AirBNB Rental Business

31 Replies

Hi everyone! I wanted to get people's opinions on a business concept that I have. I was interested in buying a property in an area such as Miami or Las Vegas (due to the low cost of homes & its desirability as a tourist destination), renovating it and renting it on Airbnb. If things go well I'd even like to turn it into a business where I do this for other people, while getting a cut of their return.

-Liam

If you were in the area, I think it might be a possible business model.  I think potential investors would like to see some success on your own before putting their money at risk.

Whether your own property or managing for others, you want to also make sure that a traditional rental is a viable exit strategy.  I think the areas where airBnB is the most profitable are also the areas where it will end up the most regulated.  Regulation isn't necessarily bad, but it may make it hard to operate without a significant scale.

There was a news story on this morning that in San Francisco they are proposing a bill to limit airbnb nights to 110 per year. I'm sure it will pass because the hotels and city government are behind the bill. As cities loose tax money I think all cities will put some rules and limits on it.

Liam that service exists in most popular Airbnb cities. It's called an AirBnB Conceirge. Mine charges me 15%, most charge more.

Robert, Portland already limits the amount of occupancy per year that the home owner can AirBnB their home. San Francisco may too. Also both cities already collect occupancy tax from AirBnB directly which has disincentivised them from enforcing the occupancy limit. This may change but traditionally the local municipality's arnt in in the habit of volunteerily relinquishing free windfall money.

AirBNB, Uber, Lyft, etc. are all part of the "sharing" economy that seem to be trying to do end runs around laws and regulations that have taken years to establish.  Those laws and regulations have been established for reasons.  Mainly safety and liability.   Those concerns, including property damage, seem to be an enormous drawback to the benefits. (Even if these companies provide million dollar policies.)  I hate to say this, but we all know these companies will be brought to their knees if they are hit with enough liability claims due to death or accident.

David the main reason for regulations and taxing of these traditional business is revenue collection from ensconced oligarchy type businesses where inelastic demand has traditionally meant free tax money for cities. Don't get fooled by the PR angle of "public safety", requirements are minimal other than providing established business with regulatory capture.

Given the real incentive you see why cities will play ball with AirBnB but not Uber. The former is a free windfall revenue stream while the later provides the city no extra tax revenue. This is the difference between what municipalities will discern as tolerable businesses and those with "publc safety issues"

In Clark County (which includes Las Vegas), short term rentals (less than 30 days) are not allowed. You could still go on sites like airbnb and find short term rentals in Vegas, but so could regulators if they decided to. I certainly wouldn't ever want to rely on something that isn't allowed. It's the reason why you don't see a ton more vacation rentals on those sites.

There are limited exceptions in Vegas, such as condo-hotels, but your plan @Liam Weld would not fall into those.

If you wanted to try it, I would look into the idea of doing it with a property that is technically in unincorporated Clark County, as that might possibly work. You can find those around town, and some are still not far from the Strip.

Medium we buys houses las vegas logoJason R., AlexBuysVegasHouses.com | [email protected] | 702‑793‑2582 | http://www.alexbuysvegashouses.com | NV Agent # 67982

Originally posted by @Steve B. :

David the main reason for regulations and taxing of these traditional business is revenue collection from ensconced oligarchy type businesses where inelastic demand has traditionally meant free tax money for cities. Don't get fooled by the PR angle of "public safety", requirements are minimal other than providing established business with regulatory capture.

Given the real incentive you see why cities will play ball with AirBnB but not Uber. The former is a free windfall revenue stream while the later provides the city no extra tax revenue. This is the difference between what municipalities will discern as tolerable businesses and those with "publc safety issues"

I agree with Steve.  This is why we are hearing news reports of legislation to tax AirBnB rentals on a national level. 

I was thinking on doing the same thing.  Biggest question as an investor is what occupancy rate per year can you expect.  Of course it will be a matter of price and location.

Has anyone seen a feature on AirBnB or other sites to estimate occupancy rates?  After all, dont want to spend $$ buying and rehabbing a place only to have no one rent.

@Jason R.   Portland and San Francisco have the same type of occupancy limits as you list here.  The question is will the city enforce this thus cutting their default windfall tax.  I doubt it, but I could be wrong.  If they wanted to enforce it they could do that effectively in 2-3 days with minimal effort.  What I do think will happen is the city will tax and regulate it further until the margins drop to being comparable to normal rents.  It would be prudent to have an additional exit strategy if and when the city becomes sincere in their regulation efforts, or, more likely extorts enough money from AirBnB'ers that it is no longer unusually profitable.

@Rodney D.   You are correct it's all about price, location, and seasonal demand.  My suggestion is to run your own statistics on what's currently in your target area.  Another resource is buying an AirBnB report for $30 from this guy, I don't know how good it is but it's likely worth $30.

http://rentingyourplace.com/

There has been a lot of discussion going back and forth about short term rentals in Las Vegas. The City of Las Vegas recently changed regulations for rentals less than 30 days in length. You can find their requirements under the Department of Planning, Business Licensing Division. The city and county are less of an issue than the HOAs. Most HOAs have some rules regarding rentals, and are in a stronger position to stay on top of the rules. Most houses in the Vegas metro have an HOA, so this will be an issue most of the time.

Phillip Dwyer, Windermere Anthem Hills | 702‑212‑1912 | http://www.vegasdigs.com | NV Agent # BS.0142939 | Podcast Guest on Show #62

I think that Airbnb is a good alternative to to a hotel, especially outside of popular tourist destinations where there are fewer options now.  A lot of the discussion for Airbnb seems to be focused on what its doing with cities that already have a high volume of rent by the night accommodations.  Look outside of those areas, though, and I think there is a lot more potential for Airbnb to fill a need.  

For example, I have an Airbnb listing in Lawrence, KS that it averaging just over a 50% occupancy rate.  Right now, we have a family with 3 young children staying it in for a few days.  They are planning a move and needed somewhere to stay while house hunting and visiting schools.  We're renting them a bedroom, bathroom, living room, and office (with air mattress set up for the kids).  They also have access to a back yard and kitchen.  They would have had trouble in our city finding accommodations for their family that were nearly as comfortable, since we don't have timeshares or many suite-style lodgings in this area.  

While I respect everyone's opinion who has posted on this topic,  I will have to respectfully disagree with the "old-timer" way of thinking. It's a Luddite mentality to just hope things will remain status quo and not adjust to the changing technology. AirBnb and Uber for that matter are valued at several billion dollars and backed by venture capital companies with very strong lobbying power. These businesses are here to stay and the cities that fail to adjust will be negatively effected.

Liam, feel free to message me as I run the exact type of business in Las Vegas you are interested in. I'm at 90% occupancy on airbnb year round and have over 45 5 star reviews. I started 10 months ago and made over $60,000 revenue on two 2bd/2ba I purchased for a total of $180,000. High supply with low demand within the city result in low prices. At the same time, the high cost of hotels combined with high rate of tourism leads to great demand for vacation rentals. 

I look forward to speaking with you Liam and while the rules/regulations currently make airbnb difficult in certain cities, this is the perfect time to get involved as these cities will tailor their laws over the next 3-5 years. 

Sukhbir

@Liam Weld

I am a little surprised this wasn't mentioned on the thread, but I would definitely checkout out this podcast from Scott Sutherland on BP: http://www.biggerpockets.com/renewsblog/2015/03/19/bp-podcast-114-how-to-invest-in-vacation-rentals-with-scott-sutherland/

I think it's a smart strategy that requires more involvement than a traditional SFH or MFH rental. There is reward in place for that strategy, and typically comes in the form of higher monthly income.

I don't really want to get into the already heated regulation debate except to say that you should be cautious about it. NYC and SF are great places to do vacation rentals (in part because the normal rent / value ratios won't cut it). These are also the kind of cities where people like Liz Krueger and her band(s) of angry locals have an immense amount of power. Factor the regulatory environment into your strategy and exit plan, but don't let it stop you.

Also, not entirely sure where you're finding low-cost properties in Miami, but I would be wary of the areas. It's a pretty expensive market these days.

@Sukhbir Grewal

Although I believe you are correct in most markets, I would be wary with using that mentality in Vegas. The hospitality industry is the driving force of the economy in town, and it would be incredibly difficult to outmatch its political influence. 

Uber was able to work its way into the Nevada legislature for a few main reasons. Lots of money to spend lobbying, yes, but also a clearly superior service to the existing outdated alternative, cabs. This led to huge support from locals because they mostly hate cab companies, the taxicab monopoly, and would love a better option to be available. Uber also had the voiced support of plenty of tourists who are very aware of the superiority of companies like Uber. In other words, Uber convinced politicians that it would be unwise to go against the will of the majority of their constituents, as well as damage the reputation of the city to tourists in the long run. 

You think the powerful taxicab authority took this lightly? Of course not. They lobbied strongly as well. But, their efforts do not compare to the clout of the major hotels and casinos. Add this to the realization that Airbnb will not be able to rally tourists and locals like Uber could (since it's not something that the majority of people care about), and you can see that Airbnb would have an extremely difficult time winning this fight in Nevada. It only fills a niche, and that is not enough to win a duel against the casinos. The current system is working well for most people, it's not outdated, and there is no public outrage about companies like Airbnb not being allowed to widely operate. In other words, if Vegas fails to adjust, it will not be negatively affected, so there's really no motivation to allow companies like Airbnb on a large scale. Politicians see the pros and cons of each side, and it is crystal clear that it is far better for them to be on the opposite side of widely allowing companies like airbnb.

With all that said, I do still think you can be successful with the model you are using. You can continue to grow it, but IMHO I doubt you'll be able to end up doing it on a large scale in Vegas. Might as well capitalize on it as much as possible while the conditions are ripe (low cost, low interest rates, high rental demand). I even believe we could work together to generate more business for this purpose.

Medium we buys houses las vegas logoJason R., AlexBuysVegasHouses.com | [email protected] | 702‑793‑2582 | http://www.alexbuysvegashouses.com | NV Agent # 67982

Jason, you make several great points and I believe you are definitely right about the difficulty of scaling an airbnb business in Las Vegas to anything more than 8-10 units. I will disagree in regards to the current structure not being broken and airbnb being a niche market. If you look at the average square footage and cost of a traditional hotel rroom compared to a standard airbnb unit, it's clear there is a need and large demand for airbnb. I'd argue that the casino and hotel industry is more of a true niche market than airbnb. Families with children, senior citizens/snowbirds,  international travelers, etc often prefer a spacious smoke free environment that is affordable. With the rise of a focus on healthy/organic food, many travelers want a full kitchen to cook while on vacation. Plus anyone staying in Las Vegas for more than a week would prefer to have their own space. 

Much like any business or new industry, the costs will go down as supply of hosts increases thus making it even more affordable and appealing than it already is. The city will be negatively affected if they do not diversify their product offering which is reflected in the reduction in gambling revenues and the increased emphasis by major casinos on entertainment (nightclubs and bars) as well as restaurants/shopping.

Sukhbir

With the price of acquisitions of properties being high in major markets such as Miami / Miami Beach (where I do my investing) I do a lot of my investing using all the major short-term vacation rental websites (Homeaway, AirBnb, VRBO, etc). Here in Miami Beach some areas are zoned for short-term and have no rental restrictions and some condo buildings offer hotel programs where you can voluntarily place your condo in it (or run it yourself and do all the property management work).

I personally have had great success in utilizing the short-term / vacation rental property approach and have carved out a little profitable niche for myself here in Miami Beach.  

@Sukhbir Grewal

I agree with what you're saying as it applies to other markets, but I don't think the same with Vegas. People are willing to pay the extra $ to be on the Strip. Airbnb units in town typically cost less largely because they aren't on the Strip. If visitors are price consicous enough that they're willing to stay off the Strip, there are plenty of cheap off-Strip hotel rooms available. Those are more realistic comparable prices to the airbnb offerings.

If airbnb type services were mass approved, you could bet they would have additional taxes & fees placed on them, which would be passed on to renters and end up putting the prices on par with comparable hotels. This is the only way I see that politicians would get on board, but it's still a longshot.

Of course, some people who want to stay in town for longer than a week will prefer their own space, as well as families bringing children, etc. They would prefer to stay in off-Strip airbnb rentals. However, these are certainly minorities of visitors and that's why I was saying it's more of a niche.

There's somewhere around $150k hotel rooms in Vegas and occupancy is in the high 80's. That to me is not a niche. The high demand for airbnb offerings currently exists here because there are such limited offerings for it. This causes those rentals to be far less difficult to make them successful. If they were allowed on a large scale, prices would drop like you mentioned, taxes/fees would increase, and profit margins would be a lot lower. In other words, the current environment for you and others in your position is the ideal environment. I wouldn't be hoping for future widescale adoption if I were in your shoes.

Yes, the city would be negatively affected if they weren't diversifying their attractions, but they've been doing that for years, and it does not cause a need to add more inventory that the casinos are not part of. Large hotels/casinos use all kinds of offerings to get people to stay there, such as the ones you mentioned, unlike airbnb rentals. There are various hotels that attract some of the niches that you mentioned, such as non-smoking hotels, rooms with kitchens, and easy access to healthy/organic meals. In other words, there are existing options for people seeking out non-traditional hotel rooms, but they are just a small portion of the millions of monthly visitors. The city has been diversifying appropriately, and this is why they won't be negatively affected, even if they don't allow airbnb rentals.

Another point I forgot to mention is that a huge amount of properties in the Vegas valley are within HOA communities. As you know, HOAs DO NOT want these short-term rentals allowed in their neighborhoods. This would be another factor very difficult to deal with. The elderly people in particular would put up huge fusses to their political leaders to keep airbnb offerings out. Even if those offerings were allowed, the overwhelming majority of HOAs would keep their rules to disallow short term rentals. This would mean that most airbnb rentals would be in neighborhoods that don't have HOAs, which would then cause many of those homeowners to be against airbnb adoption so they don't have to deal with the hassles, loud noise and parties that often occur.

I do think there are methods to avoid the neighbors getting upset, but they are exceptions. With all of the positive reviews you've received, I think you are in that category of being an exception. If it was open season for airbnb type rentals, I'm willing to bet the majority of people wouldn't achieve the same.

Hope you don't think I'm trying to just argue against you. I'm all for sites like airbnb, and I've utilized them plenty of times in other cities. I just don't think that Vegas will be negatively affected by largely keeping them out because the environment is so different than other cities. And I do agree that there are plenty of people out there who have no interest in staying in a Strip hotel, but would stay in a residential offering; I just think they are a small %.

Medium we buys houses las vegas logoJason R., AlexBuysVegasHouses.com | [email protected] | 702‑793‑2582 | http://www.alexbuysvegashouses.com | NV Agent # 67982

All valid points Jason, and it is one of the reasons I enjoy the forum. We have two uniquely different perspectives but at the same time we are both adopting a collaborative mentality in order to share these unique perspectives. I appreciate you sharing your viewpoint and I will definitely be using a lot of the advice you have mentioned in the future moving forward. I'd love to discuss this with you in the future in person or outside of the Bigger Pockets forum.

Sukhbir

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Denver City Council is looking at the issue of short term rentals in the city because the zoning department has reported a total of 9 complaints about them.


Since 1956, it has been illegal to rent homes and apartments for less than 30 days.

With the popularity of websites like Airbnb, there are 1000 landlords in Denver currently flouting this law. Since it is such an obscure law, most landlords have been unaware of it. The nine with complaints have been threatened with fines up to $52,000/year

Council is considering changing the law under the condition that the rental is the landlords primary residence. I don't know where this strange condition came from, maybe some other city thought it was a good idea, and Denver is trying to copy their model.

When questioned about it, the chairman of the Sharing Economy Committee, said:

"Homeowners may operate one dwelling unit for rental periods of less than 30 days. This unit must be part of their primary residence. The reason for this is if a nonresident investor is allowed to offer multiple dwelling units for short term, then those units are out of the city's inventory of affordable long term rental housing. The result of that is higher rents across the city."

It sounds logical at first, but there is absolutely no data anywhere to support this assertion.

Councilman Chris Nevitt said, "I don't see embracing a new model of lodging that doesn't play by the same revenue rules as the old model of lodging," . "We are here to embrace new models of business, but we aren't here to pick winners and losers." Chris, do you understand what "disruptive business model" even means? Instead of supporting the aging status quo, consider what Long Beach did when the new Uber-style taxi companies began taking away business from the old-guard, regulated taxi companies. They loosened the old regulations! Smart.   http://www.latimes.com/local/lanow/la-me-ln-long-beach-taxis-20150512-story.html

Council should gather and then consider only the facts.

Here's what might really happen - If investor short term rentals are truly as profitable as everyone apparently fears that they are, then many more will be built in all the zones where additional units can be built. This increased supply could drive down prices for short term rentals to the point where these new units are returned to the long term rental pool! 

@Kevin Dickson I heard the mayor speak about a year ago at the Pine Financial summit and he mentioned the short term rentals as an issue. He was "concerned" about the safety of the public and mentioned hidden cameras. In reality, they can't figure out how to reliably tax them so they are going to continue to make them illegal. I'm sure if there was a reliable way to tax them the City would have no problem with them except for maybe the influence of the hotel and hotel workers union lobbies. 

Allowing owner occupied short term rentals is a joke. I would think those would offer the greatest opportunity for issues with public safety.

Medium rre 1to1 small sizeBill S., Reliant Real Estate, Inc. | 720 207‑8190

I've been looking at properties in Santa Fe with this model in mind and they have a very strict permitting and taxation system.  They have a limited number of short term rental permits, however if you live on the property and rent out an adjacent unit, or if your property is zoned commercial or mixed use, you don't need a permit. They also have the 30 day rule which people get around writing 30 day rental agreements that can be terminated early. Commerce always finds a way, and ultimately if they want to tax it, those fees will get tacked on to the price and people will carry on.

If the city is really concerned about there being affordable long term rentals, they're not showing it in other ways, perhaps we need rent control in Denver? (sarcasm).

Fortunately I've found that abiding by the current rules is quite profitable. I rent my place on Airbnb for a minimum of 60 day stays (this also puts me in compliance with my HOA). I have about four turnovers/yr which keeps my cost and effort down, and I charge 50% more than I would for a long term rental.

Medium team zen logo vMicki M., 33 Zen Lane | [email protected] | http://www.33zenlane.com | CO Agent # 100037721, NM Agent # 19441

Denver may be looking at what Boulder is doing for their legislation on these rentals. Boulder is working through a similar process right now and is considering the same rule where only occupant owners can do it, but with a limited amount of days. It's currently still in the planning stage, but will likely come to fruition in the next few months. 

Medium rhplogo jpgDan Mackin, Red Hawk Properties | [email protected] | 720‑971‑7139 | http://www.redhawkteam.com/ | CO Agent # FA.100056958

Interesting, what's Boulder's argument on the topic?  They're definitely not going to be able to use the same line about maintaining a pool of affordable long term rentals.

Medium team zen logo vMicki M., 33 Zen Lane | [email protected] | http://www.33zenlane.com | CO Agent # 100037721, NM Agent # 19441