This article is Part 2 of The Airbnb Series. Start by reading Part 1 here, and when you’re done, visit Part 3 and Part 4.
_____________________
Three months ago, I launched The AirBnb Experiment.
I’m trying to satisfy a long-held curiosity: How much more (or less) could I earn by running an Airbnb vacation rental, as compared with traditional landlording?
My subject property: a luxury one-bedroom apartment in a prime Atlanta location.
I’ve owned this property for three years. I could rent it to a traditional, long-term tenant for $1,100/month. Instead, I’m offering it as a short-term vacation rental on Airbnb and VRBO.
Will I make money hand-over-fist?
Will I lose my shirt?
Here’s how the experiment shook out:
Occupancy
My biggest fear is massive vacancy rates. As any landlord could tell you, nothing is more expensive than vacancy.
Fortunately, that fear is unfounded.
The apartment is fully booked from April through September, and I’m already fielding inquiries into October and November, from guests trying to reserve the apartment 4-5 months in advance.
Score!
There’s an expression among landlords: “If your occupancy is 100 percent, your rent is too low.” Borrowing a page from that playbook, I decided to raise my rates from $75/night to $99/night.
(Update Spring 2015: I’ve raised the room rates again; it’s now between $125 to $155 per night.)
Every guest pays an additional $75 cleaning fee, regardless of the length of their stay, and puts down a $150 refundable security deposit. An extra guest is $5/night, and pets are $10/night.
Guest Quality
There’s one risk that’s even more expensive than vacancy: destruction.
If your guest trashes your home, you could (theoretically) lose tens of thousands. The newspapers report horror stories of Airbnb guests who throw wild orgies.
Fortunately, this apartment is orgy-free. (Should that become its new slogan?) The guests are top-notch, worldly and fascinating.
Actors – The apartment is close to the Fox Theater, a gorgeous 4,700-seat performance venue. As a result, I’m getting a ton of interest from members of Broadway touring ensembles – so far I’m playing host to cast/crew members from The Lion King, Wicked, and Phantom of the Opera.
Artists – The unit is also two blocks from Piedmont Park, a popular festival venue known as the “Central Park of Atlanta.” This means I’m hosting many artists and craftsman: entrepreneurs who traverse the nation, selling homemade organic soaps or recycled clocks at summertime festivals (and making a decent dime).
Travelers – And of course I’m getting my fair share of “traditional” vacationers – people who want to visit the biggest city in the South, excited to spend a weekend dining at posh restaurants, drinking fancy wines or crafted cocktails, dancing at concerts, and doing all kinds of other city-stuff.
Issues
In fairness, I need to share the downsides, as well. First and foremost, vacation rental management is harder to outsource.
Here was my initial thinking:
- Step 1: Develop systems and processes. Example: “Here’s the cleaning checklist: wash sheets, empty trash cans, dust, mop, vacuum, etc.”
- Step 2: Hire housecleaners to manage the turnover.
- Step 3: Maintain a “supply closet” filled with toilet paper / coffee filters / etc., to reduce the number of trips to the store.
- Step 4: Communicate with guests through the smartphone app.
- Step 5: Have a mostly-hands-off business. I’ll still field inquiries, which would take about 30 minutes per week (5-10 minutes/day, a couple days per week), but the rest would be systematized.
Or so I thought. Reality had different plans.
I’ve created these processes for my rental properties (as a traditional landlord), and it’s worked like a charm.
My traditional rental properties – after they’ve been renovated – are totally passive. I just kick back and watch the money roll in. (Buying and renovating the properties is a massive pain-in-the-ass, but the aftermath is glorious.)
Unfortunately, vacation rentals aren’t as hands-off. Here are some of the issues I’ve had to troubleshoot:
Issue #1: Consumables.
Humans need a lot of crap. We need soap, shampoo, tea, coffee, cooking oil, toilet paper, dishwashing liquid, laundry detergent, trashcan liners, bags of ice.
These are “consumables” – meaning that they need constant restocking.
I figured I’d keep a “supply closet” within the apartment. Bad idea.
As it turns out, people steal from supply closets. I’m a little flabbergasted that someone would pay $600 for a one-week vacation, and siphon away a $5 container of laundry soap – but that’s how life shakes out.
What’s strange is that nobody steals the “indefensible” stuff – pots, pans, the TV. That’s too flagrant. But “consumables” seem to be viewed in some morally-ambiguous zone.
This doesn’t happen with all guests, of course. Only a few. But after you lose enough 4-packs of toilet paper, you start thinking that maybe you should keep your supply closet locked up.
Issue #2: Finding Reliable Workers
Of course, the restocking issue isn’t a huge deal. Just create a checklist for the housekeeper, which includes a line-item: “Check quantities of soap/sponges/etc. Resupply as needed.”
List each specific item, with a check-box next to it. House the supply closet in a locked trunk, and include a set of keys. Voila – you’re done.
That would be great … if I could find a reliable housekeeper.
You see, here’s the crux of the problem:
Check-out is at 11 a.m., which means realistically, people leave at 12 noon. Check-in is at 3 p.m., which means realistically, people arrive at 2 p.m.
That leaves a tight window of time to process the turnover. And unfortunately, I’ve had trouble finding punctual cleaners.
My two attempts failed miserably.
The first cleaner showed up a whopping six hours late – long after the next set of guests had already checked in. I cleaned the apartment myself, and sent her home when she arrived.
I tried again a few weeks ago, when I spent the weekend at a South Carolina beach. I had a turnover scheduled on the last day of my vacation. I scheduled a cleaner, and re-confirmed our appointment a day or two beforehand.
She never showed up. Boo!!
The new guests called me to complain that they’d checked-into a dirty unit: dishes in the sink, unwashed sheets on the bed. I received the call as I was driving home from the beach, several hours away – and felt totally helpless. All I could do was apologize profusely and slam the accelerator.
In those moments, I wonder: “Is this really worth it?”
Then I crunch the numbers, look at my “hourly rate,” and think, “Hell yeah.”
Income
During the past 3 months, I’ve grossed $6,829 through this vacation-rental – an average of $2,276 per month.
If I projected that out, I’d be grossing $27,300 per year on just this single apartment alone.
On the surface, that sounds awesome. But let’s look at the expenses.
In the past three months, vacation-rental expenses** totaled $1,869, with the biggest chunk getting consumed by sales and occupancy taxes (hotel taxes).
That leaves me with a net income of about $5,000 in the past 3 months, which averages $1,653 per month.
Is that good or bad? It depends.
No investment is “good” or “bad” in a vacuum. Every investment should be compared to the next best alternative.
In this case, the “next best” is the rent I’d collect from a traditional one-year lease.
The apartment would rent for $1,100 per month, which means that I’m capturing $553.23 more than I otherwise would.
In other words, I’m earning an extra $553 per month by running an impromptu “bed and breakfast” rather than landlording over a traditional tenant.
How much extra work does that entail?
Not much.
Answering inquiries is easy – I reply to emails through my phone. It’s about as much of a hassle as checking Twitter or posting to Facebook. Time commitment: negligible.
Meeting guests is unnecessary. I just leave the housekey hidden in a nearby spot. The Airbnb website automatically emails the guests directions and key location. Result: The check-in process is totally hands-off.
Playing tour-guide is automated. I wrote a “Welcome Guide” that offers the guests tips on the best places nearby to eat, drink, shop, etc., along with directions on how to get there by walking, bicycling, train, bus and car. The “welcome guide” also includes tips about the apartment (e.g. “this is how to operate the thermostat”) and the Wifi password.
Automation rocks, y’all.
The biggest hassle is turnover. Cleaning the apartment takes about 1.5 hours, and happened 11 times in the past 3 months (3.6 times/month). That means cleaning takes 5.4 hours/month. Let’s round the total time commitment up to 6 hours/month, to include emails and other ancillary tasks.
Time: 6 hours/month
Extra Income: $553/month
Hourly Rate: $92/hour
Not bad, if I say so myself.
What’s Next?
I’m stoked that the “extra income” has almost paid-off the cost of furnishing the apartment (about $2,000). Now that I’ve nearly recouped those initial startup costs, everything else is pure profit.
(By the way, is this the only investing blog that uses words like “awesome,” “stoked” and “orgy-free?”)
Since The AirBnb Experiment is holding strong – and demand is high – I’m going to keep truckin’ for the next few months.
Will demand slump in the winter?
Will my new-higher-prices scare people away?
Check out Part Three of The Airbnb Series to find out.
___________
Airbnb makes it easy to put your extra space to work for you. Become a host today, and you can start boosting your income!
P.S. Want to stay in an AirBnb spot the next time you travel? Use this link to get a $20 discount on your first Airbnb booking. I’m transparent about everything, so you should know that if you use the discount link, I’ll also get $20. Win-win for both of us!
P.P.S. **Are you wondering about the basic costs of running a property, like the mortgage, insurance and property taxes? Those numbers stay the same, regardless of whether I’m renting the apartment as a vacation-rental or as a traditional one-year lease. Therefore, they’re not included in the The Airbnb Experiment spreadsheets.
But if you’re new to Afford Anything and you’re curious to learn more, don’t worry: I’m totally transparent about my income/expenses from every rental property.
Here’s how much I earned & spent for House #1, House #2, House #3, House #4 and House #5 – read on for the juicy details.
Learn How To Escape the 9-5
Get free updates on building wealth and living to the fullest.
Zero spam.
Furnishing the apartment at 2K, really means you have a loss of $400 month or break even point of 4 months.
And not being able to screen your tenants, I like the control vs the hotel mentality.
I’d vote for the rental over Air B n B
@Steven — It’s a 4-month break-even point to recoup the cost of furnishing. That’s actually a much faster break-even point than I was expecting (I thought it would take a year or more, as I said in the original AirBnb Experiment article.)
You can still screen the tenants — every tenant has reviews. You can read the negative/positive reviews, and make your decisions accordingly. It’s not the same as screening long-term tenants, since you can’t see their credit score or their income — BUT all the payment is collected upfront, so there’s no risk of default.
Great write up Paula! You laid out pro’s and con’s very well. I’ve spent 2 years running a successful Airbnb enterprise in Los Angeles. With three properties, I’ve earned over 100K per year. I’ve written an book “The Airbnb Expert’s Playbook”that digs deeper into some of the topics you discuss here.
Hi, I’m considering operating an airbnb and would like some suggestion!
Is there an alternative to kindle?
Any tips for screening guests? Other than searching for them on social.
Thanks for the amazing info!
Read the reviews that other Airbnb hosts have left for the guests. That’s the #1 guest-screening-tip. 🙂
After that, just try engaging with them in an online dialogue. You’ll get a sense (from their online correspondence) about the type of person that they are.
Unfortunately you can’t screen Airbnb guests as throughly as you can screen 12-month tenants, which is why the reviews from previous hosts is paramount to the screening process.
Screening is my biggest concern since I own and manage apartment communities and want to test this in a small property in a great premium location (pretty much like your example to a dime).
Is there any way of knowing if they have felonies etc.?
I have an Airbnb and no, there is no way to know about felonies…
When you see the person’s purpose…to attend a wedding, speak at a church, you see the motive. I find local people pose problems. One took off with my key! If they are local they can return…
The long distance travelers are very grateful to have a homey atmosphere and a bed ready for them!
I finally bought keyless entry locks. It is worth every penny to not worry about keys, and you can easily change the code when you feel the need.
Allison is right; my friends who travel often and rent their places out on Airbnb when they’re gone have discovered two tips when screening travelers that help weed out 99% of problems: do NOT rent to locals; often they have sketchy reasons for needing the space (unless you rent out your space as an event space). The other tip is less used, but one of my friends only rented to females. After she did these 2 things she never had a problem with her guests.
How much does airbnb take
@Larry — Between 9 to 15 percent, depending on the length of stay and other factors. This is included in all the numbers that I show in the spreadsheets here (their take comes off the top, prior to any gross revenue).
AirBnb takes 9-15%?? wow, I thought is was only 3% ?
Also, I think I read they 1099 you based on your gross rental income? is that send to IRS? seems odd since they’re not a payee, just a broker service.
Yep, they take a total of 9 to 15 percent. Their website says:
“To help cover the costs of running Airbnb, we charge guests a service fee every time a reservation is booked. The amount of this service fee varies and is based on a percentage of the reservation subtotal (before fees and taxes) … Service fees for guests typically range between 6-12% but can be higher or lower depending on the specifics of the reservation. Airbnb charges hosts a 3% host service fee every time a booking is completed on our online platform. This fee covers the cost of processing guest payments and comes out of the host payout. We also charge guests a guest service fee to cover the cost of running the site.”
Add the 3% host fee to the 6-12% guest fee, and you get a total fee of 9-15%.
And yes, they’ll issue you a 1099-K if you earn more than $20,000 and have more than 200 transactions in a year.
This appears to be unintentionally misleading. It is a 3% host fee. The guest fee is on top of the rental charge and does not change the income the host receives.
I’m sorry, but I’m calling BS on furnishing for 2k…. in what hemisphere?? Without an honest cost of furnishings, the “experiment” fails before it begins…..
I’ve fully furnished my 1 bedroom apartment that I now rent on airbnb for under 2k myself, and it’s a beautifully furnished and modern apartment that has received plenty of compliments. Furnishing can be done cost effectively with the right pieces. Ikea and Target definitely helps as well.
The key is where to buy, there are websites like hotel liquidators, move out sales, estate sales and second hand furniture places. It will take a little bit more effort and organization to do everything but I believe in one weekend can be done. Little advise, get a moving company and at the end of the day pickup everything you bought and concentrate one day on BIG items like beds, mattresses, dining sets, couch and other big pieces and the 2nd day for small things you can fit in your car. Ross and TJMaxx are good for nice linens, silverware and flatware.
Another option is buy EVERYTHING online. Amazon and Wayfair are your best friends and hire any college or high school kid to assemble the furniture (Provide tools and Pizza).
I’m a Realtor in Orlando FL and BELIEVE ME this is possible on a small unit.
You can definitely furnish a smaller one bedroom in the Western Hemisphere for <2K if you have a little motivation to find deals. It's totally possible, though.
We’ve done it many times, for far less than 2k.
I work contract, and can work somewhere for months. I can assert, that I have mastered furnishing for far less then 2k. there are thrift shops, etc. I do bring sheets, and always buy a new mattress. I am currently renting a place in Maryland, and most things came from local thrift shops, even a new mattress. When I leave, I usually take the new furnishings, back to NY, where they get stolen when I go to the next gig. (annoying, but not a tradegy).
Money does not equal style. If you’re good, you can furnish a place with $2k and make it look amazing.
I too furnished beautifully for less than $2,000. Beautiful lighting and mattress at a yearly sidewalk sale, consignment stores, Overstock.com. I’m not sure where the vitriol came from with the poster who disagreed. Let’s be respectful, and realize that people have many skill sets. Design on the cheap just happens to be a very handy skill.
I think the ability to check up on your property more frequently than if you had regular tenants is another psychological advantage (if someone destroys your property, at least you find out about it almost immediately).
Have you thought of experimenting with the nightly rate? You could charge more for the one-night stays (say, $125/night) and drop it back down to $100 for multi-night stays.
Great question, Janet! I offer discounts for week-long stays and month-long stays — e.g. I have a nightly rate, weekly rate and monthly rate.
I also sometimes run “last-minute deals” — if the apartment has an imminent vacancy, I’ll slash the price at the last second, just to get someone in there. I’ve only had to do this once, but it brought me an extra few hundred bucks.
You mentioned insurance being the same between both options – doesn’t your insurer differentiate between long term and short term rentals? I would have thought there would be a different risk profile from their perspective.
@Julie — Nope, there’s no insurance difference. My insurer cares about four things:
Insurance rates vary depending on these factors (as well as bundling the insurance with my other properties). If the apartment was going to be vacant for several weeks or months, the insurance would increase (you need special “vacancy insurance”) — but since it’s never vacant for more than 1 or 2 nights, at maximum, it’s not an issue.
Interesting. My insurance definitely doesn’t allow for short term rentals. I asked and they would require a whole different insurance policy. I hope you are %100 sure on this. Because if there is an accident you could lose everything. Also do you have umbrella insurance and have your insurance set to a high payout? Again if there is an accident you could need enough to pay millions and not lose all your properties just from one accident on one property.
Can you tell us the name of your insurance company? I’m with Nationwide/Allied and they would not cover short term rental even though we have 4 other long term rentals, are primary home, 2 cars, and an umbrella insurance policy with them.
Hey Chavonne – I believe Paula has said her insurance is through State Farm in previous posts.
in regards to a insurance policy. Is minimum one month stay considered a short term?
In Denver I have to rent it out for minimum 1 month if it is not my primary home.
Really neat post, Paula. I’ve never done AirBnB but know a lot of people who have (both as renters and offering up their place) and it always seems to work out well. I love the breakdown you provide in this post as well as all your other real estate ones. So much good information here!
I live in Toronto where the housing market it absolutely nuts so I’m not about to get a place specifically to experiment with short term rentals like this – however, if it was more affordable, you make a compelling argument that it might be worth it!
As Charlotte commented, I too live in Toronto and yes the average house is close to a million in midtown, downtown, and uptown lol.
I’ve been tasked with the job to set up my clients house for Air bnb from November to March. I’ve been reading & researching for days my lists of to do mirrored everything I read on your blog, its good to know I have some foresight !!
My concern is the house has an open stair case , at the top of the stairs there is a hallway, it runs parallel with the stairs coming up, at the top there is a railing around the ‘hole’ where the stairs are. However the railing is made of vertical posts every 4 feet, and these posts are quite high, a long horizontal piece sits on the posts along the length of the stair opening. While it is sturdy its dangerous, any child could easily fall through the gaps in the posts or under the railing . I’m not sure what to do with it, as there will be some money invested to finish and tie up lose ends to get the home ready for renting, there will not be money to enclose the banisters and I’m not sure the home owner even wants them enclosed.
Shall I warn guests ? maybe not rent to guests with children ? Any idea on how to handle this – I know I probably have not explained it too well, a picture would have been clearer !
Warning guests will not mean a darn thing in court or to insurers if a child dies or is severely harmed. You will be at fault. Hire a licensed contractor to fix the staircase issue.
Get some mesh netting to run along the inside of bannister that way if it is taught a child cannot fall in fact I would leave it there permanently as if it were a swimming pool
you did the right choice, I think. Airbnb can bring much more money + you can meet interesting talented people. What can be better?
This is amazing! I hadn’t read to first post, but I admire the balls it takes to do this…don’t think I could! Good luck!
Fun post! And I appreciate your candor with the good, bad and ugly.
You’ve still got the issue of finding a reliable cleaning person/team though, so what’s your progress on that? Are you looking into a commercial service (Merry Maids or some near-alternative in your area?) Or perhaps a small independent commercial firm that can guarantee the arrival of cleaners in the tight window you’ve got for turnover? This particular issue would cause me no end of stress, wondering if the cleaner(s) showed and what the quality of the work was…and whether the new tenants walked into bliss or disaster.
@Marcia — I used a commercial cleaning service the past two times — and that didn’t work. But my experience in working with independent one-person or two-person contractors (via renovations) has shown me that’s not reliable, either — the person might have car trouble, etc.
I’m considering hiring a commercial cleaning service and then asking an independent person to stay on-call as “backup.” I’m not sure how that would work, but that would be the ideal situation …
Have you used TaskRabbit before?
It’s too expensive for repeat jobs, but if you need a cleaner asap then it can be extremely useful. They’re also more willing to take adhoc or unorthodox tasks.
Robin
A commercial cleaning service is not always what you need. I had a cleaning service Upstairs Downstairs for many years. You need someone who can do laundry , fold towels correctly , make a bed attractively , and pay attention to detail. You cannot assume anything. You need to check all the waste baskets, and give them new liners, check the fridge, throw out old food, check their are no peanuts under couch cushions etc etc, all the bathrooms need soap dispensers filled, to be honest this is a detailed cleaning that even folks that clean motel rooms find rather overwhelming. The good thing is that a vacation rental has minimal furniture and lots of surfaces, no junk and is kept clean as ap posed to regular domestic cleaning where I cleaned some homes that were soooo bad you know the ones. Yukxx
If you have a retired neighbor, this could be your solution. My neighbor is extremely dependable and likes the extra cash, as well as the increased socialization it has led to. She has also now learned how to text, use her phone calendar, and her confidence and skill keeps growing. It’s a win/win for both of us!
I’m glad to hear that it’s working out! That really sucks about the housekeeping problem. That’s the most work-intensive part of the whole thing, and the part that lets you walk away or not, so it must be really frustrating.
I’ve been meaning to email you since I got back from my trip… I’ll try to do so this morning.
Hello Paula,
Its so nice to hear from your experiment! We rebuilt the ground floor of our house as a studio over the last couple of years and we started our own Airbnb experiment in january. We love the freedom it gives us: we can enjoy our ground floor when nobody rents it (there is a sauna we love to use!!!)and we get bigger returns than a fulltime renter would give us. Downside is cleaning (we have to clean much more than 11 times/3 months!, our guests stay on average 2 days),managing the place and we have to deal with lots of cheap rooms in our area! People just rent their spare bedroom and we cant beat their prices. Our returns are nothing near yours, but still much better than if we would rent full time, so we are thrilled! We live in a nice old city in Belgium, Europe, so we meet lots of travellers from all over the world. I love to read your story, so I look forward to the rest of your experiment!
Kind regards
Nina
Looking back at your original post, it looks like the taxes and utilities are quite a bit higher than you’d originally estimated. The “consumer disposables” have cost a bit less, even with the supply closet raids you mentioned. And management… well, you’ve only paid yourself so far, but hopefully soon you’ll find someone else to pay to do the turnovers.
At the same time, your income has been quite a bit higher than your initial estimates… but I wonder if there’s a seasonality to that, as there is in so many vacation rental situations. Maybe not, in your location.
Thanks for sharing the details of your experiment with all of us!
This was so fun to read. A couple of years ago, my fiance and I started renting out an extra bedroom in our apartment, and we made over $5000 in a couple months that paid for our European vacation. We charged $72/night for one bed and one bath in our apartment, but we definitely could have charged more. So even folks that don’t have a full place to rent out could still make a lot of money from Airbnb!
If you’re renting out an extra room in your place, I find that it’s better to have folks stay at least two nights, but the longer the better. Our best visitors were those who stayed 2 weeks. We made a lot of money, and we enjoyed getting to know them. And it was better for that turnover/cleaning aspect you talk about.
The other thing to realize if you’re renting out an extra room is that the visitors are rarely there. They’re usually out touristing or at their conference or doing whatever the purpose of their trip is. So it wasn’t a big imposition on us at all.
Anyway, big fan of Airbnb, and it was neat to see your experiment on a larger scale!
Wait…That math doesn’t add up. 2 months @ $72 would be $4,320… assuming you rented every night. Plus, you wouldn’t of cleared $5k…
@Ricky — I had the same thought. I’m assuming that Rebeca means “a few months,” rather than literally “a couple (2).”
Very cool experiment. I imagine results vary depending on market, but AirBnb seems like a very viable alternative.
I love how automated the process is.
As for cleaning, that is a tough one. But if I were you, I’d keep looking for someone reliable. If you found a few good, reliable cleaners, you could even create another business. Other AirBnB landlord who have the same problem could turn to you to dispatch a cleaner on time!
I had the same thought, this seems like a business opportunity for someone to create a staffing service for cleaners just in that small time frame (noon to 2:00), perhaps in just a couple of zip codes where there are lots of these short-term rentals.
Are there property managers who would handle this sort of thing? It would cost you a percentage of gross rents, but it would allow you to transfer the anxiety and responsibility as well.
I think the problem with that is that about every single property would need it at the same time. Around 12pm – 2 pm. You’d need 20 times the amount of cleaners since a few cleaners can’t be at all the places at the same time. Where normally they would be able to spread out a lot of properties on a schedule throughout the day.
Women with kids in school would be perfect for this job. And there is an endless supply of them!
Interesting post. It looks like there is money to be made using AirBnb. I may look into it in a year or 2.
Hi Paula,
I’ve been waiting to see how you’ve been doing with your short term experiment. It looks like it’s really turning out very well. I’m surprised you haven’t had more vacancies yet. You do sound like you’re in the perfect location for the bnb idea. I think that must be the key.
That and having reliable help. I am only renting long term, but I could never keep up with everything if I didn’t have really great people helping me. I’m away from home too much to do it all myself, even if I wanted to deal with all the issues with tenants, maintenance, etc.
It’s well worth it to me for the peace of mind.
Paula,
We stayed at a very nice BNB in Napa. They had a policy that seemed to work well. They charged ~$25 if the hand soap was missing, but offered to sell it at cost at their front desk (~$8). I realize you don’t have a front desk, but maybe you have an alternative like stocked mini fridges at some hotels. Leave a closet with those items and the price tag on them. Then you can charge them after they leave. Just an idea.
BTW thank you for your great post. We are thinking of doing the same with a 4/2 rental we have here in our town.
Jason
Air BnB has been a great option for our holiday property in Sicily.
* I slightly underprice the local rates which are geared to a small peak season
* My target market is very niche (long-term creatives working on a project, 1-12 weeks)
A couple of challenges:
* The property agency I use has limited hours and the English speaker is on call only part-time
* Local cleaners are unable to do turnover in a single day. We need an entire day between reservations.
Thank you so much for sharing your stories! I have honestly wondered about both sides of AirBnb, and from the landlord side, I just thought it would be a lot of hassle for the returns, but it sounds like you are doing awesome! I used to live in Atlanta and actually had my wedding reception at the Fox Theatre, so I think it is cool that you get a bunch of the traveling performers as guests.
@Shannon — I LOVE the Fox Theatre! What a beautiful spot to host a party … wow. Yeah, I’m actually a huge musical theater fan, so I’m thrilled that I get to host performers. (One of my guests even gave me a backstage tour!)
Great post! – A couple of friends and I are doing something very similar. We are in the process of buying a lakeside property with plenty of outdoor lake side activities available around the location i.e. jetskis and paddle boats. We are looking to bring in 400-550 for a 3500 sq. ft. property in the DFW area using VRBO.com….wish us luck.
Been following along curiously. Had an opportunity to purchase a home in need of SERIOUS rehab but it’s so close to the Hamptons you could spit at it. I want to see how your experiment goes and then perhaps try this next year if I have an opportunity at a home purchase. Problem is that it would be 1.25 hour drive away from me. Hmmm.
I’ve been following this series and came today to read up. Good post. Might I suggest you only have 1 pop up per visit? I can handle 1, but when I see 2, I’m gone and probably won’t come back. (I only take time to comment on this to people whose work I like 🙂 ).
@Lynn — Thanks for the tip! My settings are geared towards only one pop-up per visit, so I’m not sure why you received two. (In fact, my settings are geared towards only one pop-up per day, so even if you closed your browser window and re-opened it, the pop-up box shouldn’t have re-appeared.) I’ll email my “tech guy” about it.
Great article! It is great to see someone’s results using AirBnB for a full-time rental property. Right now I rent out my current apt on AirBnB for weekends I’m away and longer vacations (orgy free of course). Also I get out of town for big events in Miami, when I can sometimes rent my apartment for $400/night (i.e. Art Basel/Ultra). I just drive 3 hrs north and visit with my mom for the weekend. So far I haven’t had any problems with AirBnB- it has been a great extra source of income!
I have totally been one of those actors looking for short term housing 🙂 I’ve also been on the other end. When I go out on tour, air b n’ b can be a good sublet tool. But I don’t stock my apartment with consumables. Just linens and towels.
I have been doing Airbnb for two years now. It is great. I did learn something new from your article.
Thank you very much.
Thanks for sharing, Paula! I’m planning to renovate my basement to rent out on Airbnb. My neighborhood (East Nashville) is super hot right now, and it seems foolish not to take advantage of the super high occupancy rate at hotels and record number of tourists. Looking forward to reading more.
This is fascinating! I’ve actually always wondered about people that put their homes/apts/condos on these types of websites. I just learned about airbnb and plan on using them in the future. I have used homeaway several times and never had any problems.
It really cracks me up that people never steal pots or pans or dishes but they’ll steal the $5 roll of garbage bags or lysol wipes. The last place we stayed we accidentally ended up with some of the towels from the house as we did all the wash for the landlord and we told them and they said not to worry about it (this place was HUGE and it wouldn’t shock me if they had over 50 towels!)
Great job and thanks for the update. I’m considering an airbnb unit with our next rental and this is very informative. I’m eyeing a duplex so it should be easy to maintain. Finding a good cleaner is probably going to be a problem for us too.
Congrats, Paula! You will continue to get traffic in October– for Pride. There are always events in Atlanta. You may just need to be creative in targeting whatever group is in town that week.
As for the supply closet, I think it’s a great idea. At my mom’s beach rental, the closet is locked. The housekeeper has the key to re-stock the apartment. My mom also had detailed instructions for the guests. Lots of how-to guides all around the condo.
I know of several housekeepers in Atlanta. You will find a good one, especially with the guarantee of steady work for a few months. Just ask around.
I’m so impressed with your story.
I could use some advice from someone who has used AirBnB. You? If you can give me some advice email me.
Best,
Rick
myster_h@yahoo.com
I’m writing this from a vacation rental right now, one of two that my extended family rents every year for a weekend family reunion in Lake of the Ozarks, Missouri.
The supply closets are locked.
I don’t know a lot of the details, since I’m not the organizer of the stay, but I thought I’d share that one detail. 🙂
@Rich — Haha!!!!! That’s AWESOME!! I bet I know why … 🙂
I’m surprised your condo bylaws don’t prohibit this type of short-term rental. In Milwaukee, WI, there is literally 1 condo building that allows rentals of less than 6 months, and that 1 building is a 30 day minimum. Condo boards became very investor unfriendly during the recession as many people split and just rented out the units, and now my current Association specifically limits rentals less than 6 months to avoid an AirBnb experiment from happening. But as long as you’re allowed, more power to you!
@Matt — It’s not a condo. I own the building; it’s a triplex (a 3-unit building).
Many communities now have zoning by laws that prohibit rentals of less than 30 days in residential zones. This is the case in Denver and if a neighbor turns you in they will shut you down. Look for communities that allow short term rentals and will issue permits to do so.
Hmm.. As someone who is doing the exact same thing, I would suggest not blatantly advertising it and how you’re doing it!! the more that people catch on, the quicker your profit is to vanish…
@Sarah — My mission is to share knowledge and help people. I’m happy to “pull back the curtains” and show people, with total transparency, what I’m doing in my own life, if there’s a chance that sharing that knowledge can improve someone elses’ life.
Many readers email me to thank me for helping them improve their own finances. And that makes me so happy. The fact that I can help people is a huge blessing.
Yes..share the wealth and knowledge will help not only others but yourself. Lots of vital info here..im about to become a superhost here in Sacramento..looking at purchading a cottage for bnb purposes….ty very much. Darryl
thanks for the info , im hoping to try this my self and help with my mortgage/finances, and it helped reading your article
A real live Go-Giver…..your rewards will come around again and again. Love this.
Loved the article as I just finished a remodel and have considered using AirBnB while I pay for living in another city.
Would you care to link your place? Or email it?
Scratch that ~ !
So I guess my question now is – what is your “review” percentage? Like the number of people that review after staying?
@Ricky — I’ll email it to you right now. 🙂
You sound like a great short-term landlord; unfortunately, my first (and only) experience with AirBNB as a guest was totally different. My friends and I rented out a house advertised as being close to the tourist area. It turned out to be on a rather seedy street and we had to take cabs because the neighborhood was unsafe for walking. The kitchen was unusable due to roaches (saw them in the kitchen and bathroom), and the host claimed we broke something, when we didn’t. I would rather pay twice the price and just go to a hotel. As far as cleaning, the place was “clean,” but not spotless like a hotel. (It was a rather old house that had not been renovated, and you can’t really get an old house too clean. There was lots of dust everywhere.) I would have preferred to come back from sight-seeing daily to a spotless hotel room with fresh sheets. Plus, there are no deposits with a hotel. Yes, you put down your credit card, but in years and years, I have never been accused of breaking anything in a hotel or had to pay more than the cost of the room. AirBNB may be better for more “adventurous” people who will lay their heads anywhere to save a few bucks. It is also good that you are insured and paying hotel taxes, etc. as required. I can see how hosts can run into liability issues. Guests don’t have anyone to turn to, since this short-term rental industry is largely unregulated.
That’s great that it worked out! Thanks for the detailed post. I have been wanting to try something like that myself.
Here in Seattle my parents and my sister each have short-term rental properties that they advertise on Craigslist. That seems to bring in longer-term renters than airbnb does so the turnover headache is less because there is a lot less cleaning, less supplies (since they only provide them with the initial items), and less time advertising and screening renters. The units are furnished and still command a much higher rent than permanent rentals but most people stay between 1 and 6 months. They tend to be visiting professors, interns at various companies, folks relocated for work who need time to search for a permanent home, some students, and lots & lots of people who need a place to live while they remodel their permanent home or when they sell their home but haven’t found another yet. It’s amazing how few short-term rentals are available so this has become a really good business for them with almost no vacancies. Seems like that might be a happy medium between long-term rentals and the Airbnb weekend-type arrangements.
I was enjoying your articles, but came across something which makes me doubt your integrity and/or numbers. If you’re renting out all 3 units, then I’m assuming you do not live there. If you’re not living in the building why are you claiming the homestead exemption? Seems like correcting that would affect your bottom line. If haven’t seen any post stating you sold the building. This article was recently posted. Are you still the owner?
@CuriousNeighbor — I live there. This building is my primary residence. I live in one of the units, with roommates.
Are you a new reader? I’ve written a lot of articles about the power of living with roommates — it’s an instant way to turbo-charge your savings. Run a search on this website for the word “roommates” to pull up any of the articles that talk about this. Here’s one of many: http://affordanything.com/2013/01/09/lessons-from-the-2012-investing-challenge/
Great article. Thank you for posting it. I’m considering renting out my second home this way for half of the year. From you I have learned that the most important thing for me will be to find a reliable manager since I live 6 hours away from the property! Thank you again for doing the experiment and sharing it with others. THANK YOU!
Did you do any special marketing or are you just in a phenomenal location without a lot of competition?
@Kristie — I think I’m in a “pretty good” location with “pretty decent” competition. I live in Midtown, Atlanta, which is centrally-located within the city — so there’s good demand. However, that said, there are also lots of other Airbnb units for rent in my neighborhood.
But to answer your question, no, I don’t do any special marketing — I simply list the unit on the Airbnb and VRBO websites.
What is your split in listing coming from Airbnb vs VRBO
As you can see on the spreadsheet showing my income, most of my bookings come from Airbnb, though a few come from VRBO (listed on the spreadsheet as “HomeAway”).
Is there a fee to list with Airbnb?
@Tanya — Nope, no fee. They’ll only take a fee if/when you confirm a booking.
Hello! Great article. How do you ensure no double booking between the 2 sotes?
Hi Amanda –
I’d always manually double-check, just to be absolutely certain. It only took a few seconds — I’d pull up the Airbnb site and glance at the calendar.
For awhile, you could also integrate the calendars together (to reflect occupancy on both). VRBO was recently purchased by another company (Expedia), so that functionality may or may not remain. Expedia is trying to integrate VRBO with its own online booking mechanisms, and VRBO was pretty terrible at automation anyway, so I’d be cautious about relying on its platform to streamline anything. It’s best to double-check manually, or else just drop VRBO entirely and focus your bookings on Airbnb.
I have the same question about insurance.
I’m buying a new home and I asked about Landlord’s insurance (as opposed to Home Owner’s). They offer it, but when I mentioned both long- and short-term renters, they told me specifically that they don’t insure short-term rental properties.
If something goes catastrophically wrong, you might discover your insurer doesn’t cover it.
You could look for bed & breakfast insurance. It would be commercial so would be more expensive but would be more comprehensive.
Also Airbnb has insurance but you would want to check the T&C on that.
Enjoyed reading this and nodded a few times in agreement with your experience. Two things however:
– Lodging tax – this should be paid by the guests, not the host.
– Insurance, I agree with some other comments: regular homeowner insurance doesn’t cover this type of business. And only one or two insurance agencies carry this kind of policy.
@Jojo —
Lodging tax is paid by the hosts. Think about that logically: Is the guest going to drive to the county courthouse and hand over a $15 check? Or will the guest email their accountant a list of all the AirBnb places they’ve stayed? Of course not.
Hotels are responsible for sending the lodging tax payments to the county. Hosts are in the same boat.
As for insurance, you should call your agent and ask whether or not yours covers this. I spoke with my agent, and mine covers this.
Could you give more details of the specific kind of insurance that you have for your short vacation rentals and name of the insurance company? Insurers I’ve been contacting (Including State Farm) do not offer protection for short vacation rentals if using a regular rental insurance policy. Thanks.
If you google – homeowners insurance for short term rentals, quite a number of insurance links will pop up.
I’m sure there are insurers provide insurance for this. It may not be cheap but the insurance is out there and whatever the price can be taken into account regarding your expenses.
Would love another update! I’m thinking about starting an Air B&B business with my dad in Decatur. However, we can’t afford a single family home (nor do I want to deal with lawn maintenance) and I worry that HOA may be an issue for a condo. We’ll see!
Great article covering key issues and best practices for running a successful Airbnb! My team ran dozens of Airbnb rentals in San Francisco and came up with a tool to help other hosts optimize prices for each night. Beyond Pricing offers automatic daily updates for your listing using real-time occupancy data. It’s not a substitute for being a great host, but will help hosts maximize profits.
Hi Paula,
I stumbled over your post while I was writing a similar post but not on using Airbnb with your own investment property but rather using Airbnb when you rent a place and you want to use Airbnb for sub-letting. Also I live in Sydney Australia hence a little different than the US. Your post helped me also a great deal to structure mine using stats etc. I also referred to your post from one of my other posts in case people would like to use Airbnb when owning their own property/apartment.
Perhaps you have time to read the post and it migth even add value incorporating it into one of yours.
http://manukhula.com/lifestyle/airbnb/reduce-annual-rent-by-fifty-percent
Cheers
Manu
I am an AIRBNB photographer, and I enjoy photographing the vacation rental properties and meeting the owners. I learn things from them and discuss that with the next person. It seems to work well for them.
You have some great information! May I pass your site on to them?
Hi Sue — It’s a public website, so feel free to share this URL with anyone you want! 🙂
Fantastic post!
I especially love the mantra: if you’re 100% booked, you’re probably underpriced.
We hear the same question over and over from people: what occupancy should I expect? And we always tell them that we have a secret for them to get 100% occupancy: charge $1. Guaranteed. Money back. You will have 100% occupancy.
Finding that frontier of being booked just enough (not overbooked and not underbooked) is incredibly tough, especially if you’re shooting in the dark and not using third-party dynamic pricing software like Beyond Pricing (www.beyondpricing.com).
Keep up that great work and hope the income keeps rolling in!
Hi,
Thanks for this great article. This has been on my mind recently for an apartment I own in Miami. Problem is I live in New York. Based on your experience, do you think it would be too much of a hassle to rent your apartment on Airbnb if you didn’t live locally?
@Jon — YES. I would NOT recommend being a long-distance Airbnb owner. I would, however, totally support being a long-distance landlord (with a traditional one-year lease). Landlording is MUCH easier than managing a vacation rental.
Has everyone considered using property managers specifically for AirBnB? There are several out there, and they can significantly reduce the amount of work you do. Just be careful because they likely won’t be able to automate everything.
Paula, when is the next update coming? 🙂 Am looking forward to hearing how the performance has been over the last several months. Also, I noticed you had the sales and occupancy tax in there; I assume that’s the hotel tax?
Cleaning/turnover is a big issue for most hosts. Hiring a regular run of the mill cleaning service is hard because of the time frames. I had the same issue with my property so I started BNB Alchemy. Hiring a company that specializes short term rental cleaning is the best way to go. You may pay a little more but you’re paying for peace of mind. You can also charge that back to the guests. We service DC, NYC and Miami. Maybe there is a company in your area. Best of luck!
Would the $1100/mo be for an unfurnished rental? How much would a furnished suite normally get? That seems like the best comparison to see if Airbnb is profitable.
Love your blogs on this and wondering if you have any on tips for the financial aspects of this business. I know taxes vary from state to state, but really more the operating expenses (what can be considered expenses), how you classify your company (LLC or Corp) and do you use an accountant or are you a complete DIY when it relates to the finances? I’m just starting with a vacation rental property on the Gulf Coast of Florida and looking for any tips in that area.
@Steph — Thanks for being an Afford Anything rebel!
1) To check out the operating expenses, read the blog posts announcing the purchase of each of the houses (Houses #1 — #5). It’s all there.
2) I run an LLC, though I know other people who put their houses in trusts. One thing to consider, though, is that the entity that holds the house may need to differ depending on whether you’re making a cash purchase or investing with financing. If you’re taking out a mortgage, the loan may need to be in your personal name, and quit-claim deed restrictions may forbid you from transferring the property into an LLC while there’s a lien on it. Chat with a real estate attorney in your state. And definitely always get an umbrella liability insurance policy.
3) Use a CPA, for sure!!
There’s a host in Atlanta who rips off the people who he host for air bandb. He has ripped me off terribly and I can’t seem to collect my money. I’m still trying to collect. Be careful people.
@H — I assume you’ve contacted Airbnb and they’re facilitating the dispute. I’ve heard that they do an excellent job at facilitating and managing these types of situations. Send them all of the documentation that you have. Best of luck.
Great post. I visited London last year with my family, fhew……it was pricey especially if you compare with USA. But it was lot of fun. Though i saved a lot of $$$ for my traveling and hotel expenses using lowendticket.com. They have great international/domestic flight and hotel deals and if you combine both, then you can save hundreds.
What do you do for stocking the fridge/breakfast? Do you have a supply in the kitchen of things they can prepare or how do you go about it?
@Lilly – I provide tea and coffee; the guests are responsible for their own food. I check the tea/coffee levels at turnover to make sure there’s enough, and resupply as needed.
Also, what would you suggest to a condo owner who is airbnbing an extra bedroom to automate the check in/key process? The building has an intercom and is locked from the front and side. Guests would need to be buzzed in or let in. Any ideas on making this a smoother process where the owner doesn’t have to be present?
@Lilly — First and foremost, check with your condo association to make sure they’ll allow you to Airbnb/VRBO your unit. Many condos have rules & regulations that prohibit this, and you don’t want to risk running afoul of the association.
If your condo association allows you to use the unit as a vacation rental, then ask the association what recommendations they’d suggest for buzzing in guests without the owner’s presence. Could they buzz into the front desk/reception area, and identify themselves as Airbnb guests staying in Unit 1234? Perhaps if you supplied the front desk with their names and date-of-arrival, the concierge could let the guests inside.
The front is just a lobby. There is no concierge. The door to the lobby is locked and there is an elevator to go up. The intercom can buzz a guest in from the front door. The side entrance is the stairs and also requires a key.
@Lilly — You mentioned that the side entrance can be accessed by key, rather than buzzing. Could you leave a key for the guests in another location? You can pickup a lockbox from Home Depot, Lowes or Amazon for about $30. If there’s a place where you can put this lockbox, the guests can access the key and use it to access the building through the side entrance.
I’d also ask the association and/or your neighbors if they have any recommendations. How do neighbors and other occupants let guests enter/exit without an owner’s presence?
The lockbox idea is a good one, thank you!
Great article!
I do have a question about referrals—what’s the turnover for them?
I mean, for every 10 people who sign up using your referral link, how many of them turn into actual $25 credits? And how long does it take? I ended up with 20 referrals by sharing my link a few days ago, so I’m just wondering if anything will become of them 😛
Thanks!!
Sarah
@Sarah — I hardly make a dime from the Airbnb referral link — I’ve made $75 in the entire 10-month span that I’ve been writing about Airbnb. I’m definitely not doing this for the money. 🙂 Maybe you’ll have better luck!
Haha oh no! Do not a lot of people click the link, or do they just not actually turn into paying airbnb customers?
@Sarah — Lots of people click through, but not too many convert into paying Airbnb customers. I don’t mind, though — I’m writing this to grow the Afford Anything movement, not just make a few bucks on a link. Long-term wins the day! 🙂
Great article. I’ve not been able to find a lot of information online about my question-was wondering what your thoughts were. I have a house on AirBnb as well as another popular rental website that I’ve been very successful with in the past 6 months. A friend who is an accountant said that he would never own a business in which someone could sue him personally and he could go bankrupt. My property does pose some potential risks to a careless renter, so now I’m thinking about incorporating to avoid potential catastrophic financial meltdown in case someone falls off the balcony, drowns in the hot tub, etc. My lease says that renters cannot hold us responsible for injuries incurred on out property-I’m just thinking that may not be sufficient. Incorporating and consulting with an attorney could cost upwards of $1000. Thoughts?
@Birgit — Great question. There are two things you should do to protect yourself:
1) Buy umbrella liability insurance. This is an absolute must. Umbrella insurance protects you and your family if you’re held liable for a claim.
Good news: It’s ultra-cheap. Around $10 – $20 per month will get you several hundred thousand, if not $1 million, worth of coverage.
2) Create an LLC, which you can do for free on your own. (The only cost is the state filing fee. This varies state-by-state but is usually cheap; in Georgia it’s $50). Manage your vacation rentals through the LLC.
Now, here’s the tricky part: Ideally your properties themselves should also be held in an LLC. You can use a Quit Claim Deed to transfer the ownership over. In some states, you’ll pay a transfer tax; in other states, you won’t.
However — and this is the big “but” — if you’re carrying a mortgage, then your lender may or may not allow you to transfer ownership of the property into the LLC. You’ll need to look at your mortgage loan documents to see whether or not this is permitted. If it contains a “Due on Sale” clause, then you can’t transfer the ownership as long as you hold a mortgage. If that’s the case, then your best steps (right now) are to make sure you’re conducting all the property management through your LLC, and also get a hefty umbrella policy.
Thank you so much! That was very helpful-I hadn’t thought of doing those two things in conjunction with each other and I actually thought that incorporating would be a lot more complicated than you laid it out here. Managing the property through the LLC certainly sounds like a great idea. I couldn’t figure out once I incorporated how to get the property under the LLC, but even if I can’t transfer the deed, sounds like managing the property under the LLC might be an easier solution. Thanks again!
Small correction: Excess and umbrella policies are not the same. Excess is more of the same coverage that you already have. Umbrella is additional coverage, above and beyond what the primary policy covers. You can read a little bit more about it here:
http://www.investopedia.com/articles/personal-finance/083115/umbrella-insurance-only-wealthy.asp
Thank you Kimberly!! I had no idea. I have Umbrella Insurance, and I’ve heard the two terms used interchangeably — but you’re absolutely right; they’re not the same. Thanks for sharing this! I edited my previous comment for the sake of any new readers stumbling across this thread for the first time. 🙂
What do you mean by “conducting all management of the property through the LLC?” I’m likely over reading and making this more complicated than it is. Thanks for your response in advance.
Use coupons for your consumables (that way you can have a lot stocked up for very little). And depending on what your target market is you don’t need cable/internet if you are preferring to target short term stays like 1-2 weeks. Then the people who stay can go find free WIFI or an internet café and since short term stays are most likely vacationers they are out and about traveling. Though if you can find used DVDs for really cheap at thrift stores, resale shops, used bookstores, garage/yard sales (that you aren’t afraid to get stolen because it didn’t cost you very much) then you could offer that as a form of entertainment.
We are SuperHosts also in the Atlanta area and started the same experiment almost 2 years ago. It was a last-minute decision before moving and trying to find a long-term renter. We LOVE doing Airbnb instead of traditional renting! It’s the first time our house has made us any profit from rental.
I feel so lucky that I found a very reliable lady to always clean our house between guests. I found her on TaskRabbit, and I work with her now just between us. I put all my rental booking dates into Cozi Calendar (Gold version) and it automatically texts her the booking dates, and so she knows when she needs to go over and clean. It has worked AMAZINGLY. She’s very reliable.
@Emily — That’s awesome!! I’ll send you an email to see if I can also hire her … a reliable cleaner is worth her weight in gold! 🙂
Hi. Thank you for this. I was actually thinking of starting a “brokerage” style business to host bnb’s and home for people who are on holidays or looking for more visitors. They could pay me a fee for getting them guests and keeping an income for them. If you know anyone doing this, let me know please.
Then I read your post, and thought, why can this not be done with furnished flats or home that are up for rent. As long as the landlord agrees this could be a very low investment option to start a business and make a bit of cash part time.
AirBnb is not that active in South Africa, even though there are listings here.
Thanks again.
Burhaan
Thanks for the info!
I’m also considering this in scottsdale. My question is, 1 or two bedroom units? In your opinion and experience, is one better than the other. I’ve been cautioned against 1 bedroom units, as they compete against hotel rooms…. makes no sense to me.
The few I watch on airbnb etc seem to have similar or more occupancy than the 2 bedr units.
I’m easy either way except that I’m looking at a 10 unit building in the heart of the action and they are all one bedrroms
In your area, are most airbnb rentals also two bedrooms or one?
Thanks for any input.
How does your net income work out after accounting for the cost of your property? Maybe I missed something, but in your breakdown of costs, I didn’t see items like property tax, condo association fees, interest on a mortgage (unless you bought the property cash), depreciation on interior assets like appliances, furnishings, etc. My impression is that travelers want nice, modern accommodations, which is a significant expense for the landlord. While your rental may be nice and modern now, unless you set aside money to update it when the time comes, it won’t remain nice and modern.
I only ask because I’m considering AirBNB myself, but the total costs seem so high that it wouldn’t be worth it in the long run. Plus you have the principal invested in the property- either the principal on a mortgage, or cash used to buy the property- while not technically an expense, since you’re building equity, it’s also not free cash flow, like income that you can pay yourself. Is there any money leftover that you can pay yourself with?
Hi Adam —
1) There are no condo association fees, because it’s a triplex (I own the building).
2) The mortgage covers all 3 units, not just 1 unit.
3) Furnishings are discussed in Part I of the Airbnb Series. There’s a link to it at the top of this article.
4) As I wrote in the article, the question we’re trying to solve is: “Is Airbnb hosting more lucrative, or less lucrative, than traditional long-term leasing?” That’s the SPECIFIC question that this article addresses. Expenses such as sales & occupancy tax, utilities and consumables are variables — they apply only to an Airbnb rental, but not to a long-term lease. Therefore, they’re included in the Airbnb vs. LongTerm analysis. Expenses such as the mortgage are constants, and apply equally regardless of whether the unit is used as an Airbnb rental OR a long-term lease; therefore, it’s not relevant to the specific question that this article is designed to address. I wrote about this within the article in the section that says:
Please click on those links (within the article) and you’ll be able to read total mortgage costs for the triplex as a whole. (It’s House #1). Thanks!
Does your expenses cover the cleaning and laundry fee? They make up a rather huge amount to our expenses too.
@Apple — Yes, the expenses that I document here covers everything, including housecleaning. Likewise, the income that I document here covers everything, including the mandatory cleaning fee that all guests pay (which ranges between $55 to $75 per stay). I sometimes hire cleaners and sometimes do the cleaning myself; when I do-it-myself, I account for this time in the “hourly rate” section, documented in the article.
We have a new 2 bed/ 2 1/2 bath townhouse ( part of a duplex we built and occupy) that we have rented on Homeaway for the past two years. Most of our renters rent for one to as many as six months. We do not rent for less than one week, and have rarely done that. Therefore cleaning/turnover time for us has not been as critical.
Our renters have been very nice people, very respectful of the unit and we have found almost nothing to be missing. In fact more often than not they have left items behind ( including an expensive BBQ grill)
The management for us has been minimal, we believe the renters are better neighbors than a long term renter might be. We solved the key issue with a punch code key lock which can be installed on any door. We change the code when a renter moves out, supply the new code to the new renter and they have access whenever they arrive. The cost to furnish the unit for us was zero as we were downsizing and did this “experiment” rather than attempting to sell all our extra belongings or give them away. Demand has been amazing and we usually have less than two weeks between any one changeover. This is certainly not for everyone, but is an option if you are in the right location, have the right property at the right price and can manage it yourself.
Great post and true breakdown of expenses and time. I have an offsite vacation rental in another state, and an Airbnb property down the street from my current residence. One of the best moves i’ve made for both properties is home automation. Both units have wifi / ziigbee enabled front door locks with pin codes. I assign pins to guests, and get alerted when they arrive and leave. I have wifi thermostats so i can adjust the temp remotely after guests leave. I have added moisture sensors in my laundry rooms to alert me of any leaks or a spike in humidity levels, plus a whole host of other sensors that really make these cash generating properties more manageable.
Thank you for the insight! I find the idea of having an AirBnB fascinating and am toying with the idea myself. One question I have – you own a luxury Midtown apartment/condo, right? Are there/were there any renting considerations when you purchased the place (i.e., HOA restrictions)?
Additionally, I heard that there are some new companies out there offering to automate pricing for AirBnB listings for a fee based on an algorithm of supply/demand. Do you use this service/have you considered it?
Thanks again for sharing all this information!!!
@Chana — We own the building, so there’s no HOA restriction. Here’s the story of our thought/analysis process when we bought it: http://affordanything.com/2011/10/17/slowly-building-a-real-estate-empire/
There are several companies that automate the pricing, and Airbnb itself also just released an intelligent pricing program, but I don’t recommend relying on that. Algorithms can’t capture the local market in the way that your own unique knowledge of the area can. You can use those programs for a ‘second opinion,’ but you ultimately need to be the CEO and decision-maker.
Regarding homeowner’s insurance, I think I remember you said your insurer covers the triplex without a special policy (ie just under your normal policy). Is that correct? I’d like to get into short term rentals as well, and am trying to figure out how much my insurance would change (if at all).
Would you be willing to share who your insurance carrier is?
Did you specifically tell them what you’re doing, or is it just omitted and you think it would cover?
Thank you again for all the valuable information you share – it’s incredibly helpful!
@Chana — Yes, the triplex is considered a “residential” property, so it gets covered under a standard homeowners/landlords insurance policy. Any building that’s 1-4 units is classified as “residential.” Anything 5+ units is “commercial.”
I’ll send you an email with the name of my insurance agent. He’s licensed in Georgia; I assume you’re also in Georgia? If you’re not, go to BiggerPockets.com, crate a (free) account, and ask the Forum members for insurance agent recommendations in your city/state. There are thousands of real estate investors on those forums, and they’ll be happy to refer people in your specific location.
For key exchange, I will commend RockLock. — RockLock makes smart lockbox to provide a key exchange solution for airbnb hosts.
Great focus on many of the factors that go into having a Airbnb property. My biggest take away was what was said about Occupancy; “My biggest fear is enduring massive vacancy rates. As any landlord could tell you, nothing is more expensive than vacancy.”
This is a common fear for most property investors. Many people think that location is the only thing that they need to consider when it comes to occupancy, which is not the reality. With Airbnb properties, reviews are a huge affecting variable in occupancy rates.
At first, it will be difficult to get bookings without any reviews so have expectations of low occupancy when you get started but once you get going it won’t take time for you to get books.
I enjoyed reading all of these comments. I have been renting my house out on airbnb for almost 2 years now. Currently I only rent it out on the weekends. My house is a 3 bedroom 2 bath. During the first year I would get different set of guests occupy the rooms and use a shared bathroom. Upon more investigation, I have now changed the entire concept of my house. Now I only do large groups. Nightly rates range from $850 to $2k and up. If I would have known this 2 years ago I would have been doing this the entire time. Anyways, the reason for my post mostly is because I want to start a service providing people who have houses like mine but may lack computer skills a service where I can list their house and do all the work. I am thinking bigger picture and I think this could be done world wide, where people who lack or simply don’t want to deal with bookings, inquiries, cleaning etc. This could all be done for them for a percentage of the profits.
Hi Chris — Congrats on the change of strategy with your Airbnb house!
There are two services that offer Airbnb/VRBO digital management. One is called Pillow (formerly AirEnvy), and the other is called Guesty. If you’d like to start a service that performs digital management of inquiries and bookings, find a way to differentiate yourself from these services. Perhaps you could offer more boots-on-the-ground management, for example, or specialize in a specific city/state.
Best of luck!
Chris,
Where is your rental located that you receive $850-2K per night?
What kind of amenities do you have that you receive such awesome rates?
Thanks!
That is a really cool idea! I’ve heard of airbnb before, but would have never thought to make extra income that way. I have family that has started moving down to the Macon, GA area right near the airbase. I’m hoping to move down eventually. I’m near Buffalo/Rochester, so 6 months (if not more) of the year is covered in snow.
Paula,
I ran across your AirBnb experiment it Hit the Spot and have answered so many of my questions.
thanks so much for your transparency. I am headed to read more of your articles.
thanks again,
Rich
I am thinking of turning my walk-out basement into an AirBnB space. It would not have a full kitchen, but I think I would have a coffee maker, small frig, and microwave for my clients. My biggest concern is taxes. I talked to a tax accountant yesterday and she said I would lose the tax benefit on my house when I sold it. Not sure what that is called, but it is up to a $500,000 tax break when I sell my home. Also, on short term rentals you have to pay SS tax, but you don’t on long term rentals. Can you speak to tax issues when you are renting part of your home short term?
Are there Airbnb specific spreadsheets available?
@Pau – I’m creating a comprehensive batch of checklists, spreadsheets, etc. for the upcoming Airbnb course, which will come out in 2016. It’ll be a full “business in a box” — a one-stop shop for everything that you need.
Hi Paula, this is so helpful, thanks! One question- I didn’t see any cleaning fees in your expenses. I’ve never had a cleaner so I’m not sure what a couple hours each day would add up to, but even at $20/day (just guessing about $10/hr for 2 hrs), that’s still around $600/month- more than the difference from standard rental (not to mention your time, etc.). Anyway, just curious! We’re thinking about remodeling and AirBnB-ing our basement, too.
Hi Andrea,
Cleaning has definitely been one of the toughest issues to work out. I talk about this midway through the article:
At this point, I decided to handle the cleaning myself. I discuss this later in this article, when I incorporate the cost of paying myself into the profits:
Also — if you read Part 3 and Part 4 of this series, you’ll see additional cleaning fees in those spreadsheets, as I re-hire cleaners. Read those articles in order to get the full updates of all the expenses and income throughout this series. Hopefully that helps! 🙂
We have a condo in Maui that we rent out on VRBO and Flipkey/TripAdvisor and we manage it remotely from the East Coast. Most Hawaii condo owners who live elsewhere manage this easily.
Two points…
1)We have a rental agent who takes care of the cleaning, restocking, mantainance, etc. Our cleaning fee is $140 for a 2 bedroom unit, and the guests pay that. We pay the rental agent just $50 per booking to take care of everything else. It’s truly hands off.
2)You should be charging guests the occupancy tax, rather than having it come out of your rental fee. This is the main reason I rent through VRBO and Flipkey rather than AirBnB, because VRBO and Flipkey set out the tax as a separate line item, and the guests simply pay it. Anyone who doesn’t charge tax in a state where tax is owed is probably breaking the law. Supposedly AirBnB is phasing in the ability to charge tax as a separate line item, the way they handle the cleaning fee, and when they do that I will be using them, but not before.
So glad I found your site! We are considering turning a family property into rental, the current debate is between long-term vs. short-term/vacation rental. We have a large medical community that always seems to be looking for temporary housing and a tourist community to fill in the other times.
As far as furnishing it, I am an avid thrifter and “repurposer” and know I could easily furnish a house tastefully on a dime. Also, what about a membership to a big box club like Sam’s or Costco for supplies? If you have the storage (with a lock!) just grab a couple of cases of toilet paper, paper towels, cleaning supplies, etc. at a time and keep handy. It’s a big spending all at once maybe once a month, but then you are done and don’t have to worry about those little trips every week. 🙂 I’m all about efficiency in our daily lives!
Another thought, what about tapping into the local stay at home mom or college community for cleaning help. I know a couple of moms who are always looking for extra income but need flexibility and would jump at the chance to make a few extra dollars every week for a couple of hours work. And an environment that would allow their child to tag along and watch videos while mom cleans saves on a sitter! And college students are always looking for a little extra cash without a big commitment, maybe keep a couple of names on rotation?
The taxes seem daunting, that is definitely something to look into. Still much research to be done, but glad to read something positive about what I think is a good way to turn this into something profitable. And down the road, if it becomes to cumbersome, we either go to long term rental or sell and be done with it!
I think the quality of guests has gone down as Airbnb has become more popular. I have had a lot more issues with minor damage. I haven’t had any EXTREME cases, but I did have a guest who set a small fire and put glass in my disposal. Airbnb did not take money from their security deposit for these damages and so I decided they aren’t really a reliable service. I could have easily had that damage covered as a regular landlord.
Great article. I am also a midtown Atlanta resident, but considering a second residence in Chicago that I would rent out for a majority of the year. Do you have any updates on occupancy over the winter?
Thanks for the post. How is it that you’re able to charge a $75 cleaning fee? That’s quite steep.
Anyone from Nashville know about this company? Looks like they do all of the cleaning and maintenance but no booking.
http://www.nestive.com/airbnb-rental-management-nashville/
Thank you for this informative article! I’m considering my first investment property and am deciding between offering it as a long term or short term rental. You said you invested $2k in furniture, so my presumption is the $1100/mo you collected was for an unfurnished apartment? Do you know how much your place would rent out for long term if furnished? Where I live they typically rent for significantly more and I’m curious if that was considered as part of this experiment. Thank you!
I’m a widow starting a bnb with 1 underage child . I have a weird question: What about guests having loud sex? I’m actually really worried about it! How can I prevent it or handle this embarrassing issue? And has it happened to you? I was thinking of having quiet after 10pm or posting a tastful sign in the rooms about soundproofing. Not sure what to say haha Touchy subject! I’ve had experience with this having roommates years ago and someone brought it up to me. Since then I’ve been mulling it over and worried sick about it! Any suggestions? I appreciate it!
Simply add a family picture here and there.
Awesome post! I think i’m going to give it a shot too. Will be renting a free room that I have in my apartment. Let’s see how it turns out
Hello there!!
I’m confused. How does the cleaning fee work? Would that money be included in the profit amount for a host?
Thank you
The money from the cleaning fee goes to the host. If you decide to do the cleaning yourself, then you can keep all of it. Of course, if you hire out the cleaning you’ll need to pay your cleaner out of that money.
If the host does the cleaning himself, he can’t deduct the cleaning expenses ( compare to hire a third party to do it) , right? more profit more taxes he would have to pay. Is that worth to do the cleaning oneself or is better ( money wise ) to contract someone else? i want to start my air bnb but i have a regular job and i am afraid that i will have to pay back lots of taxes.
Having done AirBnB it’s not worth it. I paid CASH for my houses, in some case $500K each – which means they are more like a stock portfolio than a house; every stain, tear, broken item damage or wear and tear reduces the value of that portfolio, relative to other houses in the area. Not to mention theft or vandalism. It’s fine if the bank owns your property and you have a mortgage, you have no skin or little “skin in the game” so to speak. It’s just not worth a crappy $100 or $150/night, which doesn’t even pay for a night out for two in a major city. And renting my whole house out – so I can sleep on a friends couch for the night – when I worked my ass off to pay for the house – seems like BS……My houses are spotless clean – so to let some slob stay in them while I slum it for the night is asinine. Sorry, no one takes care of your stuff like you do.
What’s $100/night going to do for me? Nothing, that would not even cover the cost of my GTR payments….. I think the whole thing is absurd or designed for folks with 5% or 10% down on their houses and a heavy mortgage….
JP –
#1 Im pretty sure this is for a 1br apt, your house would pull in more $, like a few hundred dollars or more depending on the market you’re in.
#2 This is a rental property, not primary residence
why is your gas bill so high in the summer? seems odd…
I’m doing Airbnb in my own home to make a bit of extra cash and I feel guilty enough about what I’m charging because it’s virtually free money. But I think I’d feel worse if I were to rent out an entire apartment for a high price which means that someone who actually needs a home to live in cannot possibly afford it – just to get me an extra few hundred dollars a month. This is happening in cities all over the world – hard working people cannot afford an apartment because Airbnb is taking over all the stock for lettings…
I am wondering what AirBnB’s advantage is over traditional vacation rental companies?
I just left a pretty large vacation rental company in the Pacific Northwest as a property manager (I had 25 houses, 6 housekeepers) and have been approached by some of my homeowners that are interested in me managing their properties for them privately. My fiance and I are interested in this side business as we are both full-time students (online), as in we would be the co-host to the properties and take care of the cleans and monitor the homes closely since my owners don’t live in the area. My former company took 35% from the homeowner for each reservation, plus a grip in servicing fees. I guess my initial question holds true, what, if any, is the advantage for homeowners to utilize AirBnB over traditional vacation rental companies? It seems too good to be true and I’m shocked more people don’t abandon the traditional vacation rental companies for the 9-15% that AirBnB takes. It seems like what you’re saying is the most challenging part of using AirBnB is finding reliable help for back to back reservations. Considering I was managing these owners homes last 6 months and they want me to continue to do it I think I can be considered reliable. I could safely handle 6 houses between my fiance and I with back to back reservations as long as the owner remains firm about check out-check in times. Out at 11, in at 4. In 5 hours you can absolutely turn 3 houses (my homes are all very close), it’s intense but completely doable with 2 people.
Anyway, just interested to see where this AirBnB thing goes and what the benefit is to my owners if I should take on a lucrative side business. I am already invested in their properties and have strong relationships with them. I guess I need someone to point out the flaws. Traditional vacation rental companies vs. AirBnB?
Wow I am *astonished* that you were able to entirely furnish your apartment for $2,000.00. Really?? Especially if it included even half of the things on your list in the previous post (pt.1). Hook me up with wherever you’re shopping 😀
Basic question but how much did you end up spending each mo on consumables and housekeeping?
Hi Shawnee – Paula provides a bit more information on her expenses in this post: http://affordanything.com/2014/11/04/the-airbnb-experiment-42-guests-1-police-visit-and-19000/
Hope that helps.
This blog and all of the Q&A has been extremely helpful as I venture forward into this realm to rent out our mother-in-law suite Florida. So far we have had some family come stay and they have been immensely helpful in pointing out some areas for improvement. My hopes are to get to the traveling medical professionals working 13 week contracts at area hospitals. They have been cleared by FBI and therefore more appealing to rent to. Any suggestions as to how I can approach this medical community of traveling professionals?
Very thoughtful review on AirBnb. Thank You
Just wondering how AirBnb calculate 9-15% ?
I know little about how they got it but when do they charge 9% and when do they charge 15%? What are the situation they charge more than the other?
Than you