$200,000+ rents in 1 year - 10X cash flow

108 Replies

This is continuation of my first post 7 months ago about my love for STR (short term furnished rental) when I started with just 2 Airbnb listings

https://www.biggerpockets.com/forums/61/topics/552...

Now, I'm at 6 total Airbnb/STR and on my way to over $200,000 in gross rents in my first year!

I love the Furnished short term rental business!

To be clear, I'm talking about Airbnb, VRBO, Homeaway - rent out your furnished rental short term - 1 night, 10 days, 2 months.    

December/2018 will be my 1 year anniversary of starting this adventure.

If you think you are too late to the party, you are right.    Airbnb is more than 10 years old now.   VRBO is even older.

But word of encouragement:   I always say, " it's better to be LATE to the party, then NEVER make it to the party!!"

There is ONE word to describe why I love real estate.   CONTROL.

Unlike stocks,  I cannot control or stop Elon Musk from twitting or some CFO cooking the books or a new disruptive technology that completely bankrupts an icon in the business (e.g. Kodak company disrupted by digital cameras and smartphones with cameras)

However, in this business (STR is a business - not passive), you can control your destiny.

#1   Control the price at a click of button.   

You can drop, raise, use a pricing app,  you can utilize knowledge of local events to price your home up or down.    I currently have a price peak of $1950/night on super bowl Sunday in Atlanta (Atlanta is hosting the 2019 Superbowl).    I had competing bids at $1250/night so I decided to decline and raise prices.   That's control!

#2  Control the marketing.   

Airbnb does an AMAZING job of marketing.   In fact if you have a property in the right location, right market (supply/demand ratio), then you can let Airbnb do 90% of the work of marketing for you.   however, there is no barrier to market on VRBO/Homeaway, Booking.com, etc.

My favorite is Airbnb for two reasons - A) best online marketing platform.  B) best technology/ease of use.

Airbnb is far from perfect but it blows away its competition.

Next level control - direct marketing outside of Airbnb  (google adwords, facebook ads, direct marketing to companies).  More about this later.

#3 Control your tenant.   

How many of you had what seemed like a great tenant turn sour or worse turn into an eviction.    Unlike the urban myth of guests who "party" and "destroy" your home, I have had over 150 bookings and not a single "bad party" or "destruction".     Why?   You can screen each tenant as them come.   Also, more importantly you have this accountability with the guests.   Not only is there a deposit, more importantly there is a air of accountability since the home will be checked IMMEDIATELY after a stay.

For those of you with long term tenants, when is the last time you looked inside your home?   Usually the only chance is at the time of lease termination or eviction.   That's when you can see the layers and layers of damage that has been going on for weeks, months, or worse years without you knowing at all.

#4  Control -  Are there problems in STR?   

Of course. There is no free lunch. Laws change, HOA regulations that can hinder your ability to run this business. However, there are two things - you can control your destiny and pivot. If the rules change that you now need to rent to 30 days minimum guests, then you can target corporate rentals (business travelers on project, traveling nurses, traveling medical personnel).

I had that exact experience. HOA regulations dictated that I stop doing less than 30 day rentals,soon after I found a 12 month corporate rental client.

#5   Control - Forced Cash flow!

Short term furnished rentals is akin to forced increase in cash flow.   Similar to how multifamily apartment complex can be "forced appreciated" by renovating and increasing rents.    You add value (furnish) to an undervalued property (vacant/unfurnished) and thereby 10X your cash flow!

10X cash flow covers over many mistakes and pitfalls.    IF you are making 10X your typical cash flow - for example, instead of making $200/month per unit,  you make  net $2000/month on one single property?      There is a lot of cushion there to take the punches and still keep moving.  I'll be more specific about numbers and experiences in my next post.

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Originally posted by @Account Closed :
Originally posted by @John Thedford:

how is NOI?

 Very low.  Heres my take.

1. 6 very nice Big properties.  One must assume big expenses.

2.  Prices seem awfully low.    $200,000 divided by 6 = $16,666 per month.    Divide that by 6 properties = $2,777 per property.  Divide by 30 days =$      93 per property per day.

3.  Look at his calendars very few bookings for November and beyond.   Should be at least 75% booked by now.   

My take is his NOI is 2-3%.

He wants us to love his listings so he gets better coverage on AIRBNB.

Moral of story STRs are not as EZ as it sounds.   Beware of those who tell you GROSS but not actual bottom line.

This reminds me of posters saying they have x properties. The only thing that matters is NOI. I will take my 240K a year gross rents, subtract all expenses, including debt, and then look at my results. Or as the old saying goes, it doesn't matter what you "make" it matters what you get to keep.

Sounds like a lot of laundry and cleaning and making beds, seriously disrupting a solid napping schedule.

In college I had a job at a motel and had to turn rooms sometimes.  Do airbnb guests leave their towels on the floor?  LOL

@Account Closed I can't speak to the validity of Joe's post, but I can tell you that we are running STR units in Tampa and are earning signifcantly more that we would be earning on a LT basis, after netting out all the expenses. Yes, guests leave towels on the floor, but that is why you hire a professional cleaning crew to 'turn' the unit after each stay (which the guests pay for by the). We've had a great experience with STR and will be launching two additional units in Chicago in Q1'19. Happy to answer any and all questions you may have!

I like your excitement but a lot of what you say isn’t really true. You clearly haven’t had to deal with claiming that security deposit you’re excited about... nearly impossible unless the guests green light it. Your occupancy rates are very low and your gross also seems very low for as many properties as you own. I gross 100k per property and net 45k per which comes out to roughly 25%+ CoC returns. You’re on the right track, and I LOVE str’s but perhaps you should reevaluate the markets you’re in. Your properties and listIngs are beautIful tho. A+ there.

Curious how the cleaning / turnover works. As a frequent Airbnb'er you get charged an excessive amount of fee's. There's cleaning, tax, booking fee, and I think another one. Do YOU get to pick the cleaning service and how does Airbnb set the price... is that the host? It's also a crock when you have to pay $50 for a cleaning fee yet host expects you to make the beds and take out the garbage, etc. 

Sorry, random rant from customer side :)

@Christian Nachtrieb I can't speak for other hosts, but I can tell that the clearning fee we charge is a 100% pass through cost. We charge $95 for a 1,300 square foot 3 bed/2 bath unit. Our unit is cleaned professionally, but we have two cleaners for 2 hours (4 man hours). At $15/hr, that would be ~$60, plus supplies, so call it close to $65 or so. And then the cleaning company layers in their profit margin. Long story short, now that I have seen it from the host side, it makes sense to me. 

P.S. We don't ask our guests to make beds/do laundry. I agree that doesn't make sense if there is also a cleaning fee! :)

Congrats Joe! Interested to hear more about "I'll be more specific about numbers and experiences in my next post.". Tagging/following and will hit you up if I'm ever in Cali! Amazing properties. 

Frankly, I dealt with airbnb for 2 weeks last year and I found that I had a total lack of control and stopped the whole thing. 

Being new, I started with low rates, which attracted the wrong kinds of guests, who prey on new hosts, because we need reviews. 

I was done in by a retaliation review (which airbnb deleted only after a month), which brought my average below 4 stars (I had just started and didn't have enough 5 star reviews to counter) and thus was suspended by airbnb for 10 days.

I was going to hang in, but then I had 2 girls who called me and said that they were leaving, because the lights in the bathroom weren't bright enough and they couldn't put their make-up on properly. I offered to give them back their money, but then they said that they would like to stay, but would there be something I could do for them. They kept arguing and I could tell that they were just trying to extort something from me. 

And then there was the guy who claimed to have 2 service dogs, which stayed in their crates during the day when he was at work. I had approved the booking and then did a little research on him.  I called airbnb and told them that I didn't want to have this booking, because nobody has 2 service dogs and then leaves them at home. Also, his profile said Mississippi, but he was actual in Atlanta, had several evictions and was between places. 

Then there was the family with 3 kids. I told the wife, who I communicated with, that the property really isn't child proof and that it's not such a great area for children (of course I couldn't turn them down). She said that it was fine. They came and the husband didn't like it. This was over 4th of July. They wanted full money back, claiming that he never looked at the ad and let her book, but since he was paying, he didn't like the area and thus they were leaving. 

I had the couple that claimed they couldn't find it. I ran outside in pouring rain and saw their car (I knew they had a BMW) and was in front of them waving my arms. They turned  to the main street. I ran after them and they got stuck not being able to turn on the main street until I caught up with them. They then reluctantly followed me. Went inside and then said that they were going to dinner. 10 min. later they texted and said that they weren't coming back. This is a historic black neighborhood, so, I assume it had something to do with that (explained in the listing). 

They no longer let you turn down guests easily or you get punished by airbnb by going low in the ranking. Vetting is very difficult now. 

Overall, in those 2 weeks I saw how little control the hosts really have. And there are more and more tenants, who know how to play the system and try to get freebies. And I've been reading more and more accounts where airbnb takes the side of the guest (because that's where they make the money. Hosts are a dime a dozen and they simply don't care about them). 

I still read airhosts forum and even from the distance of more than a year, I'm glad I got out of it. The extra money isn't worth the stress to me. 

Hi BPers.    Not sure why all the "hate".    I thought this thread was under "real estate success story"

I've had over 168 bookings and now 100 reviews.   But my mistake was not going over the numbers.

I was going to go over it in post #3 but let me briefly go over it now.

I have 3 rental arbitrage - which means I don't own these properties but I am the TENANT and I sublease the home on Airbnb.   This is with the consent of the owner and written in the contract itself.

I have 3 that I own OUT of state in Atlanta and Indy.   The cash flow is 5-10X what I would make as a traditional rental.

Let me give you just one example to start.   

Airbnb #2  (2bed/2bath) condo  -  Rent $2500 - this is what I pay.

Expenses:

Rent $2500

Internet $59

Utilities  variable but $100 average

Netflix/SlingTV - $50

STR insurance - $50

Total expenses: $2759

Cleaning - is not an expense but a revenue generator. If you are not already doing Airbnb.  there are things you need to understand.  Cleaning is paid for by the guest.  I charge $225 but I pay my cleaners $100.   So I make $125 extra for each stay.

They say a picture is worth a thousand words....how about thousands of $$$$$.   Here is the gross rent for 1 month in August, 2018 for this 2 bed/2bath condo

@John Thedford    @Account Closed

Is that enough ROI for you? $7358.42 - 2759 = $4600 NET. One property, One Month, 2bed/2ba condo that I don't even own.

Drop the Mic....walking away.

@Joe Kim , no hate here.  Sorry if that's how you interpreted my post.. not how it was intended.

You're going to hit two road blocks with this "success story".  

#1  Some people just HATE STRs because they've had bad success, bad guests, or find it too time consuming.  It's a very niche area in real estate investing.  It also happens to be all I do, full time professionally so I am not in that boat.

#2 You have 6 units and gross 200k.  Thats awful.  Especially when half are in the bay area.  But, to be fair, you didn't mention that they are subleased which changes the numbers (no down payments to take into account; much lower cost of entry).  

It also feels like you're not being totally forthcoming.  That nice $7500 month reservation would put you at 90k gross per year for this one property so it's a one off.  Don't get me wrong, its a sweet deal.  I'll be MUCH more impressed when you show me the 90k for the year.  

 It also feels kinda preachy when you admit you're only 1 year in and I see 3-4 things that you post that are kinda nonsense.  As an example, you're not 'late to the party' if you haven't started yet.  I purchase new units and they're up and running from day 1 and average 90%+ occupancy.  AirBnB doesn't 'blow away' vrbo.  I happen to prefer VRBO for a number of reasons (better security deposit policies, more control of my house rules and enforcement, payouts 60 days in advance, no 'extenuating circumstances' last minute cancellations that override my refund policies, I can go on..)  

I'm not putting you down and seriously congrats for a successful first year.   Keep it going and work to improve that gross.    

Originally posted by @Account Closed :
Originally posted by @John Thedford:

how is NOI?

 Very low.  Heres my take.

1. 6 very nice Big properties.  One must assume big expenses.

2.  Prices seem awfully low.    $200,000 divided by 6 = $16,666 per month.    Divide that by 6 properties = $2,777 per property.  Divide by 30 days =$      93 per property per day.

3.  Look at his calendars very few bookings for November and beyond.   Should be at least 75% booked by now.   

My take is his NOI is 2-3%.

He wants us to love his listings so he gets better coverage on AIRBNB.

Moral of story STRs are not as EZ as it sounds.   Beware of those who tell you GROSS but not actual bottom line.

Gigi, I cannot address all of your misconceptions about my business but I will address your comment  #2

Gigi says "2. Prices seem awfully low. $200,000 divided by 6 = $16,666 per month. Divide that by 6 properties = $2,777 per property. Divide by 30 days =$ 93 per property per day."


That's assuming I started with 6 properties on day 1.    I had 2 from the start by Jan/2018.   then 3rd added on April/2018.   Then 4th/5th in July/2018.   Finally 6th in October/2018.

So your math is incorrect.  it's not $200,000/6 properties.   Not all 6 properties started at the beginning.   My monthly gross is now hitting close to $30,000/month.   So when all  6 are running full speed next year.   I should be around $360,000 gross in 2019.

Why do I keep talking about gross rents?   It's easier.   I have a bookkeeper now working on my books in preparation for taxes coming due in a few months!

So again, why all the mistrust?    I guess people just don't trust each other like they used to.

I do agree with one of your statements. Nothing is EZ (easy) and everything takes SWEAT and TEARS as the saying goes. STR/Airbnb is NOT easy. I put in a ton of time to setup Airbnb #6. I used cohosts to setup my out of state properties (3 of them) which was a beauty.

Many people are shutting down their Airbnb because they cannot make it profitable.   But I thought this discussion forum topic was "real estate success stories"

Glad to address everyone's questions but let's me cordial.   

Thanks,

Joe

@Joe Kim Interested in seeing your numbers for Atlanta and Indy . I am trying to break into a tertiary market, but I still need to analyze the numbers. I don't know if it will really work if I rent at market price then run STR on top of it. Might have to just buy with large down payment to make the numbers work. Only seeing gross rent about 2X of LTR rent.

Originally posted by @Mike V. :

@Joe Kim, no hate here.  Sorry if that's how you interpreted my post.. not how it was intended.

You're going to hit two road blocks with this "success story".  

#1  Some people just HATE STRs because they've had bad success, bad guests, or find it too time consuming.  It's a very niche area in real estate investing.  It also happens to be all I do, full time professionally so I am not in that boat.

#2 You have 6 units and gross 200k.  Thats awful.  Especially when half are in the bay area.  But, to be fair, you didn't mention that they are subleased which changes the numbers (no down payments to take into account; much lower cost of entry).  

It also feels like you're not being totally forthcoming.  That nice $7500 month reservation would put you at 90k gross per year for this one property so it's a one off.  Don't get me wrong, its a sweet deal.  I'll be MUCH more impressed when you show me the 90k for the year.  

 It also feels kinda preachy when you admit you're only 1 year in and I see 3-4 things that you post that are kinda nonsense.  As an example, you're not 'late to the party' if you haven't started yet.  I purchase new units and they're up and running from day 1 and average 90%+ occupancy.  AirBnB doesn't 'blow away' vrbo.  I happen to prefer VRBO for a number of reasons (better security deposit policies, more control of my house rules and enforcement, payouts 60 days in advance, no 'extenuating circumstances' last minute cancellations that override my refund policies, I can go on..)  

I'm not putting you down and seriously congrats for a successful first year.   Keep it going and work to improve that gross.    

HI Mike,

Not sure why you think I had all 6 properties to begin the year in 2018.   $200,000+ (more like $240,000 but year is not over yet) for 2018.

I started with 0 (ZERO) properties in Dec/2017.   Then 2 in Jan/2018,  3rd in April/2018,  4th/5th in July/2018 and 6th now in Oct/2018

So by during the first half of the year, I only had 3 Airbnb!   

Hey, I would love to see your numbers as well.   It's impossible to explain every detail of your operation and more importantly it's harder to expect people who don't even do the STRs to understand.  

But you are in the same business as I am. I'm literally a newbie to STR at the start of 2018 and now feeling more established and going from ZERO to 6 properties in 1 year is not a success story? I also work a day job as well at around 60 hrs a week, work weekends, nights, and even graveyard shifts.

So Mike please share your story but no reason to discount others success. Apparently a lot of people hate Airbnb/STR because they cannot make it work for them. Oh yeah, that holds true in every real estate related investing/business.

Joe

Originally posted by @Paul T. :

@Joe KimInterested in seeing your numbers for Atlanta and Indy . I am trying to break into a tertiary market, but I still need to analyze the numbers. I don't know if it will really work if I rent at market price then run STR on top of it. Might have to just buy with large down payment to make the numbers work. Only seeing gross rent about 2X of LTR rent.

Finally a constructive response.   sheesh...what is wrong with BP these days?   So much mistrust and straight up hating. 

The reason why I started STR in Indy (my first one that I converted from traditional rental to STR) is because I had a TERRIBLE eviction.

As the landlord you cannot control if a "good" tenant turns bad.  Loses their job, beats their wife, goes to jail, gets divorced, etc.

My tenant in INDY completely trashed my relatively new duplex that was built only a few years ago.

One side of the duplex-  4bed/2.5 bath x 2 units

Purchased price $179,000

Rent $1100 per unit or $2200 total

PITI $1200/month

After PM costs, maintenance, vacancy  -  net cash flow is  $600-700/month SOLID  buy/hold.

However, this one eviction cost me $11,000 in repairs, and months of vacancy in the middle of winter and into the spring.

I was sick and tired of not having control.   No matter how good you are at tenant screening (and by the way most PMs are not great), you cannot control - LIFE or its bad circumstances or tenant bad behavior.   for 12 months during their stay you have NO idea what kind of damage they are doing to the home.

Now,  I'm getting gross rents between $3000-5000 (peak)/month per unit.   so on average around $7000/month

So let's do the ROI math. since my expense are EXACTLY the same in terms of PITI - $1200/month.

Instead of $2200/month rent for traditional rentals,  I'm making $7000/month.     

Instead of net cash flow of $600/month (which by the way got completely destroyed by the one eviction) vs.  $5500/month.

I would say that's pretty close to 10X  "forced" cash flow.

WARNING- INDY is a very competitive market for Airbnb. Already a veteran host who operated closer to downtown area shutdown his Airbnb homes since he was not making enough money. Not everyone makes money doing STR.

@Joe Kim congrats on building your business. People are “hating” because gross rents do not impress anyone. Bottom line net (and impact to lifestyle) is what gets us excited.

When you're on the STR level of @J. Martin who gets to travel the world 365 days a year, you will find that the BP “hate” turns into jealousy.

@Joe Kim , I only know the info you share.  

I'm pretty active in the Short Term Rental forum, where this is discussed more in detail.  You can look up a few of my 'success stories' ive posted in the past if you're so inclined.   That forum also discusses average returns for various markets so you can compare your results to others.  If you haven't yet, spend some time reading some of the posts there.  Very good stuff to read. 

Originally posted by @Saj Shah :

@Joe Kim congrats on building your business. People are “hating” because gross rents do not impress anyone. Bottom line net (and impact to lifestyle) is what gets us excited.

When you're on the STR level of @J. Martin who gets to travel the world 365 days a year, you will find that the BP “hate” turns into jealousy.

what?? You are comparing me with @j. Martin...the master of STR/Airbnb who has been doing this for many years (5 years) ? I just fricken started in 2018!! I'm a newbie compared to J. Martin. I know him from a far. FB friends, went to his annual REI conference in Oakland for the last 2 times (none this year), I've met him at his meetups as well.

So yes, I know the famous J. Martin.     

J. Martin's the man responsible for introducing me to STR/Airbnb when I went to his conference and met people like @Al Williamson and Kimberly Smith (master of corporate rentals). Thank you J. Martin!!! Greatly appreciate all you do.

it's a tough crowd.    it's like comparing Huwei(J kim)  to Apple (J. Martin).    

One last time.   Why talk about gross rents?   it reflects the growth of a company.   Amazon has not been profitable but their astronomic rise in growth.   

Hey, I have STR in 3 different markets SF bay area, Indy, Atlanta. I got J. Martin beat on that account.

If you want to talk about running a Airbnb business far way, OUT of STATE.    just PM or send me a message.   

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