Author Topic: Looking for the real dirt on AirBNB  (Read 3009 times)

Le Poisson

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Looking for the real dirt on AirBNB
« on: November 01, 2017, 10:06:16 AM »
To reno our basement and put in an AirBNB suite would not be especially difficult. I would have to put in a bathroom and upgrade our bar to a kitchenette, but really all the pieces are in place for a unit. Unfortunately bylaw prevents us from putting in a proper basement apartment, but AirBNB seems doable on a budget of under $10K - which once written off is almost a break-even point with the increased house value for the basement bathroom.

But... looking around at ratings for other units near us, most are renting for $75 (plus $20 for additional guests, plus a $50 cleaning fee) and only have 3-6 reviews. It appears that the market really isn't that strong for these things.

What market research did you do before creating a suite, and what occupancy are you seeing for that investment? I am not looking for folks in high demand vacation spots here - I am looking for people in suburban neighbourhoods in commuter towns. I can't see a positive CB unless you are in the DT core of a demand area. Teach me.



CowboyAndIndian

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Re: Looking for the real dirt on AirBNB
« Reply #1 on: November 01, 2017, 06:26:05 PM »
Waltworks converted his basement area into an Air BNB apartment.

Check this out https://forum.mrmoneymustache.com/real-estate-and-landlording/your-thoughts-solicited-basement-apartment-conversion/

You could PM him ...

waltworks

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Re: Looking for the real dirt on AirBNB
« Reply #2 on: November 02, 2017, 08:53:15 AM »
If you put in $10k (even assuming you get zero back in equity) and you net $50/night after overhead/taxes, it would only take you 200 nights of occupancy to recoup your investment, right?

Even if you're only booked for 1/4 of the nights, that would pay for itself pretty fast. Keep in mind, though, that there is some work involved (answering inquiries, helping guests with problems, cleaning if you don't hire it out, etc). It's more of a very easy job than a truly passive income source.

There will always be some level of demand but if you're in a really suburban neighborhood it would be worth tracking how many bookings some of the other listings get. If there's really no demand at all, obviously it's a waste of time and money.

-W

Le Poisson

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Re: Looking for the real dirt on AirBNB
« Reply #3 on: November 02, 2017, 09:07:51 AM »
If you put in $10k (even assuming you get zero back in equity) and you net $50/night after overhead/taxes, it would only take you 200 nights of occupancy to recoup your investment, right?

Even if you're only booked for 1/4 of the nights, that would pay for itself pretty fast. Keep in mind, though, that there is some work involved (answering inquiries, helping guests with problems, cleaning if you don't hire it out, etc). It's more of a very easy job than a truly passive income source.

There will always be some level of demand but if you're in a really suburban neighborhood it would be worth tracking how many bookings some of the other listings get. If there's really no demand at all, obviously it's a waste of time and money.

-W

AirBnB shows 151 available units in town. Some "PowerUsers" have upwards of 50 reviews, but more common is 4-10. it seems like the going rate is $50 - $75. I hadn't considered this in terms of number of nights of occupancy needed to recoup costs.

At $75, we would be looking at 133 nights. I wonder how do-able this is. I'll read through your posts and see what I come up with. I am aware of a Toronto couple who attended CM*TO last summer and are having great success with AirBNB - they have converted their rental unit over since it is more profitable to go short term than long.

Thanks. more number crunching needed here I think.

acroy

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Re: Looking for the real dirt on AirBNB
« Reply #4 on: November 02, 2017, 09:55:07 AM »
keep in mind the $75 will be eroded by fees, expenses related to running the suite... plus your time. the return looks marginal to me...
Good luck whatever you do!

Lan Mandragoran

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Re: Looking for the real dirt on AirBNB
« Reply #5 on: November 02, 2017, 12:42:29 PM »
Read that old thread (https://forum.mrmoneymustache.com/real-estate-and-landlording/your-thoughts-solicited-basement-apartment-conversion/) Walt. How did it end up working out for you guys out of curiousity :)?

waltworks

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Re: Looking for the real dirt on AirBNB
« Reply #6 on: November 02, 2017, 01:18:24 PM »
In terms of percentages, it's a no-brainer. $10k to make (conservatively) $5k a year?  Awesome!

The problem is that it's not truly passive, so this is more like paying $10k to get a part-time job that pays $100/hour - but that you can only work for 50 hours a year. It also will require you to plan your vacations and such around the job to some extent (you can hire a co-host, but in this case the income is so low it's probably not worth it) or else just not rent the space when you want to leave town.

That might sound great to someone who has the time and inclination. Awesome side gig. But if you have a good job and you value your free time... it won't scale, and it might be too much hassle for the return.

I would probably do it, but it's not a slam dunk just because it's such a small amount of money. If you've got a stay at home spouse looking for a side job, or a grandparent who might want to move in with you, or something like that, then that could tip the scales one way or the other as well.

-W

waltworks

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Re: Looking for the real dirt on AirBNB
« Reply #7 on: November 02, 2017, 01:39:27 PM »
Read that old thread (https://forum.mrmoneymustache.com/real-estate-and-landlording/your-thoughts-solicited-basement-apartment-conversion/) Walt. How did it end up working out for you guys out of curiousity :)?

Lan, it's gone pretty well. We are in a ski town, so we expected summer (and fall) to be slow. And they were. We made a bunch of money during ski season (the latter half of it, anyway) and then things slowed way down during the summer. I teach a fabrication class and some of the students ended up staying, so that was nice. And it was nice to not worry about it too much in the summer (we travelled a lot).

I can look up precise numbers if anyone is interested, but in the ~9 months we have had the apartment up, we've grossed about $15k. I think we've spent <$500 on fixing stuff, consumables, buying little kitchen items people requested, etc. I'd expect we end up netting around $20k for the year, but we might do a little better than that, you never know. In terms of work, I'd say we've got about 100 hours in so far (so $150/hour, not bad), mostly cleaning.

So it has worked out very well, basically.

-W

Lan Mandragoran

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Re: Looking for the real dirt on AirBNB
« Reply #8 on: November 03, 2017, 08:49:04 AM »
Thats awesome :), pretty cool how often being creative/productive turns into real wealth.

And it cost something like 70k? 20-25k gross is pretty sweet for a 70k investment ( obviously more complicated than gross + there's all the extra work...). Halfway considering looking for a house with this in mind at some point. We live near a college town (KU), that may have potential.

waltworks

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Re: Looking for the real dirt on AirBNB
« Reply #9 on: November 03, 2017, 09:25:40 AM »
It cost about $75k including all the furnishings and such, in the end. I'm quite happy with it so far, though it's not as passive as I'd prefer (it can suck to turn the place over fast when there's a guest checking in 5 hours after another guest departs). We will see some more ongoing costs as things like bedding wear out, too, of course.

If you are near/in Lawrence, I would imagine you could do pretty well hosting people coming for conferences, parent/alumni weekends, football/sports events, etc. College towns always have seasonal demand for nightly rentals.

As an aside, we have hosted a lot of folks who just refuse to stay in hotels, full stop. They are AirBnB/VRBO only people (they're generally <40/younger). So my never-wrong crystal ball sees the demand for this sort of thing continuing or growing in the medium term.

-W

bacchi

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Re: Looking for the real dirt on AirBNB
« Reply #10 on: November 03, 2017, 12:18:36 PM »
Lan, it's gone pretty well. We are in a ski town, so we expected summer (and fall) to be slow. And they were. We made a bunch of money during ski season (the latter half of it, anyway) and then things slowed way down during the summer. I teach a fabrication class and some of the students ended up staying, so that was nice. And it was nice to not worry about it too much in the summer (we travelled a lot).

Interesting. The SO's parents live a town over from a well-known ski town and they're booked solid during the summer. They have 8 month tenants for the rest of the year.

They built a duplex for the express purpose of airbnb/vrbo and it has about a 6.5% ROI using cash flow. Not great but not bad either.

Lan Mandragoran

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Re: Looking for the real dirt on AirBNB
« Reply #11 on: November 03, 2017, 01:12:07 PM »
It cost about $75k including all the furnishings and such, in the end. I'm quite happy with it so far, though it's not as passive as I'd prefer (it can suck to turn the place over fast when there's a guest checking in 5 hours after another guest departs). We will see some more ongoing costs as things like bedding wear out, too, of course.

If you are near/in Lawrence, I would imagine you could do pretty well hosting people coming for conferences, parent/alumni weekends, football/sports events, etc. College towns always have seasonal demand for nightly rentals.

As an aside, we have hosted a lot of folks who just refuse to stay in hotels, full stop. They are AirBnB/VRBO only people (they're generally <40/younger). So my never-wrong crystal ball sees the demand for this sort of thing continuing or growing in the medium term.

-W

Yeah, we actually already have a duplex rental in Lawrence. What I'm tempted to do is as a test if we ever move back try and turn one side into a ABNB, if it doesn't work, a plain rental in this situation isn't bad.

I've heard its a good amount of work. Has anyone trashed your place terribly bad ;o? I've heard the horror stories lol.  My brother is interested as well, but he's looking more at the KC market near some touristy kinds of places (art museums, close to the plaza etc) :).

Bacchi, idk the specifics but 6.5ROI for a short term rental sounds pretty terrible imo. That's below expectations for indexing, let alone renting.... let alone ABNB renting.

waltworks

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Re: Looking for the real dirt on AirBNB
« Reply #12 on: November 03, 2017, 05:35:49 PM »
Interesting. The SO's parents live a town over from a well-known ski town and they're booked solid during the summer. They have 8 month tenants for the rest of the year.

They built a duplex for the express purpose of airbnb/vrbo and it has about a 6.5% ROI using cash flow. Not great but not bad either.

You have to keep in mind that "one town over" and "ski town" are not the same thing. There are ~15,000 people who live in Park City and surrounding little chunks, give or take a bit. There are ~45,000 people here during the busy part of ski season, and a correspondingly huge number of hotel rooms. In the summer there is certainly tourism (mountain biking, golf, music festivals, etc) but it's at best 25-30% of the numbers in the winter. Lots of businesses simply shut down for the offseason (or lay off 3/4 of their staff).

We will certainly work on doing better in the summer, but to really have it booked up, we either need a hook of some kind (like my class) or else to lower the price a LOT - a decent hotel room goes for $45 here in the summer. That's not worth competing with if we want to be compensated decently for our time. We also like to travel (kids not in school) in the summer, so if it's slow that time of year it's actually ok with us.

6.5% ROI sounds awful. Are you sure? I mean, ours is like 20% or better, even discounting our labor, and it's not *that* amazing.

-W

Prairie Gal

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Re: Looking for the real dirt on AirBNB
« Reply #13 on: November 04, 2017, 12:11:38 PM »
Question: Would your basement need a separate entrance to make this work? My basement is not being used, but does not have a separate entrance. Doesn't seem like it would work. It's a bi-level.

bacchi

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Re: Looking for the real dirt on AirBNB
« Reply #14 on: November 04, 2017, 12:54:32 PM »
Interesting. The SO's parents live a town over from a well-known ski town and they're booked solid during the summer. They have 8 month tenants for the rest of the year.

They built a duplex for the express purpose of airbnb/vrbo and it has about a 6.5% ROI using cash flow. Not great but not bad either.

You have to keep in mind that "one town over" and "ski town" are not the same thing. There are ~15,000 people who live in Park City and surrounding little chunks, give or take a bit. There are ~45,000 people here during the busy part of ski season, and a correspondingly huge number of hotel rooms. In the summer there is certainly tourism (mountain biking, golf, music festivals, etc) but it's at best 25-30% of the numbers in the winter. Lots of businesses simply shut down for the offseason (or lay off 3/4 of their staff).

We will certainly work on doing better in the summer, but to really have it booked up, we either need a hook of some kind (like my class) or else to lower the price a LOT - a decent hotel room goes for $45 here in the summer. That's not worth competing with if we want to be compensated decently for our time. We also like to travel (kids not in school) in the summer, so if it's slow that time of year it's actually ok with us.

6.5% ROI sounds awful. Are you sure? I mean, ours is like 20% or better, even discounting our labor, and it's not *that* amazing.

-W

Ahh, yeah, you're somewhat competing with cheap hotel rooms in the off season. Don't know why summer is slammed; winter might be pretty good, too, if the in-laws weren't traveling. There's XC and ice climbing nearby.

The duplex cost $500k to build. A 20% ROI using cash flow (i.e., not including appreciation) would be $100k/yr. That's possible ($4200/side/month) but it'd be a year round job and there's no way a regular lease tenant would be paying anywhere close to $4200/month. A 6.5% return is near what the market returns, given that appreciation=inflation. The in-laws don't like the market so it's a better investment than CDs or cash.

jeromedawg

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Re: Looking for the real dirt on AirBNB
« Reply #15 on: November 10, 2017, 01:37:57 PM »
My friend bought a place earlier this year near Joshua Tree and just listed it. It was in decent condition when they bought it but they renovated the place top to bottom to make it more appealing to hipsters. It was about $72k - not sure how much they put down and how much they put into it with all the renovations they did (new flooring, appliances, new split unit AC system/evap cooler, new furniture and fixtures, etc). It looks and shows very nicely now. My friend was out there nearly every weekend from March through about a month ago, fixing things up and bringing a handyman friend with him. I think *most* of what he did was DIY with assistance, so not sure how much money he spent. If I had to guess probably close to if not more than $10k. With a $15k downpayment at least (assuming a roughly 20% downpayment). The first year's ROI probably isn't going to be very great with this one. I hear the short-term rental market out there is "blowing up" though... I have no idea as I haven't really been tracking but it seems to have garnered more popularity in the past several years especially with the hipsters who love that area.

I've been slightly interested at the idea of AirBNB but I'd like to wait and see how my friend does with this rental as well as how much work and time (and effort) he puts in to maintaining it and dealing with turnarounds. He seems to be refusing to get a property manager and wants to depend on the person(s) he has hired for cleaning to partially deal with some things. I don't know if he has a local contractor out there but it seems like if there are repairs or issues with the property, he's willing to drive out there. He lives in LA, which is almost 3 hours away, so it's not close by any means. As far as turnover, he installed a digital keypad/door lock and can change the code remotely, which is a cool idea...with some reservations.

He and his wife just had their first kid so I'm curious as to how much [more] time he'll be pouring into the rental with the baby to distract them. They just started renting it out this week.

My major concerns would be: what happens when there is major damage and/or repair(s)? What happens if the internet goes down for whatever reason and now you are no longer able to remotely change the keypad code; or what happens if the keypad drops its connection or becomes disassociated with the access point (This seems pretty risky)? How many days out of the year are you, realistically, going to rent the place out and what does the ROI look like for 1 year, 2 years, 3 years, etc (how long will it take to recoup your cost and start cash-flowing)? I'm hesitant that he's considered the last question very deeply...

A good number of his neighbors appear to be permanent residents to the area so I guess he can sort of rely on them. I'm not sure they'd ever move or live there though.

In either case, I've discussed potentially partnering/JVing with him (in general and not necessarily just with AirBNBs, because I don't like the idea of having to 'work' as much with the turnover) depending on how this one goes. I'm more interested in long-term buy & holds but am open to the idea of maybe one AirBNB starting out. My friend, never having owned any sort of rental, seems to like the idea of building wealth and 'passive income' faster with AirBNB. I say it's too early to come to that conclusion based on the ever-changing landscape with short-term rental laws especially here in CA.
« Last Edit: November 10, 2017, 02:02:06 PM by jeromedawg »

Tobias

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Re: Looking for the real dirt on AirBNB
« Reply #16 on: November 12, 2017, 08:24:17 AM »
I really liked hosting my finished basement on AirBnB, but I consider it a well-paying side-gig rather than a passive income.  You can make your AirBnB pretty automated by hiring cleaning and hosting services, but I couldn't justify paying someone $50 to come clean when I could do it myself in an hour.  I have the benefit of a great location in Seattle, in a residential neighborhood about two miles from downtown with street parking, public transit, great parks and restaurants, so I had an easier time finding guests than a friend who hosted a few miles further out from the city center.  Competition is fierce, and the local market is flooded with $50 listings, so I had to make sure I had a really great listing, with clear copy and gorgeous photographs.  My home is also quirky, with pet chickens and thrifted furniture, so it has more personality than the nicer but impersonal listings run by full-time AirBnB hosts.  My basement doesn't have a kitchen, but I got an energy efficient mini-fridge, a microwave, and an electric kettle, which was sufficient for most guests.  I started out charging $50 a night, plus $10 extra for more than 2 guests, and a $10 cleaning fee.  Once I was established with glowing reviews, I could charge at least $100 night, $15 extra for more than 2 guests, and a $20 cleaning fee.  I was at about 50% occupancy in winter and probably 80% occupancy in summer.

When I took a break from hosting, after 9 months, I had about 50 reviews displaying as a 5-star average.

All in all, I figured I was netting about $100 an hour for my work hosting on AirBnB, but I never did the math in terms of taxes and increased utilities from wasteful guests.  Here in the states, it is pretty complicated declaring your AirBnB income on your taxes, but you can also write off some of your utilities, supplies, and home improvements as business expenses.

I did AirBnb for about 9 months in 2015-16, and took a break when I had a baby in 2016, and I hope to start up again this summer.  (Have a responsible tenant in the space now, who pays a fraction of what I could make on AirBnB, but there's also no extra work involved.)

afox

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Re: Looking for the real dirt on AirBNB
« Reply #17 on: November 13, 2017, 01:25:56 PM »
Im confused about the AirBnB hosts posting here about "netting x amount per hour".  It seems that you are not accounting for the biggest expense of all: the cost of the real estate you're renting.  Even if you paid nothing for the space you are renting you are paying taxes and insurance on it.  In all likelihood you are paying the following costs: opportunity cost of your down payment, principal, interest, insurance, taxes, and depreciation of the space and its contents.  If you have space in your home that is going unused then you own too big of a home.  You could move into a smaller space and spend less on housing.  You're fooling yourself if your math for "net amount" is cost to improve the space - income.  Also, if you're renting the space for more than 15 days per year and not paying income tax you're breaking the law.  Also, once you declare the income the percentage of your home that you are renting becomes subject to capital gains tax when you sell the house. 

Im not saying AirBnB cant be "profitable" or that its a bad deal for hosts in any way, but whether or not it is profitable is obviously a bit more complicated than what Im reading in this thread.   I stay in AirBnB's all the time and am often amazed at how cheap they are.  Often the nightly rate for the airbnb is less than the daily cost of owning the property that im renting. 

Cubert

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Re: Looking for the real dirt on AirBNB
« Reply #18 on: November 14, 2017, 04:37:15 AM »
I agree with Walt. Airbnb is a real game changer. Compared with long term rentals, which are much lower monthly rents, Airbnb can quadruple or more a typical LTR. That makes for a much shorter return on up front investment. I'm experimenting with this myself on a vacation rental condo in Michigan, for which I expect a mere five months of activity per year during summer.

Good luck - and remember, no risk, no reward!

electriceagle

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Re: Looking for the real dirt on AirBNB
« Reply #19 on: November 15, 2017, 03:01:25 PM »
The "real dirt" is related to insurance.

If you look at Airbnb's insurance scheme (at least back when I was doing it), you'll notice that it is labeled as "not insurance" and is governed by a mandatory binding arbitration agreement. In short, Airbnb has much more leeway to deny a claim or pay less than needed to make you whole than a "real" insurance company.

If you want real property insurance, you'll have to pay for it separately. Otherwise you take your chances.

afox

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Re: Looking for the real dirt on AirBNB
« Reply #20 on: November 16, 2017, 10:03:42 AM »
I am currently evaluating whether to rent my basement duplex apartment as an air bnb vs long term rental and I overlooked the insurance so I am glad this was brought up.

For those running airbnbs out of their primary residence how much was the increase in your property insurance premiums? 

Also, what about mortgages and airbnb?  Probably not an issue if you are keeping your current mortgage but if you refi I wonder if you will still be eligible for a single family home loan if you are running an airbnb?




OkieM

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Re: Looking for the real dirt on AirBNB
« Reply #21 on: November 19, 2017, 03:12:51 PM »
Besides looking at the average rent, look at the calendar. You can guess by the available days what the vacancy is and what type of clients i.e. one nights or weekly stays.