AirBnB Arbitrage in Washington, DC - A profitable case study

9 Replies

Hey BP Community,

It seems as if a lot of people really like to hear about short-term rental/ AirBnB stories, so I thought I would share a deal that has been “operational” for four months now…

First, I live and work in the Washington, DC in Uncle Sam’s Environmental Protection Agency (full time), so the various projects I do in the real estate realm are part time (for now).

This particular deal is what the kids have been calling “AirBnB Arbitrage” in which I rent an apartment from someone and then put that apartment on AirBnB, manage it, and pocket the difference from the rent and various expenses, and the rental income.

This is my third such deal using this method (I own two others in which I do short term rentals), so you could say I’m starting to figure it out a bit.

For this deal, it is a two bed, one bathroom English basement in the Columbia Heights neighborhood. It’s a great neighborhood that is far enough away from the city so that parking is available and noise kept to a minimum, and close enough that one can still enjoy dozens of restaurants, bars, shopping, and a safe neighborhood. For those unfamiliar, Columbia Heights is roughly a 10-minute drive away from downtown DC.

How did I get this deal?

The same way I got the other two that I do not own – I went on Craigslist, found the advertised rentals I knew would be profitable for AirBnB, emailed the owner, viewed the apartment and explained to the owner what I do for an hour or so, and then we later signed an agreement.

What “rehab” or what did I have to do to this unit to get it AirBnB ready?

Not too, too much to tell you the truth. It came partially furnished and I had to add one bed frame and mattress, kitchen ware, two rugs, a coffee table, TV, dresser and cable/internet needed to be hooked back up (the latter being the most difficult – a story for another time). Also, various pictures, pillows, comforters, towels, blankets, curtains, etc. to make it feel like a home someone would want to stay in with their family. All in all, I spent about $800 to get it “rent ready” to my standards.

What are the other monthly expenses?

Rent: $2,200 per month, which includes utilities and cable – yay for sharing with the upstairs tenants!

Cleaning: My cleaner charges me $50 per clean and this unit typically turns over ~12 times per month. For a person that owns mainly one-bedroom AirBnBs, this number is lower (my one bed average is between 14-15 times per month). My theory is that more families and professionals stay here for longer trips instead of 1-3 people seeing a concert, game, etc. for one night. So, ~$600 per month.

Supplies: Not that much actually. $100 will buy you a boat load of TP, paper towels, laundry detergent, hair/ body wash, cleaning supplies, and maybe an extra towel or two as they slowly get ruined. Admittedly, I could take this to another level and get items such as make-up remover, razors, and food (I do provide small snacks like coffee, popcorn, etc). And while I’m at it I could get 1,000 thread count sheets, a Roomba and on-site masseuse, but I like that little extra green to be in my pocket. I figure I’m already booked 350 days a year at a comfortable price point, so I’ll pass for now.

How much Cheddar are you bringing in, Chris?

I’ll leave a little to the imagination, but I’m averaging ~$4,000 per month. Sometimes I or my wife will do our own cleaning, but that cherry on top is just an extra few hundred, so I won’t count it.

What’s your total time and profit per month for this property?

I do run the app, message guests, and solve various issues myself. For each property, I estimate it takes me 15 hours per month. I have researched getting a manager to do it, but they take roughly 1/3 of the total income, so I do it myself for now.

In total, my expenses are $2,200 + $600 + $100= $2,900 per month

And, income is roughly $4,000 per month (less in Dec., Jan., Feb., more the other months).

Also, Uncle Same hates me and takes roughly 30 percent of my profit: $1,100 minus taxes…

It leaves me with about $750-$800 per month that I get to walk away with. Per hour, that’s right around $50. I didn’t exactly stumble upon a gold mine, but I’m happy with that total for this property and would definitely do this deal over again.

*Questions, comments, concerns? Feel free to message me – I enjoy speaking with others in the short-term space or greater DC area.

Congratulations! You read the whole article (or are smart enough to scroll to the bottom) – now you have to look at a picture of my dog biting someone’s pants string. 

I hate to be a buzzkill but you will want to make sure all your current leases for the apartments you are renting out end before Oct. 1, 2019 when the new DC law goes into effect that will restrict short term rentals to a room in an owner occupied property thus putting an end to your business.

Are you and the landlord properly insured for the activities? A normal landlord policy will not cover short term rentals.

Originally posted by @Ron Gallagher :

I hate to be a buzzkill but you will want to make sure all your current leases for the apartments you are renting out end before Oct. 1, 2019 when the new DC law goes into effect that will restrict short term rentals to a room in an owner occupied property thus putting an end to your business.

 Agreed! That is going to be a serious buzzkill for everyone soon

--Loretta

@Ron Gallagher - That's the unfortunate reality and why I keep my day job. I've heard of a work around where you can co-manage a listing with the owner if they live there. For two of my properties, they do and would thus be legal. I'll have to explore this more in the next year. 

@Russell Brazil - I've tried a few coverage options and haven't really been sold on any, yet.  There's a few "Homeshare" options out there, but i do not have one. 

I have renters insurance which would protect items such as a TV, pictures, etc (to my knowledge). I suppose the biggest worry would be if someone was seriously injured in the property. For that, I'm under the assumption AirBnB would have coverage. Any other suggestions? 

@Chris Mylan Thank you for posting your numbers though. I also own rental property in Columbia Heights and I always wanted to try AirBNB since everyone says you can 3x or 4x your net income, but I cash flow about $1085 a month with my long term rental in Columbia Heights so maybe AirBNB is not for me.

@Ron Gallagher - Sure thing! Yea, 3-4x more is a little high in my estimation (I have a long term rental as well). But, 2x is definitely achievable, especially for a separate space. Of course, there's a little more work/ hassle with that as well, no free lunches. 

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