What Would You Do? San Francisco Medium-Term AirBnB Rental

19 Replies

Hello BP Community - 

I would love to get your insight: I rented a 3BR/2BA home 5 blocks from my house with permission from the landlord to sub-lease to business travelers--very excited to start a rental business! I have spent the last 2 weeks painting, furnishing and feverishly buying bedding, towels and throw pillows. I just booked the rest of December for a net gain of about $1000 this month. I'm taking my inspiration from the OG Bay Area Rental Arbitrage Ninjas @Al Williamson and @J. Martin .

WHAT ARE YOUR THOUGHTS about:

- how to improve the AirBnB listing below?

- how to maximize cash flow?

- how to find different tenant sources?

- key tips to scale the business? 

I WELCOME ALL CONSTRUCTIVE FEEDBACK! (I realize the photos suck--the professional AirBnB photos will be ready any day now.)

@J. Martin

@Al Williamson

@Saj S.

@Johnson H.

@Keong Kam

@Ben Leybovich

@Amit M.

@Sean Walton

The AirBnB listing is at:

https://www.airbnb.com/rooms/21885572…

INCOME SUMMARY

I'm conservatively anticipating about $500/month in income before taxes during year 1 based on the numbers below, which come from my experience AirBnBing my own home in the same neighborhood. Once I've got my 3 AirBnB reviews and a good list of client organizations, I'm confident I can make $1000/month in year 2.

EXPENSES & ASSUMPTIONS
- Costs are about $4600 a month ($4000 in rent plus expenses of $500-$600 including utilities, wifi, renter's insurance, supplies, etc.).
- 20% vacancy for most of the year
- 15% discounted AirBnB rate for first 3 bookings

REVENUES & ASSUMPTIONS
I'm anticipating rent revenues of:
- $5500 for December (collected already)
- $4600 for January-February (break-even, including 15% discount)
- $5000 from March-May (including 15% discount)
- $6000 from June-September (assuming just 10% vacancy in summer)
- $5500 during Oct-November.

Once I book it out 5-6 months in advance, I can "introduce" my cautious wife to another rental home and start scaling the business...

Thank you folks for your wisdom!

(415) 794-0420

30 night minimum stay seems rather long.  With that long of a minimum stay I would think that there would be some overlap in the times people would want to rent it.  When there is overlap, the 2nd tenant will find somewhere else to stay.  In my opinion, your vacancy rate is going to be higher.

Like I said earlier, your vacancy rate is probably going to be higher then expected.  That's going to cut into your profit.

I have 22 STR's in my town, and I realize every towns real estate market is different. In this town a basic 2 bedroom unfurnished house with no bills paid goes for $350-$400 per month. A similar 3 bedroom goes for around $600 per month. My furnished bills paid 2 bedroom units go for $350-$400 per week. My 3 bedrooms go for $600 per week. In other words, my weekly furnished rate is the same as the monthly unfurnished rate

If forwards applying that formula to your rental, you should be charging $4000/week ($16,000 per month) for the house since you are paying $4000 per month to rent it.  I know that seems high, but maybe $4000 per month is too high for you to rent the house.

So backwards applying the same formula ($5100 / 4 = $1275) tells me that you should be paying rent of $1275 per month to your landlord and you collect $5100 per month from your tenants.

Your profit margin is too slim.

Hi @Ethan Cooke If you already have reviews for your other airbnb you may not need to discount 15% necessarily because of that but just because it is slow season. I think it is good to be conservative but I'm finding I'm at more like 10% vacancy however that is in the heart of SOMA which may be different. It sucks having to tell prospective booking you can't accept them at this time because a 1 week gap cuts into your revenue a lot but there usually will be someone that matched up better but you may need to lower your price as the vacancy approaches. I might put in your description :because of SF short term rental rules I only book 30 day minimums and I'm looking for someone to move in as close to January 1st as possible

Is this a SFR? Utilities seem a little high but if it includes garbage and water that makes sense.

Hi Ethan,

This brings back memories of me having an AirBnB unit in Vegas. Here are some thoughts to share. I didn't see wifi in the house, will you be adding that in the future? Also, if you have Netflix, sharing your Netflix account on a Roku or Apple TV is also a benefit you can offer. I would try to make the house look as modern as possible to appeal to your future guests. Finally, I would go after those that have stayed to give you a review!

Originally posted by @Paul Sandhu :

30 night minimum stay seems rather long. 

 The laws in San Francisco have it so that you cannot do <30day rentals if it is not inside your primary residence. Well, specifically if you do not reside in the unit 275 days a year.

Thank you all!

@Paul Sandhu  I agree with your comment that each market is different. Others in the Bay Area have told me that their monthly rent payment is about what they get for a 2-week rental. 

@Sean Walton Great tips, thank you my friend! I will definitely spell out the 30-day minimum in the listing description. And you’re right, the utilities estimate includes garbage and water. 

@Michael Kovac Yes—let’s work together in the new year and scale up! I look forward to your email.

@Johnson H - WiFi is coming! The tenants wanted the place a few days before I was ready, so I opened up shop before it was fully set up. They are grateful and patient.  

What simple touches do you recommend to modernize the place? I’ve done some fresh paint, a bunch of colorful throw pillows and a few large new mirrors. What’s missing?

Thank you all—keep the feedback coming!

(415) 794-0420

@Ethan Cooke   Hi Ethan, how's your airbnb going?  How do you find the 30-day rental working out?  

@Jen L. - Thanks for asking! It’s going well. I am fully booked for January, so I am covering all my costs during these early/winter months, which is my goal. I’m looking for 30+ day guests beginning Feb 1.

PAST MONTH

Since my last post, I signed another lease for a 3/2 home with an in-law near the SF Airport. I’m rehabbing it a bit which the owner loves, and I am very confident it will be a money-maker. I’ve got the studio unit fully prepped, painted and booked solid from Jan 4-April 28 through AirBnB. I will get the main home fixed and furnished in the next 2 weeks so it’s guest-ready by Jan 16. The snowball is rolling!

EARLY OBSERVATIONS AND LEARNING FROM THE PROS

- Most business travelers want smaller units (studio/1BR). However there are plenty of profitable ways to rent out larger properties (e.g. the “dormer” approach advocated by Al Williamson or serving families traveling for 1+ year assignments)

- Renting a home with in-law unit or a multi-unit building  can be very profitable compared to a single-unit home, e.g. 1.5x

- There are lots of professional communities to tap into to find guests.Once you find one you like to serve that fits your location, you can network and keep demand high without needing to do a lot of marketing. (My January guests are returning  steelworkers who wanted to come back and re-rent the same property for another month after the holiday week) 

- It’s really important to develop simple, repeatable checklists/processes for everything to save time! (E.g. pre-programmed emails, House guide, TV Instructions, WiFi info, etc.

(415) 794-0420

@Andrew Wong Steelworkers I've rented to normally build the steel frames of large structures or other buildings.  One group helped build a power plant, another group built one of those big cylindrical structures to hold crude oil distillates.

@Andrew Wong

@Paul Sandhu

 Yes that’s right. The  construction company that employs the steel workers  is based near Sacramento but the workers have jobs all over California. In this case, they are doing a big construction job at UCSF in San Francisco. 

(415) 794-0420

This is awesome. I'm curious as to how you're 

a) Finding your rentals - I'd assume a property management company would dismiss you pretty quickly, so you're probably finding rentals that are listed by the owners?

b) How you're convincing them to let you use it as a short-term rental for others. My thought here would be that most landlords would take issue with you making money on their rentals (a bit of a middleman), but I suppose that many landlords would prefer the easy rent check.

Excited to see how you scale up such a unique business! Thanks for sharing.

As for your airbnb listing, I'd recommend getting a professional photographer and making sure the place is truly finished. For example, you have a picture where you have an artwork sitting on the floor. Hang it up and then update the photo :)

Hey @Ethan Cooke it sounds like your listing is well on its way for success but I have a few ideas that might help your Airbnb listing stand out:

-Try out different listing titles.  Point out high points of the property and avoid all caps and avoid restating the city that its in (redundant info).  There are some really good articles on how to create an effective listing title if you do a quick google search.  An 82 walk score is incredible but I had to read way into your listing to find that out.  Try putting it in your summary! This is "getting fancy" but you can also try to track page views when you make listing tweaks.  Create a spreadsheet that notes the date when you make a change and see how your views go up or down. 

-Create a 1 sentence hook statement in your summary and provide all other info in bullet format, most guests don't read large paragraphs 

-Do you actually provide breakfast?  Doing that in Denver throws you into the "bed and breakfast" category and requires additional permitting.  

-Make your property business travel ready.  I recently read a blog post that stated BTR listings make on average $10k more per year

-Become a superhost.  Since you host other listings this will come with time but make sure you fit the criteria and it will help boost your listing in Airbnb search ranking

I thought SF had the primary residence rule but looks like you're making it work.

Just my opinion, hope that helps!  

@Al Williamson

@J. Martin

@Saj S.

@Johnson H.

@Keong Kam

@Ben Leybovich

@Amit M.

@Sean Walton

@Andrew Wong

@Jen L.

@Abi Wegman

@Michael Kovac

@Paul Sandhu

UPDATE on the Medium-Term AirBnB/Rental Arbitrage business:

1. THANK YOU to those of you who have taken time recently to share your knowledge and exchange ideas, including Al Williamson, J. Martin, Tyler Work (great feedback above) and Andrew Wong, who has some great systems in place to create a truly passive business. You guys know your stuff! And you inspire me!!

2. I have set a goal to have 9 more medium-term furnished rentals by December 31 for a total of 12 units in 2018, with overall profits of $12,000 per month ($1000 a month average profit per unit. This is doable in the Bay Area)

3. My latest consulting gig doing Human Resources work (my day job) ended Friday and I'm excited to dig into real-estate full-time for the next few weeks--or at least until I land my next consulting assignment 

4. The San Francisco 3 bedroom home has been great:

- It's 5 blocks from where I live, so I can market it with pride being a neighborhood local, and can manage it easily.

- It has been booked solid for December and January

BUT...I now need HELP finding guests starting February 1!! (The traveling nurses who had reserved it couldn't get their CA nursing licenses in time to start their Bay Area assignments). So please send anyone my way who may know someone looking to stay in a large, nice, furnished SF home for 30+ days beginning in February. This is the cheapest 3BR/2BA SF home you can find right now on AirBnB, and it's nice!

4. Per my previous post, the studio unit near SFO Airport is fixed up and fully rented out through May. I will continue to look for studios and 1 BRs because there is a high demand.

5. The 3 Bedroom/2 Bath home above the studio near SFO Airport will be move-in ready on January 27!! Please check out my listing link below and feel free to send early feedback. It's a bit preliminary since the photos are of similar units of mine and not the actual unit, but your feedback is valuable to me just the same.

LESSONS LEARNED

A.  The smaller units are easiest to rent out since 80%+ of business travelers want a studio or 1 BR place

B. I can save $200 per item on beds, dressers, couches, dining room sets, etc. when I buy on craigslist even compared to Ikea--BUT there's a big time tradeoff. So as I scale the business, I will buy everything on Ikea and amazon and "my people" will be ordering it so I can spend time on my superpower (see E. below)

C. I will feel successful in this business when I have "people" who do the stuff I don't want to do, or I don't have time to do, or I suck at. Have you ever asked J. Martin a question about how he does X, Y or Z? He always seems to respond with, "Oh I used to do that myself but I outsourced it and now I have my people do it."  I want to have "people"!! 

D.  I have little patience when I want something, and limited self-discipline to pace myself. Sleep? Who needs that?

E.  Negotiating with property owners is my superpower!

LATEST LISTING 

http://www.airbnb.com/rooms/22820988

(415) 794-0420

@Ethan Cooke

Great update! And great goals. It seems like you've done well so far and will probably continue to do so.

I really relate to A and B of your Lessons Learned. My wife and I own a couple furnished rental condos here in Denver. One is a 350sf studio and the other is an 800sf 1br. We help clients find these types of properties now, and we're always advocating smaller is better. (In my experience, you don't get enough more in rent from a 2br to make up the difference in mortgage.)

And I hear you about the time vs. cost issue. We used to rent other people's condos and then re-rent them, and we would use mostly Craigslist for that. But it was a time suck to do it right (i.e., to find inexpensive furnishings that fit into a design aesthetic that would draw good rent.). Now we just go almost exclusively IKEA -- one day of shopping, one day of assembling and you're done. 

Good luck with everything!

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770
Originally posted by @James Carlson :

@Ethan Cooke

Great update! And great goals. It seems like you've done well so far and will probably continue to do so.

I really relate to A and B of your Lessons Learned. My wife and I own a couple furnished rental condos here in Denver. One is a 350sf studio and the other is an 800sf 1br. We help clients find these types of properties now, and we're always advocating smaller is better. (In my experience, you don't get enough more in rent from a 2br to make up the difference in mortgage.)

And I hear you about the time vs. cost issue. We used to rent other people's condos and then re-rent them, and we would use mostly Craigslist for that. But it was a time suck to do it right (i.e., to find inexpensive furnishings that fit into a design aesthetic that would draw good rent.). Now we just go almost exclusively IKEA -- one day of shopping, one day of assembling and you're done. 

Good luck with everything!

 I agree with the point regarding size/#of bedrooms, except that you can make some good spreads at 4+ bedrooms, and rent the bedrooms out to travel nurses, students, or other travelers.  I agree, 2 bedrooms don't seem to be quite as worth it. But the rents don't seem to increase as much per bedroom when you get to 4, 5, 6 bedrooms (kind of a weird size that is rarely needed, so the unfurnished market price can be less expensive on a per-bedroom basis). 

Congrats on all the success Ethan!
And yes, get a team!!! lol

I want to have 24hr coverage all through the week, but don't quite have the scale yet. Was considering including 1 or 2 more people with units to use VA's to do all their work, so we can all have 24hr coverage from trained staff. But I'm a little hesitant to have several different sets of procedures for different owners' preferences, etc.

I think I added 6-8 units in one year..? Maybe 9 or 10? I've furnished several at one time. (Let me add, I didn't actually do any of it lol. But I had someone do it...) And this was all while traveling remotely. So you can certainly do it if you want to. As long as you have the long-term financials penciled out and have a back-up plan, I don't think it's crazy to scale quickly. It has its risks. But I think they can be managed - a few ways which we've already discussed.. 

@J. Martin

@James Carlson - THANK YOU for validating the "smaller is better" philosophy and the @Al Williamson "Real Estate Vending Machine" philosophy of standardization; for example, create and buy your standard checklist of items at Ikea (and Amazon which I LOVE for the convenience and selection). Furnish the unit. Then rinse and repeat with the next unit. Boom! 

It seems that most traveling professional singles' priorities are Safe, Clean, Convenient, Own Bedroom, Own Bathroom, Business-travel-ready. And it seems like it's generally NOT a priority to have large Common Spaces (living room, dining room, kitchen). Obviously everyone wants more space if it's free, but most folks don't seem to be willing to pay the extra cost for it. What are your thoughts on this? Thanks again.

J. Martin - THANK YOU for sharing about 4+ BR opportunities! Maybe it's time to rent a big hacker home or traveling nurse dormitory and furnish it with 2 beds per room?!  It makes some sense and fits with my own RE investing experience: my first investment was a very compact 5BR home near a university which I rented to graduate students. Despite being in the Bay Area, it cash-flowed well for the area because of the economics: a single bedroom in a decent neighborhood in SF generally costs at least $1200/mo. 

I want to pick your brain on this one to strategize how to make it work...

Thank you also for emphasizing how important it is to pencil out the long-term financials and get "your people" trained on how to launch and manage a property from A to Z. I question if I will ever really hand over the reigns on important activities to "my people" (such as they are) because I'm such a control freak! But I digress...I need to learn the REI Jedi ways from J. "Obi-Wan" Martin and Al "Yoda" Williamson and invest the time in standardizing and training.
 

ALL - Please keep the feedback coming!! Thank you.

(415) 794-0420

Quick question: The 31 day rule in SF for STR is because tenant protection kicks in at 32 days, no? Are you worried someone couldn't claim tenant status? SFRs aren't rent controlled, but they would still need to be just-cause evicted. Just curious what your thoughts are, or if I have this wrong.

@Rob Forest - Thanks for the question. There are a few issues with the 30+ day rental in SF. You mention just cause eviction (part of tenants rights for any 30+ day rental). But most folks paying a premium for a furnished home would have to stay there for years paying high rent before they received any market discount from having “rent control”. The bigger issue as I understand it is that if you are renting someone else’s home and then re-renting it (subleasing) to someone else, doing short-term rentals is illegal so you have to rent it out for 30+ days. So if you are doing subleasing in SF, you need to be confident that you can maintain high occupancy with 30+day rentals and no “infill” of shorter stays between medium-term stays.

(415) 794-0420

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