AirBnB and creating potential opportunities

16 Replies

Hi everyone!
I am new to BP and somewhat new to REI. My wife and I frequent AirBnB when we travel and have considered the potential passive income through this service.

Near our home is a relatively popular recreational area. Through initial research, there are very few AirBnB options for anyone out of town looking for a non-hotel experience. 

My question: Does anyone have experience, or recommend either way, in purchasing land to build a potential AirBnB to rent out on a daily/weekend/weekly basis?  I have run the numbers on a beautiful piece of land and cost of building lodging. Initial signs suggest the numbers can work. My worry is, unlike having a regular tenant, the monthly income is more seasonal and less predictable. Is is worth it? Thoughts, experience, advice?

Thank you!!!

I'll start off by saying I'm not expert with the AirBnB investment strategy. I have rented a few I will say that #1 location is everything, #2 easy of access to shopping, breweries, restaurants, outdoor activities, events, etc. I'm not booking an AirBnB for the boring hotel feel. If you're building something from the ground up it better look good online with professional photos to get my attention. If the house doesn't feel unique why rent it? 

My fear is over spending on construction, design, decor, and not seeing the increase in rental rate/number of nights booked. I'd network with local investors to see what works. Without that knowledge you're playing a big game of roulette.

Jason, thanks so much for the reply. All great points! Definitely something I need to dig deeper into before making any moves. Good luck to you and all you're doing!

Disclaimer: I haven't done AirBnB as an investor, myself.

Check to see if the city, county, or state has any regulations, or proposed regulations, on vacation rentals.  If there's a homeowners association, check with them, too.  Over the past few years, some areas have created regulations, or are working on it.  Sometimes they are due to legit complaints from neighbors who don't like loud parties next door every night; sometimes it's the local hotel industry trying to drive up costs for vacation rentals.  (If you're being told you need full fire sprinklers in a 3 bed/1 bath/1400 sq ft house, then it's the latter...)

I have stayed in some vacation rentals in Ohio - cabins in the Hocking Hills area, southeast of Columbus.  The market there is apparently good enough to support new builds of relatively large cabins (sleeping 20-30 people) for vacation rentals.  I don't know what the costs are, but just from staying in them, I'd assume the construction cost is several hundred thousand dollars.  The rent goes up in the summer and down in the winter.  The cabins I've stayed in are mostly built like a large residence, but they've had a few "commercial building" touches, like EXIT signs, fire alarms, and a big commercial-kitchen vent hood.

Hi Eric,

I agree with Jaron and Matt's messages. 

I'm also not an "expert" but have owned/operated 6 different Airbnb properties (1 condo and 5 sfh's) in 5 cities / 2 states in the last 5 years.

As you sense, the opportunity can be quite profitable.

It's suspicious though that there aren't any short-term rentals ("STR") listed on the platform you checked out. Not sure which location you're scouting.

As you know, some cities have essentially or totally banned them (New York, South Lake Tahoe, Nashville, Palm Desert, etc.). Those are to be avoided.

Before investing in one it's a good idea to type into your search engine: "ABC city short term rental ordinance". This will give 2 key bits of info. 1. What if any laws affect STR's and if allowed, what the process is for a permit; and 2. News articles on the political climate or developments on STR regulations.

Must have this data before spending a penny. If it looks promising, I personally look for user-friendly (reasonable) STR rules reasonably priced, partially or totally furnished property (nice furniture appropriate to the locale & decor and lighting can be added) in an excellent location close to the action and amenities, walking distance if possible.

Also best to be in a popular destination location with growth and jobs to assist appreciation in addition to cash flow.

Haven't done a ground-up build on one of these, so hard for me to chime in. Personally, it sounds like a lot more risk involving contractors, possible mechanic's liens, city permitting issues, insurance, etc.

Not that I would discourage it. For the right location, could be worth.

I like to hit the ground running though and prefer an existing property, which is turn-key as possible.

Best wishes & good luck!

@David M Trapani

South Lake Tahoe has not “completely” banned them. They are highly regulated here like many other places.

@Eric Claus find a local expert in the area you're scouting and get the local details. Everywhere is different in the way they respond to and regulate short term rentals so you need to know the climate in that particular area. Things can also change rapidly with STR so make sure wherever you go you have a secondary/exit strategy in case you lose the ability to short term rent it.

Hi Dustin,

Sorry, didn't mean to suggest any particular city / town has totally banned them. Ran into this recently with an agent in Palm Desert as well.

My understanding is there's litigation in SLT over this issue. Also, in Nashville.

In my humble opinion, it takes nerves of steel and quite honestly not worth my effort to work in less than user-friendly STR jurisdictions.

There are many other great ones out there!

I agree with your comment about staying in tune with the STR political climate, wherever you go. Best to choose a place where 1. you can long-term rent the place for good cash flow; 2. You would be willing to live there yourself if need be or wanted; 3. High growth, jobs and destination location so you gain appreciation in addition to cash flow.

Always be ready to 1031 out before the STR hostiles take hold!

Cheers!

Originally posted by @Dustin Allen :

@David M Trapani

South Lake Tahoe has not “completely” banned them. They are highly regulated here like many other places.

@Eric Claus find a local expert in the area you're scouting and get the local details. Everywhere is different in the way they respond to and regulate short term rentals so you need to know the climate in that particular area. Things can also change rapidly with STR so make sure wherever you go you have a secondary/exit strategy in case you lose the ability to short term rent it.

I Agree! 

Short Term Rentals have been around forever, it's not this crazy new thing that's all the sudden getting banned left and right. It's no different than any other zoning ordinance such as residential vs commercial, yea do your due diligence, be a professional investor, every one makes it seem like doom and gloom and they haven't even done one deal yet. 

Palm Desert was indeed nearly entirely banned, after being considered a very rental friendly city for a long time.  My one property in PD will lose it's license in January.  it's a dangerous game, but for me the reward outsizes the risk.

I have done a lot of investing in STR and managing of Airbnb properties.

It works in a lot of places but not in others. A few key things I'd look for:

-Are there regulations that will make it so onerous to run one or outright ban them?

-If there aren't a lot of Airbnbs in the area, there may be a reason for that. 

-Research other Airbnb's in the area you'd like to build and see how they are performing. What is the nightly rate they're getting? How booked are their calendars?

-What is the draw to the area? Is there seasonality? For example, in WI our rentals make a killing during the summer but then die off during the winter. Even though there are things to do in the winter, it's clearly a summer town. 

Those are a few I could think of off the top of my head! Overall they can be a lot more lucrative but they also are a lot more work and you need to do your homework so you don't lose your shirt! 

Good insight Wendy!

Yes, it is sad some areas have banned Airbnb (or for all practical purposes, have nearly banned them). Palm Desert and South Lake Tahoe are one's I personally would avoid. Also, Cathedral City just put a moratorium on new STR permits.

Palm Springs has medium to strict regs, but they allow STR's. An initiative / referendum tried to ban them in PS last June, however, that was resoundingly defeated by the voters. It's a very hi demand location for guests. PSP had it's record year ever for most traffic 2018. Casinos spending millions to expand. Millions being spent to upgrade the tram. It's happening in PS.

Cheers & good luck! 

I would love to see the numbers on this property (construction cost, rental rate, ROI, etc.) It's a beautiful home and good location! It looks like a pricey investment but I'm not super wealthy and don't know anything about container construction.
https://www.columbusnavigator.com/box-hop-hocking-hills-airbnb/