reviews, but we have an extensive conversation with them and don’t accept until we feel absolutely comfortable.
We are getting ready to rent our house for the first time in about 2 weeks and we already have a second reservation lined up. Since this is our primary home, and we will be out of town during these rental times, would you recommend having separate towels and sheets for rentals or is this an unnecessary expense? Also, I’m curious as to how your neighbors responded to you having “a revolving door” of renters?
Thanks!
@Elle – Yes, I’d definitely recommend having multiple sets of sheets and towels. This allows the cleaning person to instantly change out the bedding, rather than waiting through an entire wash/dry cycle (which could take 1.5 to 2 hours). The expense isn’t too high — I grabbed a 500-thread-count set of pure cotton sheets at Homegoods for about $50, which was well worth it.
Fortunately, I’m located in a (relatively) densely-populated urban neighborhood where it’s common to have loads of people coming-and-going, so my neighbors are fine with this. If I lived in a quiet suburb where it’s unusual to see new people, I might have a chat with my neighbors, if you think that will be a concern.
Best of luck! 🙂
Hi! this is a great post! I am thinking of renting a ground floor 2 bedroom apartement I bought last year with rbnb. The apartment is in Hudson NY (2 hrs from Manhattan). I live in the city so I would need to hire a person to receive guests (give them a set of keys) and to get the keys back and make sure that everything is in place, basically a property manager. I also would need to hire a cleaning person. How much should I pay them? I could rent it for $150 per night. All comments and opinions welcome, Thank you!
Hello, Paula,
Stumbled across your blog just this afternoon and totally enjoyed reading it! I find it really cool how you explain all the details so simply.
All the best to you on your rental projects!
Carole
Paula:
I’m a little late in finding your articles about renting on airbnb. Great posts. I just wanted your readers to know of a website my wife and I just launched (literally a few days ago) called http://www.bnbTales.com. On the site, readers can feel free to tell their BnB stories at length, upload photos and really tell their tale. Sorry for the unsolicited plug here, I just wanted to get the word out. Love your site!
Thank you,
Brent
Hello Paula,
Came across your 4-part Airbnb blog and just want to thank you for the tremendously generous resource you have provided to those of us new to hosting. Will you consider making available to us as a template your “Welcome Guide?”
Thank you for the thorough field testing/research and sharing!
(Cueing my best “Tony the Tiger” Frosted Flakes voice) GREEEAAAAAAAAAAT series!
I’ve been eating this up as I am considering doing an AirBNB. I just bought a fabulous (small shriek) new house. The downstairs suite is completely self-contained and empty.
Few different things for me as I am in Canada, in a small ski-town. There are a couple of AirBNBs here plus a few traditional B&Bs. Based upon what the suite WAS renting for ($700/month) and what I think I would charge per week for AirBNB ($500), I figure I would have to have something like a 5 or 6 month occupancy to make the same amount.
One thing I am thoroughly puzzled by however is how in the world did you manage to furnish for $2000? I have been making a list of what I would need and there isn’t a hope in the frostiest part of hell that I could do it for anything close to that. Televisions? Looks to be a cost of around $300. I need all the basic furniture for a one-bedroom apartment.
Do tell!
@Susan — Congratulations on your new house! It sounds like AirBnb would be a great option for your space, based on the numbers.
One recommendation before you move ahead with it: Check out the listings in your area, and (specifically) look at the calendars on the Airbnb website to see what kind of availability the other listings have. This will give you a strong idea about the occupancy rates you can expect.
As far as furnishings, here are a few tips:
— Craigslist (or Gumtree) is your best friend. I used this for most major furniture pieces: the dresser, dining table, etc.
— IKEA is also your best friend. Specifically, if you can find matching IKEA sets on Craigslist, you’ve really hit gold, because everything will look modern and matching (e.g. the coffeetable will be the same color as the end tables, TV stand, etc.)
— When shopping at IKEA, get the cheapest item that fills the role you need (example: we bought the cheapest couch at IKEA), use the cheapest slipcover or accessory (example: we bought the cheapest slipcover for that couch, which is a beige tone), and if you want to make it look nicer, decorate it with some accent (example: we then bought bright blue pillows for that couch to add a pop of color and make it look more high-end).
— Whenever possible, opt for tables rather than furniture with drawers. In the bedroom, for example, I featured a dresser (with drawers), but bought end tables to flank the bed, rather than furniture with drawers. Tables are much cheaper than furnishings with drawers (even if you buy it new from Ikea). If you want these to look a little nicer, spend an extra $10 – $15 on a fake orchid, a nice wooden bowl, a few coffeetable books, or some other decorative element. (I don’t recommend candles, though, since they’re a fire hazard.)
— Use IKEA for all the pots, pans, plates, cups, wine glasses, etc.
— If you have access to a store like HomeGoods or TJ Maxx, use this for decorative elements (bath rugs, shower curtains) — this is much cheaper than Target.
— Use a consistent color theme throughout the apartment (we used blues and greens), which makes the decor feel more cohesive and higher-end.
— Use curtains instead of installing blinds. Much cheaper!
— If you have a large, empty space in the room that you need to occupy, look for something from IKEA that’s bulky but also cheap — such as a large plastic planter with some greenery inside it. In our case, for example, we used an end table and floor lamp to fill a space that otherwise just felt too empty.
I guess in summary, the answer to your question is “Craigslist and IKEA.” 🙂
Hope that helps!
Thanks for the great article. Makes me think, if I ever become unemployed, I can become an Air BnB property manager
Hi Paula,
Your experiment has been extremely interesting, helpful, informative and FUN to read. Love your sense of humor. 😉
We want to do this in our basement – after finishing it into an apartment – but we have loud kids and hardwood floors above! We’ll sound-insulate the open/unfinished basement ceilings as much as possible – in a couple of different ways, if we do this (then will sheet rock it closed) – and maybe even try to redirect our kids the the 3rd floor on some occasions but in general, we’re not a quiet family! Do the majority of guests want lots of quiet?! I’m thinking yes! Based on what I’m seeing, our basement would be worth a nightly cost of about $125.00, but with my concerns about not getting guests often enough due to it being a basement, as well as that little concern about kid noise, I thought I’d offer the space for about $80/night. Would you recommend disclosing this potential noise issue or would it be too much of a turnoff? The apartment would sleep 4 or 5 with one large bed and couches/pull-outs etc. so maybe other families would be more understanding (?). I suppose it would be tacky to offer a white noise sound machine haha! I think the soundproofing will help but I don’t yet know how much. Any thoughts about any of this? Thanks again for everything!!
I am DYING to hear the juicy details about the police incident…
Thanks so much for this! I have worked in the hospitality and service industries for 11+ years and I absolutely love being an Airbnb host! I want to do it solely for a job! I just bought a house with a mother-in-law suite with the intentions of hosting it on airbnb. I am going to refer back to this often!
Thank you for all of the useful information. What do you do when you go on vacation for a week or so? Do you not host during that week?
I have two Airbnb and vrbo rentals. One thing I do that makes it slightly more passive it that I require a 15day rent period. I just booked one of my places for 2 1/2 months because it wasn’t eaten up by a few days here and there. Mostly I get 30 day renters. I am averaging $600 to $1000 extra per month per rental. Thanks for all your suggestions !!
Maybe someone or even you addressed this but after IRS and state taxes what was your net? I wonder how any one makes it in as a small business owner with the IRS claiming so much of every penny we make and outlining minute details of what we can expense and what we can’t. Is it worth it? I would like to do Airbnb in my home for the experience of meeting people from other countries and so forth. But to add on another layer of taxes and cost from my CPA I am not so sure it’s worth it.
Great points–If you want a more extensive look into your renters I have used a service called ScreenedRenters.com. Renters screen themselves instantly with a credit and background report. This process verifies the identity of the renter and makes sure they have a clean record. Works great, I find I have to educate the renter but once they do it the first time their reusing it and submitting their reports to multiple hosts.
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Thanks for sharing this article…
Amazing useful points. this information is totally new for me. I haven’t got this type of amazing information from anywhere. Thanks for raising my knowledge about this necessary topic.
Thank you so much for your time in providing all of this very useful information. My husband and I are looking into purchasing a condo in the Smoky Mountains, so your insight has been very helpful. My question is, how can you tactfully turn someone down as a renter, and ould there be legal repercussions in doing that? Thanks.
Lacey — I like to impose “rules” that apply to every potential guest, such as “Guests are required to have at least one positive review on Airbnb.” (I made that a rule for a short period of time, although later I gave that up.)
This way I’m not picking-and-choosing guests seemingly at random (which could ire guests); I simply have a Rule Book that I’m following. And then I can tactfully say, “We require guests to have at least one positive review on Airbnb” in order to diplomatically turn down their request.
Paula, first of all, this post is awesome. I have an apartment up in Boston, and I’m about to flip the switch from traditional rentals to using Airbnb. I want to ask your opinion about something. Background… this is a nice, large one-bedroom unit in the heart of the city. Assuming I try to rent it out on Airbnb at a good price, what do you think I should anticipate for occupancy rates (i.e. over 365 days, how many days will it be rented out?)
Hi Thad –
There’s an expression: “if your occupancy is 100%, your price is too low.”
There’s a tug-of-war between occupancy, condition, location and prices. All four of those factors will make a huge difference on what you can expect.
Imagine two identical units — same location, size, condition, etc. — but one is $150/night and the other is $175/night. The cheaper one might get higher occupancy. But by how much? Which one is more profitable? Can the higher-priced, lower-occupancy unit ultimately command the better deal?
This is the art of pricing, and the only way to know is through experimentation.
That said, a few tips:
1) Look at other Airbnb units in the area from the point-of-view of a guest. In other words, search Airbnb as if you’re a guest who is looking for a similar-sized unit in the same area. See what prices/quality your “competition” is offering.
2) Look at the Airbnb availability calendars of this competition. How booked are these units?
Those two steps will give you a good starting point when you start experimenting with the price/occupancy balance.
Good luck!
What kind of legalities do you need to consider for 30 day plus rentals? If you have an insurance policy that covers short term rentals, these would not apply correct? Arent you running into landlord issues at this point?
We used to do airbnb and had a wonderful occupancy rent and had a friend handle the check in and out as well as the flip (cleaning, etc.). If you price your place appropriately compared with comparable offers in the area, you will always be full. Same thing if you are accurate in your description as well as communicative when issues arise. We netted $40,000 after expenses including rent in our first year. We were living abroad at the time but had a very close friend who kept us up to speed. It is a great way to bring in additional income, but hard to do as a mainstay unless you have 5+ properties in which case it is feasible.
Love it! excellent article and resources for someone who’s looking for more income. Keep sharing.
Wow very informative, probably the best presentation and detailed breakdown too. Thank you
105 comments at the writing of this comment/question. Sorry! it might be in there somewhere, and I read through most of them…
Are you in a vacation area? Is it one that has a lot of tourists? My wife would like to do AirBNB but we live in a smaller town a little off the beaten path. There are touristy sights near, but we are NOT a tourist area.
My thought is that we are too far away from the attractions to make this a successful alternative. Do you have any thoughts?
Fantastic job here! Thanks for all the info, analysis and insights
Very insightful piece. This will surely be put in use. Thanks so much for sharing
Doesn’t it work out the same, money wise with yearly renting seeing that your place is NOT weekly rented for 4 or 5 months? Yes, you make more per month but there are months where you are not making any money. I’d like to see you run the numbers for this factor. The weekly rental market it making it very hard to support community. I live in a seaside town where houses are now sitting empty because they are weekly rentals, and there is no housing for year round people.
Very insightful piece. This will surely be put in use. Thanks so much for sharing
Thank you so very much for sharing. I was considering making one of my rental units an Airbnb and started the process just like you. Making a list of what it would cost to furnish the 2 bedroom apartment, utility costs, small items, cleaning, etc. After reading your blog, I have decided to keep it as a rental unit. You made me think of just how very involved and hands-on I would need to be on a weekly basis. I would be willing to do this, but not when at the end of the day, the ROI would not be nearly as significant as I expected.
You saved me so much time and effort and I truly appreciate your insight!
Warm regards,
Megan
hi,
Nice article. I am thinking of jumping into airbnb business. I am just wondering if you can do it even if you are away and not available during check in?
Thanks
Is anybody aware of something called the airbnb formula? It’s a program/class that teaches you how to automate bnb hosting and turn it into a full fledged business. It’s been around since summer of last year I believe. Wondering if it’s more realistic now to achieve something like this considering this post is 3 years old and might not be completely accurate anymore, I don’t honestly know. Wanted someone else’s perspective who may know more about this before I invest any time or money into the program.
I travel to AZ a lot and always stay in VR. I now have rentals down there as well. I plan on turning one into a VR. this has been most helpful. I think I’m going to have 3 storage units in the garage with locks on them. 1 for extra stuff guests can get into upon request. and a supply unit for housekeepers. and extras like air mattress and stuff that would break unexpectedly that I could give access to remotely. One thing is every time I stay at a VR they charge me taxes over and above the nightly fee and a cleaning deposit and I can buy rental insurance for any damage that may occur. if i want. But I sign that if there is damage I give them the right o charge my Credit card.
Great breakdown of running an airbnb. Too much work for me to take on. Would rather just keep a rental with long-term tenant
I’m commenting from an Airbnb right now. The place is done up very nicely, and though it’s in a low rent district, it’s by the police department. Unfortunately, the cohost is an unverified friend of the host and he’s clearly got some mental health issues. We accidentally dropped the room key into the bathroom trash can and couldn’t find it. We thought we’d lost it off our key chain when out and about. They only provided one, despite there being two adults. We could get inside but not in the room. So, as a last resort, we asked for another key. The host had claimed he was “five minutes away” and eager to help. He sent a very angry, agitated “friend” who demanded cash for his trouble and for a duplicate key. The host had said he’d give us a key the next day, and you’re not supposed to ask for payments outside of Airbnb, so I told him I’d work it out with host. This “friend” went ballistic and insisted I must have “stolen” the key to come back later and steal from guests. This made so sense since there was a code on the front door. Also, the host said they were very concerned about the security of their guests’ property. However, six windows were unlocked and two were wide open when we arrived. The friend barged back in without knocking or greeting us, dropped a key on the table and stormed out as I thanked him. I called Airbnb to ask for guidance as to what the norms were and how to handle this. I told them I was afraid to ask for anything including the missing washcloths. The photo showed washcloths but none were provided. They told me I should be provided with washcloths and to ask for them and that it’s reasonable based on the experience to let the host know that we didn’t want to see that friend again. The host said not to worry about the friend because he was a war veteran. He then told me to move out, but I told him to not panic and just be nice and things would be okay. I didn’t have time to go through some kind of circus finding another place last minute after I’d already paid for a month and moved my stuff in, especially since my car had developed a problem and I needed to get it fixed. Turns out, the guy was calling each short-term guest in advance telling his version of the story to discredit me. He had admitted to being afraid I’d give him a bad review and badmouth him to other guests, though I had not spoken to other guests about it and did not want to give a bad review. This host kept doing things to make things worse despite the fact that I, a business owner, had tried to coach him on how to make things better (be friendly, apologize, don’t allow the incident to recur, treat guests as he would like to be treated, be respectful). I at all times during all of this remained calm and objective, but the host and his friend didn’t seem to. Then, the friend was outside looking into my car. Based on his friend’s bizarre claims about all Airbnb guests being eager to steal keys so they can come back and steal items out of bedrooms, I had to wonder if he had any inclinations toward stealing out of bedrooms since he had the front door code and keys to the bedrooms and also left the windows wide open. Anyway, I walked over to the police department and asked if there had been any burglaries there. I also mentioned the guy looking into my car. Turns out, the guy had made a report of someone denting his car and the officer said he was probably thinking I did it. I hadn’t moved my car in days because I was waiting for the day I could take it into the shop. I mentioned who else was staying there saying they were very nice and tended to be gone all day and that two had left for home that day, leaving one. The officer pointed out something about them not even knowing there was an Airbnb there and it being not within their regulations. He asked me how long I was planning to stay. So, now I don’t even know if our reservation for the rest of the month can even be honored. And, the other guy came in and didn’t come talk to me as he said he wanted to. He didn’t answer his door when I knocked either. Now, I’m wondering what is going on. The host’s “friend” had claimed that “someone in the Airbnb” hit his car. I wonder if they accused that guy after I clearly was not suspected due to not having moved my car (and surely no evidence as a result). Because the host and his “friend” (unverified cohost who probably couldn’t pass a background check as he only seems to work for cash) come across as unnaturally paranoid, I have to wonder why the host’s friend even claimed that someone from the Airbnb hit his car. If he didn’t see it, how would he know? Why would he even look at my vehicle? It hasn’t been moved for days. The Airbnb is behind a restaurant with tight parking, and it’s been busy all day. So, why is he assuming it’s one of our cars? All I can say is that Airbnb does not screen hosts very well. Our host did a great job fixing up the place (except no AC in bedrooms despite extreme heat for much of the year). However, he doesn’t seem to have a normal grasp on basic courtesy, respect, making people feel at home and safe, etc. You don’t send a mentally unbalanced, anger-addicted, paranoid “friend” at 9 p.m. to berate, accuse, and intimidate guests after claiming you were five minutes away and could help at any time. You don’t tell your friend to shake down the guests for cash and behave in a very angry way when they decline. And, you don’t tell your guests when they express their concern that they can just move out after they paid you for a full month and responded professionally, acting on Airbnb’s advice. You also don’t try to involved other guests, telling your story though you weren’t there, and discrediting the guest you did this to, just in case they talk. You further don’t run an Airbnb when it’s not legal in your town, putting your guests in a bind. My car is disabled and I’m hoping I can get it fixed soon but I should have more than two weeks to do so due to my reservation. Now, I’m in a bigger bind if the city requires the place to be vacated before then. And, I have to find another place that is affordable on short notice. Sadly, I have to say that this guy is not the only nutjob, as the author of the article called his one problem guest. I’ve stayed at half a dozen places. One guy had roaches, no heat, a filthy bathroom, late night parties next to my room, and the audacity to ask me to join a sex club with him and his father. He also had five-star ratings because he warred with anyone who said anything negative about his place or him. I chose not to review him and move on with my life. For example, I had asked him to deal with the cockroaches which were overwhelming in the kitchen. He told the next guest who came within a day that I completely made up the “story” about the cockroaches. Again, what he didn’t know was that I hadn’t told her about them. She told me he said I was “crazy.” She warned me about him and said she was going to write about her experience dealing with him and how he tried to manipulate her and treated me. I said very little about all of that and finally called Airbnb to ask the how to get out of there. They helped me get a transfer to another place, but it was very time consuming and cost me money due to the loss of work hours. They wanted me to review that guy with all the details. (He’d been suspended before.) But, I only gave it to them in an email. I didn’t want drama. They also wanted me to write about this host in the review, but again I don’t want to war with unstable people. The other hosts I’ve had have all been decent people. A couple were strange and sometimes petty but nice people overall. For example, one became angry when I went to a social function and complained about men bothering me. Turns out, she’d gone to that before and no one was interested. So, she became angry at me. If only I’d known. But, she was otherwise a great host. Another was very helpful in many ways but had a gas leak that was dangerous and wouldn’t fix it even though she acknowledged it. We had to sleep with the windows open in our bedroom and then go air out the room where the leak was every day. I didn’t tell anyone about that but will suggest to her relative when I see them again that it would be a wonderful gift for her to get that taken care of. I think that will do it, though she might be mad that I suggested it. I’d hate to see anyone hurt by that. My point is that it’s not just the guests that are not well screened. The hosts can be a danger as well, and Airbnb is not very proactive about nixing problem hosting situations. Because they seem so reluctant to do much until the situation is dire, and because hosts can retaliate so easily if they don’t like anything you say in a review, truly bad hosts continue to host, leaving guests in precarious situations at times. I don’t really feel unsafe here in terms of the building, other guests, or stranger danger. But, the unverified cohost and the host are another matter. Let’s just say that our water temperature fluctuates according to who is present. When it’s only us, they set the water heater to “vacation,” but when there are other guests present, they turn it up to “warm” which gives everyone plenty of hot water. I see the cohost/friend going into the garage after other guests leave and quickly coming out. I’ve checked to see if he’s changed it and he has. That explains why there is barely enough warm water for a five-minute shower and no hot water for washing dishes or a six-minute shower. Someone at Airbnb needs to pay closer attention to screening hosts. By the way, the host defended his friend/cohost’s going off on me that first night for losing the key by asking what would happen if I “lost a key” when I had a federal security clearance. The truth is that you don’t use keys to get into those facilities, but I didn’t explain that to him. I just told him that when a guest loses a key, you replace it. I told him I didn’t mind paying a key duplication fee or fine if he had that in his rules but I would not pay his cohost for his time to hand me a key he was supposed to hand me the next day anyway. When I found the key, I pointed out that now we had two keys, something he had promised us anyway. If a host has no idea that guests should be treated with common courtesy and respect and that it’s not normal to shout and behave in a threatening manner, then they have no business being hosts. They also shouldn’t claim to be five minutes away and eager to help with anything if they are out of town and only have a mentally unstable anger addict who wants cash from guests for his trouble to sub in for him. I have a feeling the city is going to make us all leave shortly, and so I guess I’ll go and start packing up, two and a half weeks before my reservation is up. I didn’t know Airbnb would allow a location in towns that didn’t allow it. At some point, Airbnb needs to take some responsibility for situations like this.
I forgot to mention that when I arrived, the toilet bowl and kitchen sink looked like they had not been cleaned for months. I scrubbed them both out and made zero complaints to anyone about it. I’ve cleaned up after all the other guests also without complaint, replaced supplies that have run out, provided supplies that were not provided (no sponge or paper towels in the kitchen), and shared a little bit of our food with other guests. They each have told us how nice we are and how lucky they felt they had nice roommates. The problem here is not the guests. It’s the absent and unscreened host who keeps shooting himself in the foot. I have a reputation for being “too nice” to people, and yet, he’s got the idea that because I objected (with great restraint) to his “friend” bullying us, I’m his enemy and must be discredited and, if possible, ejected immediately. He doesn’t even seem to be able to consider how his further actions might affect us. How does he think that’s going to help his business? He knows that if I’m put in a corner, I’ll ask Airbnb how to handle it. I’ve not told the anything since that first incident. How many people would be as patient as I have been?
We have launched a professional hosting service that is currently based in Lake Tahoe area…many of the items you mentioned in your blog are issues we’ve crossed with owners. Cost is always a factor. This is why we focus on top line revenue growth…rent it more…increase the nightly rate by making incremental changes to the unit that enhance the guest experience…move costs off the owner and onto the guest.
For example: Set your cleaning fee so that it allows you to hire a professional cleaner is important to running a professional rental. They a) clean better and b) stage the property better….these things impact guest ratings. Increase the cleaning fee slightly to cover the cost of incidentals thus moving that cost off your books. Provide black cosmetic towels thus reducing damage and replacement cost on your white towels. Don’t provide a Kuerig…its wasteful and you end up paying for the coffee or getting rated poorly for not having. Have a nice coffee maker and let the guest buy coffee. Don’t provide cable/dish…provide amazon fire tv…small up front cost that saves money each month. Replace your thermostat with a wifi enabled so that you can adjust remotely…set up schedules during your guest stay so the thermostat is saving you money.
The other piece I think was left out of the math in this post: long term rentals equal deferred maintenance…so while you don’t have maintenance monthly you have ONE large bill at the end of the lease…damaged carpets, walls, cabinets, plumbing, etc. can cost a lot. We’ve worked in this industry and have seen properties with 10-15k in damage from a long term renter.
If you offer rental damage insurance you can defer the damage costs from your check book to the insurance companies checkbook….so the long term renter vs. short term renter damage costs can be pushed off your books.
There are 50 more ways to reduce costs and increase guest experience…lower costs and increased top line makes the vacation rental more profitable…but its all about how you run it.
I’m the single mom of a large family and opened a small house (on my city property) as an airbnb almost 2 years ago in Tri Cities Washington. Our “Little House” literally kept us fed during its first year. I work full time and run home at lunch to clean it. We’ve loved our guests and only had one bad experience. As I type this, carpenters are renovating the basement of our 111 year old home (that we live in) and we plan to open a second airbnb next month. Air bnb has been the perfect, flexible way to earn additional income but…what I love most about it…is the flexibility to block out the calendar so that our family can use the space. I don’t want the mess of long term renters (and have not put full kitchens in either place for that reason) but I want some additional income. And, yes, I like the business deductions I can take while I also improve our property. It’s a wonderful option.