Landlording & Rental Properties

How to Scale Up Your Short-Term Rentals to a Million-Dollar Business

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10 Articles Written
Aerial view of of a residential neighborhood in Hawthorne, in Los Angeles, CA

By now, I’m going to assume that you already have your first property up and running successfully. Hopefully you know the “ins” and “outs” of your business and are earning decent cash flow every single month.

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Once you’ve reached this stage and your business is stabilized financially, it’s time to start thinking about expansion.

I understand that not everyone intends on growing their business to 30 or 40 properties spread across different states. The beauty of this business is that you can scale as large as you want—or not. If you’re only looking to operate five properties or so in your local market, then that’s fine.

However, if you’re looking to build a multimillion dollar short-term rental business that generates hundreds of thousands of dollars of income for you and your family, then this is the post for you.

Why Grow Your Rental Business

The main reason for scaling your business is because it will allow you to make more money with less work. The more properties you have, the easier it is to put systems in place, such has hiring a full-time staff to manage your portfolio. This is because you have more cash flow that you can deploy back into your business.

Related: Airbnb, VRBO, & Other Short-Term Rentals: Questions to Ask to Navigate Cities & HOAs

Plus, growing your business will open up doors to you for other business and investment opportunities later on. For example, you can develop good business credit, which will allow you to gain access to commercial products that aren’t available to individuals.

Other opportunities include using your cash flow for alternative investments or even selling your company down the road.

How to Prepare to Scale

Before you set out to grow your business and start acquiring properties left and right, it’s a good idea to prepare yourself for the expansion. You want to expand responsibly, otherwise you may get yourself into a bind—say, where your income can’t cover your expenses and you’ll be in trouble.

Mindset

One big thing you want to focus on is your mental preparation. Are you ready to start expanding at the moment? Are you stressed or overwhelmed presently? Are you willing to do the time-consuming work to make sure you pick the right property in the right market?

Questions like these are important to ask yourself to determine where your head is at. All success starts in the mind, so you’ve got to make sure you have a winning attitude.

Close up view of bookkeeper or financial inspector hands making report, calculating or checking balance. Home finances, investment, economy, saving money or insurance concept

Numbers

Next, you want make sure that you have the necessary resources to start growing your business. You’ve got to know the market you’re moving into and what the cost of doing business will be. You’ve got to know what your estimated revenue and profit margins will be. This stage is all about getting accurate numbers.

If you’ve estimated that it’s going to cost $5,000 to pick up your next property, then you should probably have a little more than that just in case. A plan is simply a guideline, and life doesn’t usually follow a script. Obstacles will crop up, and you want to know that you have enough cushion to handle them when they do.

Related: 9 Steps to Develop Your Own Short-Term Rental Management Business

When you have a good estimate of what your expansion will cost, you should create a goal to aim for. Our brains are designed to set targets and to move toward them—whether it’s hunting an animal or achieving our financial goals. Setting a target gives you something to look forward to and allows you to track your progress.

Once you have your goal, back it up with a written strategy based on math. If you’ve estimated that each property will cash flow $1,000/month after expenses and your goal is $3,000/month, then you know that you need to acquire roughly three properties.

Having a written strategy gives you an action plan when you get stuck—and getting stuck mentally is pretty common in business.

Stay Local at First

Your first three to five properties should all be in the same city (or at least within the same metropolitan area). The first reason for this is that they are easier to manage. If you have to drive an hour or more from one property to the next, then daily operations will get a lot harder.

The second reason you want to cluster your properties like this is because you can take advantage of a concept known as “economy of scale.” This concept basically means that by grouping your business deals you can save money or maximize profit by operating in bulk.

For example, hiring one local cleaning service to clean all five of your properties is much easier and probably cheaper than having to hire two different companies.

The next reason for clustering your properties is that you know and understand all the idiosyncrasies of your local market. You know what days of the week are most profitable, what submarkets make the most money, and what seasons have the most influx of external traffic. This knowledge is lethal in terms of giving you a competitive edge over out-of-state investors.

Explore Nearby Markets

Once you max out the number of properties you feel comfortable operating in your local market, it’s time to start exploring nearby markets. You know your area best, so use that knowledge to help you narrow down your search to two or three potential options.

From there, you’ll want to do extensive research to find out which city will be the most profitable. You can use tools like AirDNA to get real market data to analyze.

When you pick your next market, you want to start off the process slowly, just like you did when you first got started. You don't want to over-leverage yourself and take on more work than you can sustain. It's best to find a single property and run it for two or three months (or until you can make it profitable).

Chicago downtown skyline at twilight with highway and traffic.

Network to Build Your New Team

Before you acquire your new property, make sure that you have the infrastructure in place to successfully operate your rental business. It’s best to begin with the end in mind at this point, so try to pick partners to work with who you’ll keep once you begin to expand into your new market.

For example, find a local cleaning service that can sustain five or more properties in your new city. Or work with local co-hosts and property management companies, who can handle your expected workload. This way you have the framework to grow into later on when you’re ready.

Related: 3 Ways to Attract Business Travelers to Your Short-Term Rental

Making new connections in a foreign market can be frustrating and time consuming. Before you drive out there, get online and start networking on the various available forums and platforms. Below are some of the best resources for finding new business contacts for your expansion.

Repeat the Process

Upon successfully expanding into a new market, it’s time to grow your cluster of properties. This process should be relatively easy since you’ve already done it in your first market. In fact, this time around it should go even more smoothly, because you’ve already got a track record, expertise, capital, and a team in place.

When you approach new property owners, property management companies, cleaning companies, banks, etc., you won’t be starting from scratch this time. You’ve got an existing business that’s successful, and this will speak volumes to everyone you meet.

Leverage this social capital in your favor to get more deals, better rates, and more favorable terms. You’re no longer a beginner, so remember that. Use your current success to catapult your business to the next level.

Once you’ve acquire three to five properties in your second market, you’ve accomplished something most people never will. You’ve not only built a successful business in your hometown, but you’ve expanded into new territory and won. The best part of all isn’t that you’re making more money, it’s that you’ve now got a blueprint for success that you can repeat again and again.

Take this blueprint and apply it to a new market every single year if you want to. Just imagine how many cashflowing properties you could acquire in 10 years if you did this.

And the great things is that every time you do this, it will become easier and easier. The more capital you have to invest, the quicker you can get new properties up and running.

The truth is there aren’t many people doing this right now. Most people renting homes on Airbnb are couples who are 55-plus who have an extra house or two in their retirement. If a hard-charging individual comes along and decides to bring this level of intensity and focused action to your market, they’re just going to win—plain and simple.

Your competition is mostly unsophisticated people who are winging it. By educating yourself with this blog and taking action, I believe anyone who does this will be successful.

Good luck!

Questions about expanding? Questions about Airbnb/short-term rentals? 

Let’s talk in the comments!

Jason has been in the real estate business since 2015 with a primary focus on commercial investments. Over the last 10 years he has also started and operated businesses in digital marketing and eCo...
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    Oscar Manuel Rental Property Investor from Bay Area, CA
    Replied 7 months ago
    Definitely enjoyed this article Jason! Decided to focus on my Corporate Rental business this year and grow my monthly cash flow. This article couldn't have came at a better time.
    Jason Allen Investor from United States
    Replied 7 months ago
    Thanks Oscar, Glad to help.
    John Underwood Investor from Greer, South Carolina
    Replied 7 months ago
    How are you purchasing more properties for $5000.00 each? Or are you in the business of renting out properties owned by other people? More of a Property Manager?
    Jason Allen Investor from United States
    Replied 7 months ago
    John and Michael, Yes, rental arbitrage is the only investment strategy I prefer for Single Family Homes. I then invest my capital into assets that I'm comfortable "owning" such as multifamily and businesses.
    Michael Baum from Olympia, Washington
    Replied 7 months ago
    Exactly. I wish I could get some nice $5000 properties.
    Bill Kerstetter
    Replied 7 months ago
    I’ve had my AirBnB running for 9 months now and I am ready to grow. However, I don’t have funds to pay cash and credit is strapped. I want to grow so I can change my financial picture but seems like an impossible task.
    Jason Allen Investor from United States
    Replied 7 months ago
    Use rental arbitrage, there's no need to own real estate in this manner. You want to "control" cashflow and let the owners own the liability.
    Nicole Richards Rental Property Investor from Boring, OR
    Replied 7 months ago
    Great concept! Think Bigger! Just had my first paid renter check out today! Pretty inspiring! I think I'll go find four more!
    Jason Allen Investor from United States
    Replied 7 months ago
    That's the idea!
    Katie Jordan New to Real Estate from Miami, FL
    Replied 7 months ago
    Great article Jason! I have two Airbnb’s and hopefully will add a third by next year. I’ve heard financing is a major issue as banks want to see a ltr.
    Jason Allen Investor from United States
    Replied 7 months ago
    Yea, banks will have a problem with it at a certain point. I've heard of people not being able to get financing after 4-5 properties. This is why the rental arbitrage strategy is superior for SFH investing. Good luck!
    Shiela Roberts Investor from Boulder, Colorado
    Replied 7 months ago
    Decent Article, thank you, Jason. Curious where "local" is for you. In the city I live in there are strict city wide guidelines that prevent AirBnB rentals. For instance, in Boulder, CO you can't legally run short-term rentals full time (for years on end). You must occupy the property for 6 months out of the year, every year.
    Jason Allen Investor from United States
    Replied 7 months ago
    Hey Shiela, This is probably the top objection I get to this strategy. There are markets that strictly prohibit this whether in the bylaws of condos, HOA's or even some local governments. If this is the case you may want to do medium term rentals to traveling nurses, contractors, etc. for 30+ days at a time, or student housing, or just rent rooms to people long term. If these aren't options then you will probably have to find a different market. You don't have to have beachfront property by the way, some of the best markets are Non-tourist areas where people travel to a lot for work such as Dallas. Good luck!
    Larry Eskridge
    Replied 7 months ago
    Jason , a good article . it speaks to starting slowly in learning the market then expanding quickly from what you have learned .
    Jason Allen Investor from United States
    Replied 7 months ago
    That's the secret Larry.
    Rob Massopust Real Estate Broker from Garden Grove, California
    Replied 7 months ago
    Seems the rental arbitrage is becoming old hat. I talk to sellers about doing corporate furnished rentals and the STR issue comes up and most are vehemently opposed. Any pointers on finding agreeable landlords?
    Jason Allen Investor from United States
    Replied 7 months ago
    It’s a matter of sales and persuasion. Many people have preconceived notions about concepts they’ve never tried, or don’t understand. And a confused mind always says “no”. If trust, authority and expertise in your field and you can speak to their objections then you’ll have a shot. Here’s another article I wrote on convincing landlords to work with you. https://www.biggerpockets.com/blog/airbnb-arbitrage-convincing-rental-owners Not everyone will be open to it but some will and some is enough. And the more deals you do the more credibility you gain.
    Carlos Herrera Rental Property Investor from Philadelphia PA and San Juan, PR
    Replied 7 months ago
    Awesome article Jason! I've been successfully running AirBnB in PR since I listed my property last year. It's in Old San Juan, where there is no short of demand for a place to stay and experience the unique capital of the island. I do want to expand within it and it's surroundings and wanted to ask if you have done work in PR or know of others like me with focus there. Main focus right now is to build a strong and supportive network. Thanks in advance for all the info you have shared :D
    Jason Allen Investor from United States
    Replied 7 months ago
    No I haven't but I'd imagine if you push for it you could dominate that market if you had a solid team and infrastructure in place.