AirBnB or FRBO - who out there is doing it or tried it?
Real Estate Investor · Westminster, CO · Member since 2014 · 201 posts · 74 votes
I want to try using AirBnB or FRBO to rent living space to corporate customers at a rate lower than extended stay hotels and by providing an atmosphere closer to a real home. It would be completely furnished. Of course, consumers are welcome to rent as well. I don't really care who wants to pay my bills;)
Is anyone out there doing it?
Do you feel it is successful or not? Are you killing it or just getting by? Mistakes that you've made? Good decisions that you have made? What kind of a place are you renting out? Condo? SFH? Other?
Please provide as much detail as you feel comfortable sharing. We can also talk offline if that's better.
I really don't want to rent to families any more. I did that 20 years ago and ended up selling everything out of frustration.
My vacation rental is what opened my eyes to the cash flow potential of real estate. We purchased our property with the idea of having someone else pay for our retirement home and provide us a place to stay when in town (we purchased a placed in Portland, OR). We got a wake up call when we were booked for two years within two months of listing the property on VRBO, Homeaway and other sites.
Now to answer your questions:
1) Due to pricing the rental too low to gain market share, we are break even, but will have no trouble making 8.6% Cash on Cash return on an initial 65K investment (20K was to furnish the house) and a 6.7% Cap Rate. So the numbers work, but are nothing better (and arguably worse) than any turn key you could find from some of the Pro's on this site.
2) Yes, I feel it is super successful, especially since it is in the Portland, OR market which has experienced huge appreciation and unless you purchase and reno, it is super hard to find a ready to go property that will cash flow. I also feel it is successful because I have been able to automate the process in a HUGE way and manage remotely very successfully. I actually believe their is a huge unmet need for 30 day furnished rentals in the area and am currently considering pulling equity from our home primary home in SF to purchase another property.
3) Mistakes I made - other than the pricing thing, no biggies. Sure, we purchased a keyless entry system that would fail randomly every 5 months or so, so we had to replace that with another model, but we though ahead and had a lockbox hidden within inches of the front door so no guest was ever waiting fro more than three minutes to gain entry. The other mistake was perhaps spending too much on furnishings. Unlike @Lynn Currie we were hoping to be able to stay there some times, so the thing is furnished super well. While I feel this has helped the place be booked solid, the 20K to furnish the house was a big chunk on top of the down payment and I think we could have saved 5K to 10K up front and not really impacted the "curb appeal".
4) Good decisions - Like @Lynn Currie buying it. The house was built in 2006, and we are the second owners and paid less than the original buyer. Within 12 months, the place has appreciated over 20%, so that is HUGE on top of it paying for itself. Secondly, I have not settled for "ok" support. My house cleaners are awesome and keep the house feeling new two years later. Along these lines, even my long term renters get a free house cleaning once a month, as it is a $135 insurance policy since my house cleaners let me know the condition of the house. Likewise, I have a great maintenance guy who treats the house likes his own and is not afraid to do a $100 repair without asking me when he is on site. Automation. I have a NEST Thermostat, so I can turn down the temperature remotely and even when my long term renters go away, the thermostat knows they are gone and turns down the temperature automatically. I use Lodgix to auto respond to leads and provide quotes and have a web site (http://portlandhouseforrent.com) where people can book online without me. Finally, I did my research up front and spent a ton of time on VRBO.com and was able to understand that I could break even at the lowest rent for a 2 bd, 1 bath on my 3bd 2.1 bath home as long as I rented for 50% of the time, my mistake was pricing it this way and being booked so far in advance.
In closing, while I believe the numbers for the Vacation/Furnished/Corporate rental are great and command much more than unfurnished, when you take into account the up front furnishing costs, you can chew up $500 a month of income for two years easy just to pay back the furnishing cost. As a result, I do not believe the net returns of furnished rentals offers a significant upside to a turnkey and certainly not to a reno. Another thing to consider is that the cash I spent up front on this property could have purchased a turnkey property outright generating twice the return based on Cap Rate.
All this being said, I am probably going to stay in this market because I believe I will never have to chase rent, and the tenants have all been great.
I would be happy to answer any other questions, feel free to send me an offline message.
I purchased a home on Mt Hood last year at auction and did a nice rehab and have been renting it for a few months on airbnb and VRBO.
It has been great. it is a change from SFR's, but with a little more work per renter the returns have been great. Right now after renting since the middle of November i have made enough to pay the mortgage until Nov, and thats just the income so far.
So far so good.
I do a modified version of this with a property. The nightly stuff is too much hands-on for my liking, but in our area does bring premium dollar. I rent a furnished apartment, but allow short term leases. Essentially, it works similar to a corporate apartment -my tenants are usually in town often for work or moving to the area and don't want to stay in a hotel while they decide where they want to live. I require 30 day notice for move-out.
I'm able to easily rent the unit and get more for it than if I just tried to rent it regularly.
Lynn
thanks for the feedback. I have not been able to find much in the way of articles showing success or failure. Good to see that it is working.
Lynn, what do you mean by "hands on"? What are you considering hands on as far as management goes?
Bill,
We did short term rentals on the same unit for a while. Most folks would stay 3 days or so. This created a lot of paperwork (signed contracts for the stay), meetings with the people during 'check-in' and 'check-out', coordinating with the cleaning crew, and refunding deposits.
It wasn't horrible work, just a lot of little things that took time.
We do the same things for our longer term tenants, just less often.
Back to your original questions (since I didn't really answer them before):
Do you feel it is successful or not? Yes, it's a successful property.
Are you killing it or just getting by? I'd answer that as 'somewhere in between.' We make money on the property, which was new construction close to downtown Austin. In this city, that's a HUGE success in my book! I'd have to go back and look at the numbers to give exact returns, but they're pretty good.
Mistakes that you've made? If you have neighbors, don't rent out to bachelorette/bachelor parties or bands. Have the rental contract include things that can get you in trouble with the HOA (that a short term renter is likely to do) and let them know that you will take any HOA penalties out of the deposit. The biggies? Not cleaning up after their dog and excessive noise.
Good decisions that you have made? Buying it. Deciding to rent it as a furnished unit and allowing pets. Meeting every tenant face to face. Buying cute furniture and making the space feel good (still cheap, IKEA). Giving the neighbors that tended to complain my phone number. This gave them a sense of control and ultimately made them friendlies. One neighbor, who originally was a huge complainer, started to want to rent from me so his family could stay near him when visiting.
What kind of a place are you renting out? Condo? SFH? Other? It's a 1 BR, 1 bath condo in a fairly expensive part of town.
Lynn
I use both VRBO and AirBnB, both are great. There is a lot of work to it, though. You have to deal with daily inquiries via e-mail. You could easily answer 50 e-mails before someone books it.
You also have to have a housekeeper, on-call handyman and plumber. You will have to pay all of the utility bills. People will leave the heat at 75 degrees with the window open. They will also leave the doors unlocked. So I suggest going over immediately after they check out to make sure this doesn't happen.
And you will have to have a way of taking payments, such as a credit card merchant account or paypal.
Then you will have to deal with complainers. No matter how nice things are, they will find something to gripe about. So expect a lot of phone calls and e-mails from people.
Of course, I have quite a few vacation rentals that I manage, so I see these things much more often than you will. But, it can be a good source of income. Depending on your area, it may cover your bills for the year, but most don't.
In my area (a ski resort town), the smaller places don't do that well. People like to come skiing in large groups. The larger places that sleep 14-16 people do really well and make the owners an actual profit. Of course that means more noise and more damage. Many of them come up and have big parties in your house. Neighbors tend to hate vacation rentals.
My vacation rental is what opened my eyes to the cash flow potential of real estate. We purchased our property with the idea of having someone else pay for our retirement home and provide us a place to stay when in town (we purchased a placed in Portland, OR). We got a wake up call when we were booked for two years within two months of listing the property on VRBO, Homeaway and other sites.
Now to answer your questions:
1) Due to pricing the rental too low to gain market share, we are break even, but will have no trouble making 8.6% Cash on Cash return on an initial 65K investment (20K was to furnish the house) and a 6.7% Cap Rate. So the numbers work, but are nothing better (and arguably worse) than any turn key you could find from some of the Pro's on this site.
2) Yes, I feel it is super successful, especially since it is in the Portland, OR market which has experienced huge appreciation and unless you purchase and reno, it is super hard to find a ready to go property that will cash flow. I also feel it is successful because I have been able to automate the process in a HUGE way and manage remotely very successfully. I actually believe their is a huge unmet need for 30 day furnished rentals in the area and am currently considering pulling equity from our home primary home in SF to purchase another property.
3) Mistakes I made - other than the pricing thing, no biggies. Sure, we purchased a keyless entry system that would fail randomly every 5 months or so, so we had to replace that with another model, but we though ahead and had a lockbox hidden within inches of the front door so no guest was ever waiting fro more than three minutes to gain entry. The other mistake was perhaps spending too much on furnishings. Unlike @Lynn Currie we were hoping to be able to stay there some times, so the thing is furnished super well. While I feel this has helped the place be booked solid, the 20K to furnish the house was a big chunk on top of the down payment and I think we could have saved 5K to 10K up front and not really impacted the "curb appeal".
4) Good decisions - Like @Lynn Currie buying it. The house was built in 2006, and we are the second owners and paid less than the original buyer. Within 12 months, the place has appreciated over 20%, so that is HUGE on top of it paying for itself. Secondly, I have not settled for "ok" support. My house cleaners are awesome and keep the house feeling new two years later. Along these lines, even my long term renters get a free house cleaning once a month, as it is a $135 insurance policy since my house cleaners let me know the condition of the house. Likewise, I have a great maintenance guy who treats the house likes his own and is not afraid to do a $100 repair without asking me when he is on site. Automation. I have a NEST Thermostat, so I can turn down the temperature remotely and even when my long term renters go away, the thermostat knows they are gone and turns down the temperature automatically. I use Lodgix to auto respond to leads and provide quotes and have a web site (http://portlandhouseforrent.com) where people can book online without me. Finally, I did my research up front and spent a ton of time on VRBO.com and was able to understand that I could break even at the lowest rent for a 2 bd, 1 bath on my 3bd 2.1 bath home as long as I rented for 50% of the time, my mistake was pricing it this way and being booked so far in advance.
In closing, while I believe the numbers for the Vacation/Furnished/Corporate rental are great and command much more than unfurnished, when you take into account the up front furnishing costs, you can chew up $500 a month of income for two years easy just to pay back the furnishing cost. As a result, I do not believe the net returns of furnished rentals offers a significant upside to a turnkey and certainly not to a reno. Another thing to consider is that the cash I spent up front on this property could have purchased a turnkey property outright generating twice the return based on Cap Rate.
All this being said, I am probably going to stay in this market because I believe I will never have to chase rent, and the tenants have all been great.
I would be happy to answer any other questions, feel free to send me an offline message.
I'm reading the string and surprised that no one has mentioned an important factor... So here is my story.
We love airBNB! We listed our personal home with them and were totally booked out at $250 per night for almost every weekend of last year. Each weekend, we'd chill at a second home or chose to do some traveling ourselves over the weekends funded by making money renting out our home! Great experience.
We were totally killing it. ...UNTIL... we had an olympic cycling team stay at our house with their bikes and equipment. That's when our gated, luxury community with folks that may be somewhat self-important noticed the activity of large groups of bikes coming and going during their training morning and evening. It was somewhere between comical and disappointing to see our millionaire neighbors get flustered and talking behind our backs and hoping to find some covenant violation. The HOA sent us a letter admitting that there was nothing illegal or out of bounds in renting our home, but that it was "causing concern" amongst neighbors to have transient families or groups have short stays at our property. No joke. They requested that we stop our AirBNB adventures.
Although they could not technically stop us, we decided to give up the tens of thousands per year to keep the peace with our pretentious neighbors. I will definitely look into this restriction before buying our next home because we really enjoyed what AirBNB can do for us.
ADVICE: dig into your municipal and more importantly, the HOA restrictions and opinions. Best of luck and let me know if you'd like to stay down here sometime Look up "Jack and Rosy Tucker" in Bogart GA. We might host you on the down-low just to spite some neighbors. ;)
@Bill Coleman
@John Cummings
@Lynn Currie
@Michelle L
I have several AirBnB rentals in the Washington DC market and I feel like they've been very successful. Like any new venture, there was definitely a learning curve in making these rentals run smoothly.
The cons of AirBnB are that they require a little more hands-on management; you have to respond to inquiries online, facilitate check-ins/check-outs, and take care of cleaning between renters. I've found by having a very detailed listing and automated email instructions that the number of questions by upcoming renters has gone way down. AirBnB allows you to set minimum stay requirements and to charge a cleaning fee. The minimum stay reduces my workload and the cleaning fee covers the cleaning service that I use.
The pros are the substantial income potential. I used to rent out a tiny 1-bedrrom basement apartment for $1600/month to long term renters. With AirBnB, I charge $100/night and, on-average, am booked for at least 20 nights per month.
@Bill Coleman , Our vacation rental has been very successful, less on Airbnb more on VRBO and others. In the very busy Las Vegas market, Airbnb is overcrowded and impossible to gain traction on. We made many mistakes but with vacation rentals unless you have someone who has done it there with you every step of the way, you WILL make mistakes and then you WON'T make that same one ever again...it's sort of the name of the game. We are renting out a condo that people seem to really like. If you want some help or in-depth discussion we can talk offline. Send me a PM.
Excellent point and one I forgot to mention! When we purchased our SFR home, we knew that zoning restricted "transient housing" (defined as less than 30 days in Portland), but a quick review or VRBO and the Portland legal case history showed that: a) I could only find 1 VRBO rental in Portland in an area zoned to allow it and b) I could find not legal cases about zoning issues that involved a VRBO. As a result, we moved forward with a less than 30 day rental.
About 8 months in, I received an inquiry from VRBO asking how I can rent my property for less than 30 days due to zoning, which did not matter since I was rented through 2014 with longer term renters. As a result I moved to a 30 day rental and have been having no problems.
So ensure to check zoning and HOA before plunging in so you know your risk.
The corporate rental housing that I'm familiar with is a different business than vacation rentals. The corp. is the client and usually requires cleaning and and other services for the guests during the stay. Some provide as much as daily cleaning and making the beds like a hotel. Some do weekly cleaning and change out linens. It may be different where you are. So Cal has a lot of entertainment and finance industry people that stay in corp. housing and a lot of it is high end.
My daughter is an actor in the Bay area and rents her small studio on airbnb for $125/night. She manages it from out of town when she's away on jobs and has people who can change the bedding and clean it for the next guest. She has the keys in a self service location and rarely meets her guests but is very responsive via text and email. She has a primo location so she could book it every night with little effort. But the managing incoming requests is time consuming. Airbnb is definitely not for people looking to spend less time on their computers and phones.
She's probably had 50+ guests and not had any bad experiences and gets glowing reviews. I do her taxes and I can tell you that it's a very profitable side business.
I have tried both airbnb and VRBO. I found more success with VRBO but I think it might be due to my higher vacation rental rates. At $170/nt, vacationers with deeper pockets usually stay at my place.
When I used airbnb I found more users are looking for deals which mine vacation rental doesn't offer any.
I figured since VRBO brought me enough business I'd just stick with their service. Not to mention their Reservation Manager system is worth ever penny when handling inquires, bookings, reviews, calendar and pretty much everything associated with vacation rental management.
This is not to say one is better than the other. Id certainly use airbnb if I were renting a room in my home or had something cheaper and smaller.
We started a vacation rental last spring, it's been successful, but not overly so. Our 2bd, 2bath townhouse is a great place, but doesn't stand out in a crowded vacation rental market, we use homeaway and vrbo. I haven't used airbnb, but I've been thinking of joining Flipkey. I've been doing a lot of research into marketing, it's well worth it but it does take time and energy. Certainly a business, not passive income.
In the beginning we tried to get away with cheaper listing but in a market of 200+ rentals we were at the back of the pack and had hardly any inquiries, we stepped up and paid for a listing that put us right up front and it definitely paid off. Starting out, depending on the market of course, I'd say that's a necessity.
All in all I don't find it to be overwhelming right now, it's a matter of developing systems and having a good team. Good books on the subject, how to rent vacation properties by owner, vacation rental success.
I live in Asheville, North Carolina and have used VRBO.com and Homeaway.com very successfully. I used Flipkey but was not as happy with the results. I have not tried Airbnb. I have 5 downtown loft apartments and 1 larger home (sleeps 19). My colleague also has a number of homes on those websites and has great success. For us, the key has been really utilizing the higher listings (Gold, Platinum) etc. to move us up the results page. The more photos you have and the better listing, the closer to the top of the results page you will land. We have had (for several years) close to a 60-70% year round occupancy rate on a short term rental basis (2 nights+). It has been our experience in the Asheville market that the higher end properties do well. We have 1 and 2 bedroom lofts downtown which are great for couples and the larger property is 20 minutes outside of downtown. It is harder to find larger properties for groups that want to rent for weddings, corporate retreats, family reunions, etc. and the size of the house has made it very popular. We have tried a number of things, including our private websites, but vrbo.com and homeaway.com have been the best. Of those two, we get the best results from vrbo.com. Mary
Thanks everyone for a great discussion thread. I will take everyone's feedback and evaluate the best way to move forward. Really helpful! I may reach out to some of your individually as my business plan comes more into focus.
In Denver, an Airbnb house was shut down by the City because of an existing law prohibiting leases of less than thirty days.
I believe that laws like that are worth debating, because they are stupid. A short term renter of 3 days should not be prohibited because of (gasp) "what they might do".
The hotel industry is regulated, however. Some of those regulations may be applicable to Airbnb type businesses.
@Account Closed , tell us more about how the business works with a 30 day restriction?
@Kevin Dickson Essentially the same as a VRBO. it is a furnished rental and I advertise on vrbo.com and just state a 30 day minimum stay. At this point I am no different than any other SFR in the area with the exception that the house is fully furnished, and I comply with all local zoning laws. I also do all rental agreements on a month to month basis.
What I have been learning in my market is that demand for even a 30 day furnished rental is VERY high and I am still referring leads away to others. I am also beginning to think that perhaps I do not need to spend the $350 plus per year to advertise on vrbo.com as in February, I just listed the house on Craigslist and a bunch of free sites (Trulia, Zillow, etc.) and in three weeks had the house rented from the September 1 vacancy date until Dec 1 and possibly through the winter.
I am going to be interested in how hard it is to rent in the winter months and am a little nervous about taking the three month rental (Sept through Nov), when I did have a 6 month renter who just need a few more weeks to figure out the specifics of her relocation, so we will see.
Here are some other random thoughts:
1) I did not like airbnb at all because they control the money until after the guest checks in and they can cancel the day off with little financial impact, whereas my ability to re-rent on the day of checkin is nil. If you are renting something for $50 or $75 a day, maybe not a big deal, but for $2800 a month, it is a big deal.
2) Pricing is key (of course). I started renting my house at $2200 a month which was $100 a month profit. This was dumb I know, but I was not an investor then, just trying to get a retirement home to pay for itself. I am now doing very well at $2800 a month and I am still $400 less than any advertised place on vrbo.com and get calls from people wanting to rent it who think it is unfurnished!!
3) CHBO.com (corporate homes by owner) is a great site which costs much less to advertise on than vrbo.com and syndicates to a number of other sites and provides A LOT of leads. These leads however are always within 3 to 6 weeks of when they need the place, so this is a great resource as well, and I will pull the trigger on reactivating my ad there if I cannot fill the December vacancy by October. In contrast, VRBO.com provides those people who look 6 months out.
4) I do not always play by the 30 day rule and neither does anyone else. While the Portland OR zoning department will not come after you, the neighbors will and the only proof they have is your advertising. I have people from VRBO all the time inquire if I will allow a less than 30 day stay and have done this once or twice if the numbers are right. So for example, if I cannot fill the December time slot, I will allow a 2 week rental over Christmas at $1100 a week and at least make a little profit. There are some folks in Portland now who advertise 30 days minimums but are always doing less based on their occupancy calendars. If questioned, I am sure they say "these are my friends" which of course there are no restrictions on.
5) Finally, I believe this is a HUGE untapped market as other than VRBO and Craiglist, I have not even begun to market. I am sure a nice 3 page brochure and on-going email blasts handed out to all the real estate agents in the area (think temp housing and relocation experts) as well as the construction companies (think home renovations) would provide even more leads I would have to turn away.
So this is what I know, let me know if you have any other questions!
Thanks for the follow up information, @Account Closed
I was looking at doing the AirBnb short term rental thing based on an article I read somewhere else, but was hung up on possibility of it being shut down due to neighbors complaining about the constant change in people staying at the location.
The 30 day minimum requirement makes sense.
I did have two follow up questions.
1. If wanted to do this in my home area or anywhere else, where is the best place to research local rules and regulations about zoning and this type of rentals?
2. Is your rental prices higher than market average to cover costs that isn't typical with tradition SFRs...like budgeting for replacement furniture and cleaning services?
Just call the local zoning department.
Some of them post the regulations online, but a call is quicker than trying to find that needle in a haystack. Always call again in a week, because oftentimes you will get a different answer.
I do have to quibble about the 30 day regulation. It seriously doesn't make any sense to me. If there is a quiet, law-abiding person in the house, it's none of anyone's business how long that person stays.
@Jason Fraser - Hey Jason,
The great Google is your friend - for zoning in Salt Lake City, Googles tells me that I can look up any address here http://maps.slcgov.com/mws/zoning.htm this site will tell you the zoning code for the address you enter and another table on this page tells you what the restrictions or uses are per zone.
As to rental costs, yes, but not much. I just looked on Craigslist and some unfurnisheds in my area are going for $2300 and $2500 unfurnished, so I think I should raise my rates again, but then just found a bigger 4 bedroom going for $3000, so it is really hard to say. Since the audience is totally different, I do not really depend on or use unfurnished rentals for pricing, rather I use VRBO.com and other furnished rental sites for pricing.
Good luck!
Hi Bill,
If you're looking in Westminster, their zoning code doesn't seem to have anything precluding less than 30 day rentals, but as someone else suggested, it's good to ask. http://www.ci.westminster.co.us/CityGovernment/CityCode/TitleXI/4Zoning.aspx
While I don't have any experience renting through AirBnb or VRBO, if you're looking to capture the executive rental market, you might stage your place, take photos, make a nice online brochure and direct market to the corporate firms in your area. It seems likely that the folks making the executive rental arrangements could be admin assistants and if you market to them, you could be their go-to rental for placing the out of town folks. Even more ideal, would be to get longer term stays of more than a month or so.
@Account Closed , Airbnb wants to set up an 11.5% tax in Portland, but I doubt it would ever apply to your 30 day rentals:
https://medium.com/life-learning/db9746750a3a
Hi Fellow BP investors!
Interesting topic, I am currently looking for a short term (30 days) furnished 2-3 bedroom in or near Milwaukie starting this Sunday, June 14th. Anyone have something available?
This is a business trip for a new contract we have with Fannie Mae so will be 2 middle aged, corporate Execs.
Any leads appreciated.