The future of Airbnb
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Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes
9yIn my market, we have a temporary ban on STR's, but my property is R4 zoning, so as restrictions get tighter, my profits increase because competitors drop out one by one. I've got one unit crushing it, and am remodeling 2 more units to get online ASAP. It's not like a traditional landlord type situation. You are in the hospitality industry at this point, and if you don't treat it as such, your reviews will take a hit, and your rankings will drop, and you won't make enough money.
My wife and I had years of hospitality experience before this, and we are loving it. It's amazing. Our guests love us. We are always booked, and getting repeat customers after 6 months (business people are our bread and butter, and being business owners, we know exactly what they need). They all hate hotels and motels because they are depressing. They always tell us how grateful they are that our place is like a home, filled with things to look at, read, watch, do, and play with. I've had people offer to pay me $3k per month to rent my unit, but I make more than that in the high season, and almost as much in the low. They just can't understand we would lose money if we rented it out to them long term.
With that said, there are a ton of pitfalls. Insurance, zoning are the two big ones. You will need to do your own research there, or just read my previous posts on it. As for taxes, I carry over lodging, bed, and the soon-to-be sales tax in my town, to my customers. Plus cleaning fees, and pet fees. A family traveling in my area isn't going to even blink at $100 cleaning fee. It is a crazy bargain for them to have their pet, 4 kids, and grandpa with them, rather than renting 3 motel/hotel rooms out. And I've got a nice landscaped yard with a firepit, and dog run for them... They love it. I have nothing but 5 star reviews across like 5 sites. Very satisfying business for us.
29 Replies
- Real Estate Agent · Smyrna, GA · Member since 2014 · 185 posts · 101 votes9y
@Ricky Mai I think when I first started researching Airbnb in the Atlanta market I saw it as a great opportunity as well. I wanted to find the cons of having an Airbnb property and saw an interesting video on YouTube that put a lot of things in perspective. Some markets require hosts to charge a hospitality tax just as hotels do which cuts into profit margins. Some areas but a cap on the percentage of registered Airbnb properties which some choose to list their homes illegally. The other impact is landlords realizing they can earn more with short term vacation rentals than long term traditional rentals in driving traditional rents up. Local municipalities are taking steps to ensure rents still remain affordable.
- Rental Property Investor · Boston, MA · Member since 2015 · 9 posts · 3 votes9y
I bought a unique property in LA a little over a year ago with the intent to Airbnb it, only to find out that it is 100% illegal to do short term rentals. There are new laws under consideration, but it looks like it will remain 100% illegal in areas subject to rent control, i.e. most of LA. I personally think that short term rentals will continue to be tightly regulated in areas with housing shortages, unless you are truly sharing your home (renting out a portion of an owner occupied single family residence for example).
Some other investors I've talked to are moving their Airbnbs to something like hostels, where they rent out rooms (or bunks in a room!) at a pretty low cost on a monthly basis. In LA they are finding that there are a lot of artists, musicians, and film professionals here on short term assignment looking for affordable housing month to month.
- Property Manager · Mammoth Lakes, CA · Member since 2014 · 262 posts · 229 votes9y
@Ricky Mai try looking in markets that are based mostly in tourism. I'm not really worried about our airbnb in Mammoth (knock on wood) because any kind of regulation against short term rentals here would kill our entire economy. There aren't enough hotel beds in the town to house half the number of tourists we have here at any given time, so the majority of housing is condos rented out to skiers and other tourists. I'm sure there are other markets that are in a similar situation.
- Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes9y
In my market, we have a temporary ban on STR's, but my property is R4 zoning, so as restrictions get tighter, my profits increase because competitors drop out one by one. I've got one unit crushing it, and am remodeling 2 more units to get online ASAP. It's not like a traditional landlord type situation. You are in the hospitality industry at this point, and if you don't treat it as such, your reviews will take a hit, and your rankings will drop, and you won't make enough money.
My wife and I had years of hospitality experience before this, and we are loving it. It's amazing. Our guests love us. We are always booked, and getting repeat customers after 6 months (business people are our bread and butter, and being business owners, we know exactly what they need). They all hate hotels and motels because they are depressing. They always tell us how grateful they are that our place is like a home, filled with things to look at, read, watch, do, and play with. I've had people offer to pay me $3k per month to rent my unit, but I make more than that in the high season, and almost as much in the low. They just can't understand we would lose money if we rented it out to them long term.
With that said, there are a ton of pitfalls. Insurance, zoning are the two big ones. You will need to do your own research there, or just read my previous posts on it. As for taxes, I carry over lodging, bed, and the soon-to-be sales tax in my town, to my customers. Plus cleaning fees, and pet fees. A family traveling in my area isn't going to even blink at $100 cleaning fee. It is a crazy bargain for them to have their pet, 4 kids, and grandpa with them, rather than renting 3 motel/hotel rooms out. And I've got a nice landscaped yard with a firepit, and dog run for them... They love it. I have nothing but 5 star reviews across like 5 sites. Very satisfying business for us.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Key with BNB is if you want a business or investment?
If you do not want a business it might not be for you. I have friends in the cabin rental business and it's the same thing.
Either you run it yourself and make great margins or to go mainly passive you have to hire someone to do all these things with the properties constantly being rented out and most of the cash flow goes bye,bye with increased operational costs.
I view these the same as buying any business where you look at the books and it has an owner operator component to it.
Example a Subway sandwich place making 100k profit a year gross. Then you look and owner works there 50 hours a week and takes about 50k a year. If you don't want to work in that business you have to hire a manager so really only makes 50k a year gross profit. The yield you get compared to what you pay then doesn't make sense.
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes9y
Originally posted by @Joel Owens:
Key with BNB is if you want a business or investment?
If you do not want a business it might not be for you. I have friends in the cabin rental business and it's the same thing.
Either you run it yourself and make great margins or to go mainly passive you have to hire someone to do all these things with the properties constantly being rented out and most of the cash flow goes bye,bye with increased operational costs.
I view these the same as buying any business where you look at the books and it has an owner operator component to it.
Example a Subway sandwich place making 100k profit a year gross. Then you look and owner works there 50 hours a week and takes about 50k a year. If you don't want to work in that business you have to hire a manager so really only makes 50k a year gross profit. The yield you get compared to what you pay then doesn't make sense.
Yes, except your argument doesn't hold water in light of the fact that I don't know a single investor who succeeds for whom investing is not a job. Perhaps not the way IRS sees, but the way reality sees it...:)
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Ben I guess it's your definition of a job.... : )
I have friends that simply invest in sponsor deals and look at a spreadsheet once each month.
There are tasks they have to do relative to watching over their investments but they are very minimal in nature and easily scale able.
Some of these other business models are very intensive to run for yield and unless scaled up to very large sizes do not make sense to own unless the investor wants to be an owner operator which can be self limiting.
There are businesses right now I could buy that throw off hundreds of thousands of profit a year but I do not like their structure or how it would change the kind of life I live right now so I do not buy them.
- West Hills, CA · Member since 2017 · 5 posts · 3 votes9y
Originally posted by @Account Closed:
Hi Michael,
1. If your area has a temp ban, why are you doing more units?
2. Can you elaborate on the pitfalls, insurance and zoning? This is my primary concern.
3. People say the tax and cleaning fees eat into your margins but looks like everyone charges the renters so I dont see a problem there. Correct?
4. I am not worried about the reviews. This is a reason why I like STR. I am in the ecommerce space and I can make a listing look great and can over deliver on customer satisfaction. I use STR alot for vacations so I know what people want since I am also a customer.
Thanks for the help!
- West Hills, CA · Member since 2017 · 5 posts · 3 votes9y
Originally posted by @Shelby Pracht:
@Ricky Mai try looking in markets that are based mostly in tourism. I'm not really worried about our airbnb in Mammoth (knock on wood) because any kind of regulation against short term rentals here would kill our entire economy. There aren't enough hotel beds in the town to house half the number of tourists we have here at any given time, so the majority of housing is condos rented out to skiers and other tourists. I'm sure there are other markets that are in a similar situation.
Shelby, I have been looking into mammoth for the same reasons.
1. What is the occupancy rate throughout the year? Mammoth is great year round so if priced right, Im guessing pretty high?
2. I live in LA so I would probably need property management. Will that kill my margins? Im ok with having this as an investment property rather than a business.
3. This will be my first investment property. Is a mammoth STR a good idea for a newbie?
4. What STR typical do well in Mammoth in your experience? Near village/lift/shuttle or larger vs smaller units, etc.
Thanks!
- West Hills, CA · Member since 2017 · 5 posts · 3 votes9y
1. I have a full time career so this would be an investment. I would get property management so it would be hands off. I see Guestly charging a flat rate of 3% and pillow 15%. Hear anything about them?
2. I would be happy with 500 to 1000 avg profit a month. From what I see, if you can optimize your listing on these STR channels, you can rent out consistently and can make much more than a traditional LTR.
Any advice is much appreciated.
Thanks!
- Property Manager · Mammoth Lakes, CA · Member since 2014 · 262 posts · 229 votes9y
Hey @Ricky Mai, yeah, I really love the airbnb business here!!
To answer some of your questions:
1. You're absolutely right, it definitely depends on how you're priced, but when you're priced well occupancy is definitely really high almost year round. All winter we have skiers and all summer we have tourists going to Yosemite. We hit more than 90% occupancy in both January and July this year. I think we had 5 days vacant in September, which was our slowest month.
2. Property management could potentially eat a large chunk of your cash flow, but it doesn't have to. For a full service property management company where you do nothing but get a check, the cheapest one here in town charges 35% and some go as high as 50%. Even at 35% you can still be having other people pay your mortgage and expenses and cash flowing a bit. You could also go the route of using a platform like Airbnb or VRBO and "managing" yourself, and hiring a good cleaner that you trust/ someone to be you "boots on the ground" when you need them.
3. Definitely! The condo that I rent was my first investment too :) I CASH FLOWED 3k last month on our little one bedroom condo. It still blows my mind every time I look at my books, haha.
4. I can't give you a ton of advise here because my personal experience is still limited- I have a tiny 1 bedroom condo that sleeps 4. It's in town but on one of the shuttle routes. I know there are a lot of people that advocate for the bigger the unit the better, but since I manage it myself that hasn't been my experience. It would be an awful lot more work to manage/clean/do laundry for 10-12 people than for 4. Then that opens you up to groups coming up to party and trash the place or having noise complaints, etc. Not that that couldn't happen with a small unit too, but I love that our normal guests are a couple or maybe a small family so turnovers generally go really smoothly. Something that is ski-in ski-out or in the Village is always going to rent for more, but is also going to cost you a lot more upfront. I'm not sure where the line is for if it's worth it or not.
Hope that helps a tiny bit!
@Account Closed so great to hear other people making money and loving STRs! And you're right, insurance is definitely a bit more expensive running a nightly rental than it would be for a long term rental.
- Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes9y
Originally posted by @Ricky Mai:
Originally posted by @Account Closed:
Hi Michael,
1. If your area has a temp ban, why are you doing more units?
2. Can you elaborate on the pitfalls, insurance and zoning? This is my primary concern.
3. People say the tax and cleaning fees eat into your margins but looks like everyone charges the renters so I dont see a problem there. Correct?
4. I am not worried about the reviews. This is a reason why I like STR. I am in the ecommerce space and I can make a listing look great and can over deliver on customer satisfaction. I use STR alot for vacations so I know what people want since I am also a customer.
Thanks for the help!
1. I covered this. I am in R4 zoning, which does not rule out STR's in almost all cases of municipal code I have looked into. In fact, my municipal R4 zoning specifically lists vacation rentals and guesthouses, and BnB's as acceptable uses. R3 usually works as well. Each municipality is different. I am running a business, in a multi-family property. It is very different from let's say an R2 with an ADU or something. They cannot ban STR's in R4, as it would supersede municipal code which is > county > state. That is also why you see real estate taxes are much higher on municipal level than a county level (and none for state).
2. I could write a book about this. Your mortgage states that you need to carry their insurance in escrow until you have 25% LTV ratio, AND own the property for 1 year or more + a few other very minor things (this is the case for almost all mortgages I have looked into). That same insurance policy will specifically outlaw vacation rental, STR type activity. It's like 100 pages long and you should read the policy cover to cover if you want to do this. Basically, if someone destroys your property, you are S.O.L. AirBnB also is known to not be the best about insurance, but I have dealt with them about covering some damages and they were great. You need to know how to deal with them on the phone. They will only cover "accidental" damages... There's a clue for ya. So here's where it gets scary. Let's say you have an irate neighbor, or some city council which is trying to ban STR's (like my municipality). They can call your servicer up, which can initiate a chain of events which will get your mortgage "called", which is finance jargon, for "pay me my money now because you broke our contract". If you want to put yourself in that position, that is your prerogative. So look at it like this. I am in R4 zoning which specifically allows for STR's, but if some smart guy who doesn't like me downtown wants me shut down, they could do this to me, and it would eventually work. Have you ever looked into the cost of a refinance? Plus, the city can do some other very underhanded things which I won't get into. Proper vacation rental insurance coverage can mitigate this, and keep you in business.
3. I always have charged the following to customers, and they don't even question it most of the time: cleaning fees, all applicable taxes (in a state which is known for not having a sales tax mind you), pet fees, insurance policy and/or damage deposit (VRBO offers combinations of the two), and miscellaneous charges like firewood and bike rentals.
4. You are missing the whole point here by saying you don't care about reviews... ANYONE can make a listing look good. Have you been on AirBnB? In my area, all the listings look stellar, but it doesn't matter because they are listed on a ranking system just like Google search results. You need to have as many great reviews as possible, because there are only like 5 spots on the top page, and if you're not on there for that specific search date, in the customer's price range, they will never even find you. That's not even it. You've got to accept things like autobook, self check-in, and more... It is not as simple as just making a listing look good. I've had like 100 guests stay, and about 1 out of 2 of them feel compelled to give me a 5 star review. Compare that to any industry out there... You're competing with people like me, and my wife. We have about 12 years combined total in the hospitality industry, 30 years of property management history between the two of us, 10 years real estate investment experience together as a couple, and have previously run other businesses. Do you think we don't know a thing or two about customer service and making a listing look good? So good luck! Like I said, a monkey punching keys on a keyboard and running around with a camera can make a listing look good, and that is why every single STR site has a ranking system based on far more than just pictures and text. You should really focus on getting the best reviews possible, and that is the best advice anyone will ever give you in terms of STR's.
- Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes9y
Originally posted by @Shelby Pracht:
Hey @Ricky Mai, yeah, I really love the airbnb business here!!
To answer some of your questions:
1. You're absolutely right, it definitely depends on how you're priced, but when you're priced well occupancy is definitely really high almost year round. All winter we have skiers and all summer we have tourists going to Yosemite. We hit more than 90% occupancy in both January and July this year. I think we had 5 days vacant in September, which was our slowest month.
2. Property management could potentially eat a large chunk of your cash flow, but it doesn't have to. For a full service property management company where you do nothing but get a check, the cheapest one here in town charges 35% and some go as high as 50%. Even at 35% you can still be having other people pay your mortgage and expenses and cash flowing a bit. You could also go the route of using a platform like Airbnb or VRBO and "managing" yourself, and hiring a good cleaner that you trust/ someone to be you "boots on the ground" when you need them.
3. Definitely! The condo that I rent was my first investment too :) I CASH FLOWED 3k last month on our little one bedroom condo. It still blows my mind every time I look at my books, haha.
4. I can't give you a ton of advise here because my personal experience is still limited- I have a tiny 1 bedroom condo that sleeps 4. It's in town but on one of the shuttle routes. I know there are a lot of people that advocate for the bigger the unit the better, but since I manage it myself that hasn't been my experience. It would be an awful lot more work to manage/clean/do laundry for 10-12 people than for 4. Then that opens you up to groups coming up to party and trash the place or having noise complaints, etc. Not that that couldn't happen with a small unit too, but I love that our normal guests are a couple or maybe a small family so turnovers generally go really smoothly. Something that is ski-in ski-out or in the Village is always going to rent for more, but is also going to cost you a lot more upfront. I'm not sure where the line is for if it's worth it or not.
Hope that helps a tiny bit!
@Account Closed so great to hear other people making money and loving STRs! And you're right, insurance is definitely a bit more expensive running a nightly rental than it would be for a long term rental.
Wow we've got some very similar numbers! People kept telling us the winters are dead here, but we have a running joke about how it's only dead because everyone is busy skiing! We have like 90% occupancy as well. It's a lot more work for us in the winter. We offer single night stays and autobook to keep those customers coming in. We have skiers, YNP tourists, travelers on I-90, business people in town, scientists attending seminars at our research university... I think many are just turned off because it is a little harder. In summer, people come for a week long stay, and are always gone exploring. That is the best! :) We really take care of those people and appreciate the breaks they give us. This winter, I was literally breathless for about a week with all the turnovers. Very hard to stay on top of my real estate business when it gets like that. But unlike STR's real estate is generally very quiet here during the winters, so it works itself out.
If you're ever up for a home trade let me know! I would love to climb Half Dome once again, and we would take excellent care of your STR if you do likewise. We are right near YNP.
- 9yJeremy BakerPro MemberReal Estate Investor · Aurora, CO · Member since 2014 · 240 posts · 109 votes
@Ricky Mai, @Account Closed hit the nail on the head regarding reviews! You should worry about them as they will definitely help your listing ranking and in many other ways too. I know many travelers that will book one property over another just because of the amount and quality of reviews.
The one thing I believe is the more quality reviews you have, the more demand you have for your property. For example, one of our condos in Kihei, Maui has its original 1980's kitchen, complete with pink laminate countertops! Our neighbors directly on both sides of us and above us all have newer, updated kitchens with stone counters, stainless appliances, etc... which does make their listings a little more attractive with pictures of these nice new shiny kitchens. However, even though we charge a higher nightly rate than they do, we have a higher occupancy rate than they do and I believe it's because we have much more reviews on our VRBO listing than they do. Because of this higher demand for our condo (due to all of our reviews), we are able to charge the higher rate than our neighbors...at least that's my opinion.
We get about 2 reviews for each 5 guests that stay with us and and we respond to each review on our listing. Don't overlook responding to each review as we've had a couple of guests mention that they booked with us because we responded to our reviews. Responding to your reviews in a positive is a way will to show your potential guests that you offer outstanding customer service!
- 9yJames CarlsonBusiness MemberReal Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
Hey @Ricky Mai. You've certainly touched on a hot topic. Here are my takes on some of the issues presented here:
Airbnb laws
Here in Denver (and neighboring Aurora), the city's new Airbnb law allows short-term rentals ONLY in your primary residence. Some people are calling me proposing creative workarounds, but in general this new rule pushes Airbnb investors out of the market. What it does leave, however, is room for those willing to be owner-occupied hosts. The law allows full-time hosting in an ADU. I think a lot of young Denverites open to house-hacking are looking for homes with basement or attic apartments or a home with a carriage house (or home zoned for a carriage house). Heck, even if you end up not wanting to manage a short-term rental, you basicall have bought yourself a duplex.Property management
@Joel Owens, I tend to agree with @Shelby Pracht. Short-term rental property management might eat up cash flow in certain areas, but I know of a number of hosts here in Denver who are paying 25-30% management and still raking it in. It's all about location in my mind. There is a real premium for Airbnb rentals in cool areas in Denver.Reviews
As @Account Closed, how is your short-term rental fare in Aurora? I've had a few people ask me about short-term rental prospects over there. Are you affected by their new law? - 9yJeremy BakerPro MemberReal Estate Investor · Aurora, CO · Member since 2014 · 240 posts · 109 votes
@James Carlson, I live in SE Aurora/ Centennial, but our VRs are in Kihei, Maui.
- 9yJames CarlsonBusiness MemberReal Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
@Jeremy Baker, right. I didn't read closely enough. Not a bad place to have a VR, I imagine.
- 9yJeremy BakerPro MemberReal Estate Investor · Aurora, CO · Member since 2014 · 240 posts · 109 votes
hahaha, no problem @James Carlson. It is a great place for VRs. Every time we run the numbers to invest in short term rentals in the Denver metro and the mountain ski areas, it never beats the return we get in Maui!
- Residential Real Estate Broker · Frisco, CO · Member since 2016 · 15 posts · 16 votes9y
I'm a real estate broker in the Summit County/Breckenridge/Frisco/Keystone/Dillon/Copper Mountain market. With an 80% mortgage, I don't see people cash flowing with AirBNB. Generally, HOA dues, taxes, insurance and maybe a bit of the mortgage gets paid with STR. However, it is a great way for people to get to use their ski condo and offset some expenses. We are also seeing more and more AirBNB and VRBO rentals so competition is increasing and I think it's driving down nightly rates. Our towns/municipalities probably won't restrict any STR since it is the core of our economy (like Mammoth). However, they are enforcing lodging taxes. Amy
- Garrettsville, OH · Member since 2017 · 26 posts · 14 votes9y
I'm from Ohio and it was interesting to me that all of the Airbnb providers teams up and went to the city council and brought to the table how much business it was bringing the city and they're fine to do it
- Investor · Franklin, TN · Member since 2017 · 112 posts · 77 votes9y
@Ricky Mai - back to your original question. I agree that a "traditional" vacation destinations probably lessen the risk to regulations which will stop STR activities. I say "Traditional" because Nashville has grown to a huge tourist destination but more neighborhoods and residential than found in traditional beach or ski zones.
Depending on the vacation spot, they may have already gone through the process of defining how they want VRBO, AirBNB, etc hosts to act - collect and remit tourist taxes, pay for a permit and more. If an area you evaluate does not currently require this, you might run your numbers assuming that will happen in the future and make sure it is still a good deal. Some other factors to think about besides the government legalities would be HOA requirements and how are neighbors currently reacting to STR in their neighborhoods.
- Charlotte, NC · Member since 2017 · 17 posts · 11 votes9y
where would someone go to find out the AirBnB/STR laws or restrictions in their area?
i'm not sure what the zoning is for my neighborhood but am planning to build an apartment over my garage and AirBnB it until the law changes. then i'll just long-term lease it
- Vancouver , Bc · Member since 2017 · 73 posts · 13 votes9yI live in Vancouver Canada and have short-term rentals in Arizona. As of January 1st 2017 the state has somewhat legalized short-term rentals. The only restrictions will be from HOA but there are many houses that have no HOA in Scottsdale where I invest. I am also now looking in other areas, and it seems Mammoth is one of those profitable locations that I will look into. I self manage and have a great cleaning crew and trades people to help me out on demand.
- Specialist · Del Mar, CA · Member since 2018 · 13 posts · 1 vote8y
Pretty familiar with everything going on...Airbnb is absolutely still a viable market. It's experiencing some setback from the regulations you mention but they are still growing. Airbnb’s revenue is expected to top $8.5 billion by 2020. Most of the regulations on the west coast are putting an end to full-time vacation rentals and limiting the number of days each year that owners can rent our their property. For example in Los Angeles, laws are being passed right now that will shut down full time vacation rentals and limit the amount of nights hosts can rent to short-term guests to 120 days/year. Airbnb has advanced their product to work alongside regulations. In 2017 they partnered with Pillow to get more heavily involved in apartment buildings (over 50% of listings are in apartment buildings). The partnership allows residents to use short-term rentals as an amenity, primarily renting their unit when they're gone for work, on vacation or want to head to another place to live for a short time. It's a very attractive amenity and is responsible for closing a lot more long-term leases in these apartment buildings. How does this new amenity for residents work alongside city regulations? Pillow/Airbnb let apartment building owners set restrictions on the number of days their tenants can rent out their units to make sure they stay compliant. These units are hosts primary homes, not full time vacation rentals so city does't restrict these types of rentals on Airbnb. Top multifamily buildings are getting onboard, they see Airbnb is already happening so instead they're letting them residents use Airbnb but under their rules.
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