list the full basement as airbnb?

Question

Hi, BPers

I have a single family house rental that is closing at the end of month. The house is located near the downtown of a small city and is in a safe neighborhood. It is a 4-side brick ranch with full basement. The upper layer has 3be/1.5ba, 1100sqft and the lower basement has 1 be and 1 full bath. The seller completely renovated the house, with new roof, new AC/heater, new windows, new kitchen and a brand new bath and bedroom in the basement.  The basement has 1000 sqft space and a separate entrance to the front of the house, and a backdoor to the fenced back yard.

Once it closes, I have three choices: (1) rent out the whole house as long-term rental; (2) rent out the upper layer as the long-term, but the basement as Airbnb; and (3) rent out both upper and lower layers as separate Airbnb listings.

Currently, I lean toward option (2), as I am new to Airbnb, with a busy full-time job and the location of the house is not super good. So, my questions are:

(1) Is it practical to rent out the basement as Airbnb, but the main floor as the long-term rental?

(2) Since there is only one AC/heater and utility bills for the address, what will be the best way to split the utility bills, so that the long-term renters will not feel being taken advantage of?

(3) Is it necessary to install a separate thermostat for the AC/heater in the basement?

(4) Since the basement does not have a kitchen, can I put a desk with microwave, coffee machine? How much do Airbnb customers expect to have a full kitchen?

Any suggestions on how to deal with this new rental property for maximal profits will be greatly appreciated!

Lee

Account Closed · Answer

@Leon Lee

@Nancy Bachety makes some excellent points here. My experience has been that most guests are ok with a kitchenette. The key will be having enough sleep space, a private entrance, a good price and a comfortable/enjoyable guest experience (all which take time and money keep in mind).

I usually use: https://www.eliotandme.com/estimator to research rates in the area, then once you get an idea there, head over to Airbnb and research the other listings in the area. Some hosts/neighborhoods will play around with the service fees to make the nightly rate seem lower (ultimately they still get paid the same amount), this is important to know when considering your potential income and ultimately setting up a successful listing. I've not encountered that kind of pricing with the neighborhoods for any of my rentals, but "New York City" for example does it almost exclusively.

In terms of utilities, you almost certainly would need to split them if you want the other tenant to pay. That's usually pretty costly to do right or pretty cumbersome to do "half right". The best option I found is to just cover utilities for the whole building, maybe spend a couple bucks on energy saving items and utility tracking equipment (so you can access remotely) and just raise your intail rent rate accordingly.

Depending on the size, and heating/cooling system, you may need to do some work to split the house anyway. If there isn't a separate thermostat in the basement already, then you likely don't have a separate heating zone set up, which means it will heat and cool along with the schedule of the tenants upstairs (which I personally wouldn't want to do if I was paying). I'd go the route of setting up a new heating zone and tieing into the same system (regardless of if you go short or long term) and paying utilities for the building. But that's me; I get that most people prefer to have one less thing to worry about. Just know that a 2nd system (new power meter, separate oil tank, 2nd gas line/tank) will require a larger upfront cost and your city and utility companies will likely want to come in, and double check everything you've done (more time and money). Maybe I'm missing something though.

Congrats on the house by the way!

Ethan Cooke · Answer

@Leon Lee - Sounds like a great opportunity! I run a growing medium-term furnished rental business in the San Francisco area, and I specifically look for properties with in-law units to acquire (via rental) and then re-rent. Why? They are profitable. Below are my thoughts on your questions. Hopefully helpful.

First, buy the data from AirDnA for the city or neighborhood where your property is. AirDnA will sell you in-depth AirBnB data about the area including average AirBnB rental price per night, average length of stay, occupancy rate, etc. You can even isolate the data to 1-bedroom places to compare apples to apples.

Second, search the AirBnB listings in the area and find out what the successful AirBnB hosts are doing and how much they are charging for comparable units.

Now for your questions...

(1) Is it practical to rent out the basement as Airbnb, but the main floor as the long-term?

Yes. But why not rent them both out as AirBnB units? If the AirDnA data shows that you can make 30%+ more doing AirBnB vs. traditional rentals, then go for it. But if you insist on renting out the upstairs as a traditional rental, you can certainly still AirBnB just the downstairs. In either case, consider the tradeoffs of longer length of stay with less revenue and less marketing vs. shorter length of stay with more revenue and more marketing. I'll take the longer length of stay with less revenue and less marketing any time. It's still generally more profitable than traditional landlording.

(2) Since there is only one AC/heater and utility bills for the address, what will be the best way to split the utility bills, so that the long-term renters will not feel being taken advantage of?

If you insist on having long-term renters upstairs, then you'll want to give them a good deal on utilities. e.g. 60%. Any more than that and they might suspect that they are subsidizing utilities for the folks downstairs. Otherwise rent out both units as AirBnB's and cover all utilities yourself. (You can tell my bias here...)

(3) Is it necessary to install a separate thermostat for the AC/heater in the basement?

Not if both units will generally be occupied. Check the cost. If it's fairly cheap then go for it since you will save energy costs in the long run.

(4) Since the basement does not have a kitchen, can I put a desk with microwave, coffee machine? How much do Airbnb customers expect to have a full kitchen?

Yes, definitely. I would check to see that you have the electrical capacity and install a microwave, coffee machine, mini-fridge, toaster oven and an electric kettle. A kitchen cart with a pair of stools is also a nice touch for a breakfast area. Per the earlier suggestion, look into getting a small kitchen sink installed, and a counter with a few drawers and cabinets if you have the space.

Any suggestions on how to deal with this new rental property for maximal profits will be greatly appreciated!

Lee

Nancy Bachety · Answer

@Leon Lee

At the risk of repeating myself, look it up yourself on Airbnb in the area where your SFr is. Compare rates for units with or without kitchens. You could choose option 2 but it might be better to tap into the water supply from the downstairs bathroom and put a small kitchen sink and cabinets. It doesn’t have to be fancy.

Today, my husband and I bought a 72” countertop and two 24” cabinets from IKEA for under $400. Add a sink, small fridge and plumbing, and you can offer a kitchenette. We offer a Bedroom in the separate lower level of our high ranch and it does well but it is not a basement and it has a private entrance too. Time will tell what the kitchenette does for income but we use that level for family at times so that wasn’t the intent.

If you decide not to use it as a STR you can now offer it as a separate LTR. As long as your up to code, of course.

It also depends on your area and who you’ll attract. 1000 sq feet is a large area for a STR 1 br. Your nightly rate wouldn’t be much more than a STR 1 br that was smaller. Add a sofa bed and you can sleep 4 but that’s not as appealing as a Real bed.

Go ahead and research rates for Airbnb and apartments for LTR.

Leon Lee · Answer

Hi, All

Thank you all for your comments and tips, which are really helpful! It seems that city ordinance is one of the biggest hurdles to start an Airbnb. What will be the best place for me to find these rules from the city?

Thanks

Lee

Tim Schroeder · Answer

I was thinking about doing this myself.

Do you have a HOA? If so they may not allow STR's. Consider whether the downstairs tenants will tolerate people tromping around upstairs. Basements tend to be noisy and their ceilings usually non-insulated. Don't forget that there are city code hoops to jump through to make a basement legally "livable". Smoke detectors, emergency exits, and much more. And if your furnace/water heater is down there then they probably need to be enclosed with walls and vented outside.

list the full basement as airbnb?

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