For as long as I can remember, I’ve had two deep passions that have really dictated the decisions that I make and therefore the direction my life has taken: sales and travel.
I’ve been a saleswoman my whole life, beginning as a teenage entrepreneur when I took over running my family’s bar in Wisconsin. Then again when I moved to Florida fo run my Door to Door Sales business. 8 Years later, I discovered the power of real estate investing. I jumped right in and got out of my crazy door to door sales company.
Nearly 4 years ago when I started my real estate journey, I began to hear about how you could make a much higher rate of return on short-term vacation rentals as opposed to conventional, long-term renting.
As you now know, I LOVE to travel. I stayed in a few Airbnb’s but never thought about owning my own. As I did more research on short-term vacation rentals, my sales world and travel world came together like a match made in heaven. I was super excited.
I had just invested in a beautiful historic building that became my office in downtown Leesburg. Despite a lot of people saying I shouldn’t, that no one would want to come to Lake county, that vacation rentals only work near Disney, I took the leap and opened an Airbnb on the second floor of my office building. After a few months of bookings, meeting some amazing guests and cashing some incredible checks, I was HOOKED! It was sales and travel in perfect harmony!
Conventional Rental vs Short-Term Vacation Rental
My success using Airbnb and other similar services (HomeAway and VRBO) in the last three years began with just the space above my office. It has since increased to over 10 properties that we now manage and operate. I’ve seen double and sometimes triple, profit numbers when using the Airbnb model for my properties. In Lake county, one property’s rent increased from $900 a month as a conventional rental, to over $2400 per month as a short-term vacation rental…and this is with it being booked only 70% of the time!
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What is Airbnb?
Airbnb is an online marketplace that connects travelers with homestays all over the world. As a property owner, you can list anything from a houseboat to a converted old school bus to a spare room in your house or, most commonly, an entire home as a unique place to stay in some of the world’s most unexplored places. I primarily rent entire homes through Airbnb’s network. There are many other online sites that work in a very similar way — VRBO.com, Booking.com, and HomeAway.com to name a few.
Airbnb seems to get the most attention in the media and has really become synonymous with short-term vacation rentals. What’s more, their app has made it so easy to use, anyone can do it! This has made Airbnb a go-to platform for so many folks, whether they’re a traveler looking to connect with the local lifestyle, or a property owner looking to earn extra money by opening their doors to others.
I had the pleasure of speaking at Planning for Prosperity last week, and I’d like to reiterate a word of caution I mentioned there: do not count on Airbnb’s income potential alone when making a decision to invest in a property. If there’s any change in the market, be sure the home can make money as a conventional, long-term rental, too. As a personal preference, I don’t buy in neighborhoods with HOAs because they can (and do) change the rules at any time. Also, be aware that many local governments still aren’t sure how to deal with the large influx of Airbnb and short-term vacation rentals; their ordinances could be changing as well. If you purchase an investment property with the sole purpose of running it as an Airbnb, you could run into some major bumps along the road in the near future.
Travel and Sales is Very Rewarding
I find it is really fun to host others on their work trip, vacation, family gathering or as they attend a wedding. It is also rewarding being able to be a helpful, supportive host when the travel isn’t for a happy occasion like visiting a sick relative or even attending a funeral. Providing an amazing home-away-from-home to just make folks more comfortable is awesome. As I’ve said before, I travel using Airbnb a lot and it always seems there is a level of pride and excitement that goes along with helping folks live a little more comfortably than they would in a regular hotel room.
Making the Decision
If you have a property that you’ve been thinking about purchasing in your IRA as a traditional rental, it is definitely worth taking a peek at the Airbnb and HomeAway models to determine what might work well. Cashflow could be quite a bit higher and it might be worth considering.
I look at two things initially to help make that decision:
1. www.Airdna.co <— the free version gives you an idea of how many rentals, occupancy and potential nightly rates (it isn’t perfect but it is a great way to start).
2. www.Airbnb.com or the Airbnb App — search your area like a guest would to see what kinds of properties are nearby. This gives you access to their photos and what your competitors are doing! You can see the rates they are advertising and with a little digging, you can even see how many of their dates are blocked or potentially booked! (There is a referral code inhere)
Teams and Systems are Important
In my business, I’ve been putting systems in place to make sure I’m not the one covering a cleaning shift, running for supplies or fixing a broken toilet. Systems and a clear plan ensure that I can scale this business and actually purchase more properties in and outside of my retirement account.
There are some vacation rental property management companies that have popped up recently (obviously always do your due diligence before making a decision). These companies charge a little bit more than a traditional property manager – anywhere from 15 to 20 percent of the revenue. However, as we’ve discussed, the revenue is much higher on a short-term rental and there is a lot more work that those folks are putting in, so the higher cost of management seems justified. Make sure you understand their onboarding fees and requirements for supplies before signing with any management company!
Using the Lake county example that we talked about earlier, this property as a traditional rental would net $400 per month in cashflow, but as a short-term Airbnb type property nets nearly $1,500 per month in cashflow. If I utilize a short-term vacation rental management company, the monthly expenses are a little higher (around $300 per month) but it definitely still works out in our favor. Do you mind paying 20% of $1,500? That’s still potentially $800 more than the $400 that we were looking at initially!
Questions for a Management Company
First off you want to make sure they’re familiar with Airbnb, HomeAway, and VRBO. They know how the structures work. They know how to set them up. What do they do when something goes wrong? What is their response time, automated vs live responders, preparedness to mitigate immediate problems a guest is having, etc? These are all things you need to discuss with them to decide if they’re the right fit for you.
Remember, things do go wrong! I’ve had air conditioners go out in the middle of the night, broken toilets, WiFi not working, and the list goes on. And just like a hotel, guests expect all things to be working at all times in short-term rentals. These are all good things to consider as you’re thinking about starting one for yourself. Consider using a company like IGMS to streamline your listings between multiple platforms (VRBO, Homeaway, and Airbnb) http://bit.ly/AlexaIGMS
What locations are good for Airbnb’s?
We all know real estate is all about location, location, location! The thing is, people are always traveling and every little town has a small motel that is somehow booked most of the year.
In Central Florida, I have vacation rentals in Leesburg, Summerfield, and Eustis, and although you might think there’s not a lot going on in these areas, I beg to differ! So many folks are traveling for more than just vacation. Perhaps they are doctors or nurses traveling for work. We’ve even had construction workers stay with us when in town building Dollar Stores. The key is that each one of our homes is unique. We like to theme our properties; some are older homes that were built in the early 1900s with clawfoot tubs and beautiful pieces of history. Others are newer houses themed with Mermaids or Disney. A big value-add, but not necessary are pools, lakefront property, gorgeous views or located close to downtown. We just want to make sure people have a fun, comfortable and unique place to enjoy their stay.
Preparing Your New Airbnb
You’re going to be putting in more money upfront than you would in a regular rental. Make sure you’ve got the funds and you’re ready to furnish a property. We want to make sure that we prepare for that in the beginning.
The first Airbnb I did above my office was furnished from Rooms To Go and to this day it was my most expensive furnishing — (about $7,000) for all the furniture, pots, pans, hairdryer, linens, etc! We actually had to purchase a washer and dryer as well. (This is essential for your cleaning crew to have — or at least a laundry mat nearby.) Since we’ve been doing this for a few years, we’ve systemized the furnishing a bit. We can now furnish an Airbnb for about $3,500 and we do that with Facebook Marketplace, Craigslist, and the local thrift shops.
Airbnb and Self-directed IRAs
This all gets a little bit trickier when we’re investing with our self-directed IRAs because we can’t physically be involved in any of the work. So we have to rely on partners or have a conversation with the property manager of our choice to find out what they’re going to charge to handle everything. I prefer to invest by having one partner using their IRA money and the other partner NOT using their IRA. This way, the partner not using their IRA is legally able to make a quick purchase at a thrift shop or pick up cleaning supplies without issue.
The Wrap Up
Airbnbs are some of the most rewarding investments that I’ve experienced – both monetarily and personally. I love the feeling when we get a heartfelt review and when we make a difference in someone’s life. That’s what real estate is all about – helping people.
The world of Airbnb is a lot of work and you can reap amazing rewards once things are up and running. If you have any questions about doing this in or outside your IRA, don’t hesitate to reach out!
If you know someone who wants to sell their house or get additional info please check out our site! www.AlexaBuysHouses.com