On Monday I mentioned how I was bitten by the real estate bug again. Essentially, I saw a property that looks like a tremendous bargain. When touring it, the condition made me think it was slightly less of a bargain, but still great.
How great of a bargain? A few years ago it was listed at 2.5M and steadily went down to its recent price of under a million. Several experts that I consulted with suggested that it should be worth 1.5M. The reason for it's price under a million? It's in foreclosure and it seems like the bank is trying to get it off their hands. It also could use an additional hundred thousand in repair work.
Originally, there was the thought of living on this property itself, but in touring the property, it isn't a good fit for us. Instantly, my focus went to renting it out as an income property. My real estate agent has had good luck with his properties on Craigslist and AirBNB.
I had never looked into AirBNB. That would change this past snowstorm Sunday. Armed with a glass of wine and a healthy internet connection, I decided to learn everything I could about being a AirBNB landlord.
Today, I'm going to share with you the resources that I found most helpful. I'm also going to give you some of my analysis of the property and it's potential on AirBNB.
My first stop is almost always a personal finance blogger. (They are awesome people!) This brought me to Paula Pant's AirBNB experiment. It details her experience over months with dozens of guests. I learned what works (preparation, preparation, preparation), how much work it is (appears to not be much), and how lucrative it is.
What I learned: AirBNB isn't for someone looking for location independence or has a crazy, busy job. Which means it that a certain blogger (who makes his own hours) with two boys (who have settled in a city) might be a very good fit. There is money to be made, but it can also be work. I also learned many, many tips on how to make an AirBNB smoothly.
The next article I found was ironically found on The Next Web. This tells the story of a person who bought a small apartment specifically to rent on AirBNB and how he manages it remotely.
What I learned: You can see what comparable properties are earning by looking at bookings and doing a calculation on their daily rates. It's an estimate, not exact math. There are several tools such as Nest thermostats (my review) that can save you money when it's vacant. Take advantage of AirBNB's professional photographer, you'll get a lot more inquiries.
Making the rounds, I found this article on Forbes that was full of tips.
What I learned: Managing your listing is key. Have the dates of availability accurate as well as all the amenities.
Next up, I found that there are services available to help with managing your AirBNB. For the most part they seem to be big cities... which isn't very helpful for me.
Some examples are:
- HomeJoy - This is a cleaning service that I read partnered with AirBNB. Their website only seems to allow current clients to contact them. I called them out on Twitter and they gave me a phone number to call. Very weird for a web-based service company to not take web-based communication.
- Guesty - This is a professional AirBNB management service. They will optimize your listing, respond to guest inquiries, screen guests, schedule cleaning, and coordinate key exchanges. The downside is that this is mostly the light work that Paula Pant was able to make very quick and easy through a set of systems. They upside is that it looks like a lot of service for a 3% fee. Also, guests may consider having a professional service one less thing to worry about and choose you.
- Beyond Pricing - This service optimizes your pricing to make you more money. It isn't available in my area yet, so I didn't spend too much time looking into it.
Enough of the Sizzle, it is Steak Time
At this point, I felt I had a comfortable grasp on the ins and outs of running an AirBNB. I read a several more articles, but they had the same set of tips that were covered in the ones I mentioned above.
The next question was, "What about my area and the property that I'm interested in? What is it's potential?"
I found a great website that has a ton of AirBNB information called, Renting your Place. Before I get to that website, I want to segue onto an Ebook the creator sells.
I found The Airbnb Expert's Playbook on Amazon. A $30 Ebook is expensive and the reviews aren't particularly glowing. However, on Renting Your Place it is $15, which is a big difference. It's something to think about.
Let's get back to the Renting your Place website. Holy crap is it filled with information! Let's just say that I was looking at a place in Brookline, a suburb outside Boston. I'm specifically choosing a place that isn't a major city itself so you can see that it covers nearly everything. Here's the information available for Brookline.
What I found important is the large number of people renting an entire place. That's essentially what I'd be looking to do. Next I noticed that there's a median price per night per bedroom. This is extremely helpful.
As we go down the report, the next piece of the puzzle is the monthly revenue for all the places in Brookline. Again, this is very important information.
I like what the website has done with giving you general information. However, there's more information that it isn't giving you. There's occupancy rates and monthly revenue for different size properties. This is really what I'd want. However, it costs a little money. It's probably a good deal before I go spending high 6 figures on a place, right?
I didn't go down that road just yet. Instead I built myself an Excel spreadsheet of properties in the area. You'll want to click this image so that you can actually read it.
There's a lot going on in this spreadsheet. The blue at the top is the property that I'm looking at. I put in some rough estimates at pricing based on it being three units (more information in this previous post). Instead of looking at the property itself, let's focus on the 11 properties below.
These 11 properties are a sampling of what's nearby. I tried to get a variety of shapes and sizes just so I could understand what the sweet spot in the pricing was. The first few columns are basic information about the property from what I could gather. The Daily, Weekly, Monthly are grabbed straight from their AirBNB listings. I created an annualized number of those numbers which give an idea of what 100% occupancy would bring in for income per year. Obviously 100% occupancy is unrealistic, but we can adjust for occupancy later.
Then I had the idea to normalize the properties' pricing based on the number of beds and baths. I would do just bedrooms, but one place was a studio and dividing by 0 bedrooms is a nightmare (maybe I should have counted it as a half bedroom). This gives me the last two columns of daily and weekly pricing per year (100% occ.) per bed and bath.
For example the first one (1 bed, 1 bath) is $170 a day or $62,050 a year. Because it has a bed and a bath, that is $31,025 per year, per bed and bath. You can see I did this down the list and created an average.
Now we can go back and look at the proposed house again. The pricing that I put in place is an attempt to be competitive with the 11 property averages. In fact, I purposely put them below to be conservative. (They are still far below even when accounting for the bathroom issue above). You can see that I'm way below the other averages.
Maybe I should up my price estimates, but I'm very comfortable with what I have here.
I've estimated expenses to be about $8000 a month. That's all in, with mortgage, interest, taxes, utilities, ongoing maintenance, insurance, etc. If I assume 76% occupancy (40 of 52 weeks) at the weekly rate of the conservative numbers I have here, it would bring in $16,667 in income... more than double the expenses. That occupancy might be a little high, but it appears it could still be very profitable at lower occupancy rates. Or if occupancy isn't going well, I would have the pricing flexibility to lower even further to ensure that income is being made.
Of course this article would be better if I could say that I have hands on experience running an AirBNB. I'm not there, at least not yet. In the meantime, I hope you can get some great information from this meta-analysis and the resources listed here.
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