Starting an Airbnb and STR management company

32 Replies

So I have been an Airbnb host for about a year and a half with my primary residence (in-law suite in the basement as well as private rooms) and just got our second property up on the Airbnb market.  My wife and I do all of the work (cleaning, messaging, turnover, middle of the night phone calls, restocking essentials, etc) and we love it.  Our goal is for Airbnb to replace our 9-5 jobs until we can acquire enough properties to live fully on passive income. 

I would love to start a local company that manages listings and cleans for the Omaha area. I have spoken with several investors at local meetups that have talked about wanting to turn their rentals into STR but either don't know how and/or don't want to put the work in. I was thinking we could do all of the set up for them, as well as then managing everything afterward.

1. Has anyone started something like this? If so, how much did you charge, how did you set everything up, etc?

2. How much would you want to pay for a service like this? I was thinking 20% plus the cleaning fees?

You don't have to be in the Omaha market to answer, either, just curious if this business model has worked for other people before (either you use a business like this or started one)

Thanks!

Hi @Jenessa NeSmith , thanks for the post! I commend you on your voracity at the STR market and entrepreneurship! I will simply answer your 2nd question as a VR/STR owner as I have never started such a company.

Generally speaking I would expect to pay anywhere from 16-30% for full turnkey STR property management. (Housekeeping is pass thru to the guest anyway and do not count that). That would be for Advertising, Booking, Payment processing, housekeeping, hot tub/pool cleaning, pre-post inspection of property, etc. etc.

Your other venture of 'converting rentals into STR's' almost has another consulting dynamic to it as you are going to have to properly assess the return on investment of converting the rental to an STR including market analysis, FFE costs and overall just figuring out if it's a financially sound business decision for your client. Perhaps you don't need to do that for them however (meaning, that's what they want and just want somebody to do the legwork), but I'm guessing if they don't know how to do convert it to an STR, they don't know how to property analyze the return on their investment. As in most cases, STR's do not perform as well from an ROI perspective then conventional rentals (depending on the region of course).

Anyway, for me, I would expect to pay a 'service' to manage all of that process probably at some set hourly rate since some owners might want to pick their own furniture, some might want you to pick it, some might want to do permitting or rehab themselves or want you to do it. There are so many variables and operations channels that a flat rate likely would not benefit you or the owner. And I would probably pay somebody anywhere from $50-$100/hour depending on what kind of amazing STR they are creating for me.

Not sure if that helps or not, but I wish you the best of luck on your ventures and look forward to hearing how it goes if you choose to proceed! 

Cheers!

  

Hi there! Thank you for taking the time to respond to my post and thank you for your input. 16-30% is about what I have seen other larger companies advertising. Is there a way you could narrow that down for me? Obviously your market is different, but how much would you personally pay for a full turn-key service? My service would include cleaning, linen and towel restocking, lawn mowing/snow removal, organizing minor and last minute repairs, messaging guests, and being available 24/7 to deal with guest issues. I also have a separate website for our STRs that link to Airbnb, so was thinking about adding that service as well - including the properties I manage on this additional website as well.

For the start up section, the investors that I know have the ability and basic knowledge to convert their conventional rentals to a STR. However, most don't have the nuanced knowledge/experience that I can offer, and also just don't want to spend the time investment in doing the conversion - writing the listing, shopping, unpacking, and setting up household things, and thinking of all the small items required for a house. If they are on a budget, I am really great at finding free things and deals, so my time could translate into savings for them. I also have an in-depth local guidebook that I wrote for our Airbnb. I was thinking just having a flat start up fee for a unit depending on the size, and then working with the investor to set up a budget for household goods. Obviously it would be in both of our interests for me to maximize the budget to attract future guests.

I do have a question for you, though...you said that STRs don't have as good of a ROI as conventional rentals. Can you go into more detail on that? From my numbers, even an area like Omaha (not as popular as some other cities for some reason!) offers more of a return on a STR. Just wondering how you came to that conclusion!

Thanks again :)

@Jenessa NeSmith

Congrats on taking a big leap! Or at least considering it. I'll let some others respond to your specific questions. (@Tyler Work runs a great short-term rental company here in Denver.) 

I just wanted to add that, in addition to networking with investor groups, you might try to find a real estate agent that specializes in Airbnb and work out a referral program. They may be able to provide you leads when their clients buy a property to turn into an STR.

Good luck! 

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

Hey @Jenessa NeSmith we charge 20% here in Denver, Breckenridge, and Boulder, CO markets.  Just some fair warning - if you're looking for passive income, don't get into property management.  It's about as active as it gets :)  However, I'd be happy to help you get started and point you in the right direction, feel free to shoot me a pm! 

@Jenessa NeSmith congratulations on expanding your business!  I agree with @Tyler Work that STRs are hardly passive, but I also agree they ARE fun, and certainly a great source of income.

Re: management percentage, I'd say a minimum of 20% for what you're offering.  The high-end and very vacation-rental oriented markets can charge up to 40%, but in Omaha I don't think you're going to see those numbers.  You may want to take on your first couple of units/clients at 20% (a special introductory deal) and once you have some traction bump it to 25%.  Make sure you pencil out what sort of return you're getting on your time investment so you know this whole venture is worth it to you!

As for the initial setup, I think a flat rate is the way to go - outline specifically what is involved in the rate, but note that of course you'll customize it depending on client needs!  You'll end up drawing up specific rates for each client, probably, but that'll give them (and you) an idea of what you offer and what sort of price point they're looking at.  I know that personally I shy away from very open-ended "inquire for pricing" sort of models, but give me a guideline and I can make a decision on whether my expectations are realistic.

(I'd also say offer a couple of options - for example, you've got one fee for consulting with owners to analyze if their unit is a good fit for STR, another for actually transforming it, etc. Don't make it too complicated, but I bet you'll get some traction on intro-level consulting, even though some of those owners will decide STRs aren't a good fit for them)

Good luck!

@Jenessa NeSmith , just wondering where in Omaha your rental is?  I have wondered about this business model, but assumed Omaha wouldn’t bring year round customers. What’s your typical vacancy rate?  I would be interested, but I’m awfully cautious with the seasonality of Omaha.

Hey Jenessa, awesome that you're exploring this option. It's definitely a great business model. Little liability, little capital and overhead involved. Those are some of the best ingredients for a business, but it is definitely not passive. You already have an idea of what it involves by hosting on airbnb and others above have also went into some detail with great advice for you.

We charge 25% of the nightly rate here in Chicago. The fee includes listing the unit/home, communications, vetting, inspections, cleaning and pricing (the most important of all). 

Along with the advice above, I would add in:

1) Know what business you're in + outsource wisely. Are you in the management business? Are you in the cleaning business? Or the furnishing business? Unless you have capital to hire a bunch of employees (even then, would you really want to?), it's difficult to do all 3. And damn difficult at scale. 

2) You will be glued to your phone. Be ready! It's constant communication and pinging.

3) Create systems for everything or you will get overwhelmed.

I wish you luck and hope that it comes together. It won't be easy, but it is very lucrative if you do it right :)

@Jenessa NeSmith Hey Jenessa, we also Airbnb and for us, we aren't fond of turning over the units, so I'm sure you'll get a ton of investors looking for your service.

On the other hand, if your eventual goal is passive income, you might want to seriously consider your foray into property management 😬. Managing these assets and their respective owners will become a 9-5. Something to think about. 

Hope this helps, Jenessa. Goodluck. Thanks! - Ola 

Hi @Jenessa NeSmith I am actually growing a very similar business to yours--doing full service vacation rental management here in my market of Colorado Springs, CO. 

These are great questions you are asking, and while I am learning right alongside you I will offer this: it's less about determining the perfect rate now because your experience will help you determine what rate it right for you and your market, and more about you understanding and meeting the needs of your clients (owners who are interested in vacation rental management). 

So while a good clear rate can be helpful in your marketing, especially when accompanied by a presentation of the clear advantages of hiring you that resonate with your prospects, the main thing is to probe and find out what the actual needs (and fears) of your potential clients are, and then to explain how you will meet those needs. 

Often their needs will be (1.) to know their property will be protected (fear of disaster). On this point make sure you understand how to insure the homes and particularly the vacation rental activities. I can point you toward some good solutions if you like. Homeowners ins. normally doesn't cut it. (2.) to know their time/energy will be protected (fear of hassle). (3.) to keep their mortgage paid while they are away from the house, etc. etc. 

Hope that helps. Feel free to reach out to me if I can help further. 

@James Carlson That's a great idea...I have a couple of friends who are agents and word of mouth is maybe the greatest advertising!

@Tyler Work Thank you for sharing your rates.  I will send you a PM this afternoon with some more specific questions if that's ok?  

@Julie McCoy Your profile says that you have a duplex that you use as a vacation rental.  Do you use a turnover service or do you do most of the work yourself? What kinds of things would you/do you want from a turnover service? 

@Matt Morgan My current rental is in the heart of Dundee, and our new one is less than a mile north of TD Ameritrade park.  We haven't had any issues with keeping it booked (we are vacant 1 or 2 nights a month), but we do lower our prices when it is the low season.  There are a lot of events, concerts, etc, and perhaps our most common reason for visiting is people that are moving cross country and are stopping for a night or two in the middle.  

@Sam Amir Thank you for sharing your rate.  I will definitely think about your advice as far as defining exactly what type of business I want.  Realistically, a two person team would only have enough time in the day to fully manage about 10 different properties without needing to outsource.  I don't want to over extend myself by offering too many different services, but I also like the idea of a "full service model".  It might benefit me to have control over the entire process, and be able to set up and furnish the rental and write the listing in a way that I already know is efficient, because I've done it before and learned form my own mistakes.  Whereas if the investor sets it up, I might be spending more time fixing their mistakes.  The biggest obstacle to scaling is the cleaning and physical turnover, and if I did want to scale beyond 10 or so properties that would be the first thing to be outsourced.  

I agree, systems have been a game changer in my personal life, so I can imagine it would be the same for my business.  Would you mind sharing some of the systems you have found most helpful, or some of the systems you implemented right away? I notice on your profile that you are an agent.  Do you find being an agent helpful in this business, as far as networking, leads, etc?

Oh my goodness - so much useful information from you guys! Thank you so much!

This for sure is not a passive income stream - managing our own Airbnbs has been very active, but I love doing it. The business does seem like it would be difficult to scale, so the goal would be to get enough clients so that it could support a partnership and trade off duties. For example, we would manage everything for 6 months and then another partner could manage everything for the other 6 months, and we split the 20% commission. So I hope to get to the point where we can replace our full time income with half time hours. Then we can have the freedom to travel, or build up our own RE portfolio, or learn scuba diving, or whatever. 

@Tim Thornton good for you! What got you started? Why did you think this was the way to go as opposed to other more traditional forms of REI?

You make an excellent point.  Knowing what property owners would be looking for and how to meet their needs is pretty important, as that's pretty much the whole point!  I was focused on the numbers first to decide if it would be a worthwhile venture.  1. Is there a need?  2. Will filling the need be a good use of my time/resources? and then 3. How could I best fill this need?

Maybe I am going about it in the wrong order, but right now I am trying to see if the numbers make sense before I invest any more time into it.  How far along are you in your business? I would appreciate any advice you would want to share :)

@Jenessa NeSmith I live 200 miles from my duplex (which is really a house with a garage apartment), so I do rely on my housekeeper and a local property manager. :)  However, it's also a place I enjoy spending time, so I do as much as I can myself.  It's a fairly simple setup - my housekeeper turns it over (cleans, does laundry primarily) and my property manager meets guests, does post-stay walk-throughs and is on hand for any emergencies that might crop up.  I've arranged for my PM to take a smaller percentage since I'm still the one handling bookings, doing small maintenance and keeping up with supply inventory.

A better example is the service I get from my housekeeper at my new rental in Tennessee: she does the post-stay walk-through, cleans, and provides or maintains the inventory of supplies (she provides quite a bit: trash bags, toilet paper, basic toiletries, dishwashing soap, hand soap; the things I provide, she'll let me know when supplies are low, and I'll have new items shipped to her house).  She also takes the laundry with her and does it off-site, so there's no lost time waiting for loads of laundry to finish.  She'll get her husband to do occasional small maintenance chores, as well.  I love the service she provides!  That's what I would expect from a turnover service.

@Jenessa NeSmith - Hey there. I think this is a great idea. I do airbnb investments and real estate for clients in Denver and they are always asking about short term rentals and airbnb management costs.  As @Tyler Work posted, 20% seems to be the average in Denver, but I'm seeing higher rates for other cities. The main issue (in my opinion) is offering a service that you make money off of but that's also worth it to the investor or your end client. As @James Carlson said, starting relationships with real estate agents could be useful in getting your name out and also getting help running the numbers. 

Erin Spradlin, Real Estate Agent in Colorado (#230019690)

Janessa, I have been building my business actively since September. I got into it because I knew some people who had done well with vacation rentals and I like hospitality elements like talking to guests and I take joy in serving their needs. I also like interacting with owners and taking care of properties, as well as building systems--pretty much the name of this game. 

I also like that it's a newer market so I have a better chance of establishing myself in the niche. Some of the bigger property manager players do vacation rentals but I am focused on it which I hope will be a great advantage to me.

That said it is only one REI strategy am dealing isn't really right for every owner or situation, so definitely you have to decide if it's right for you. It requires the skills of recruiting, training, and maintaining a workforce of contractors (especially cleaners) so it's not exactly a soloprenuer gig.

I don't know if I have any advice other than that right now but @Tyler Work (I don't know if I successfully tagged him I am in my phone) is several steps ahead of me so maybe gen does. 

Again, thank you everyone for the advice!

Our neighbor across the street just asked my wife about an hour ago if we would be interested in managing his 4 Airbnb properties. Talk about timing...maybe it’s the law of attraction? :)

It was a really informal and quick conversation, but he said to draft something up and send it over to him.

Thoughts?
Should I wait until I’ve gathered more information and built systems or just jump on in? If I do decide to dive in what would you recommend for our first steps and/or due diligence?

@Jenessa NeSmith some systems I would recommend to make are: the cleaning process, inspection process and on-boarding. Those 3 are pretty major and must be replicable so you can scale. The idea is to pretty much hand someone a document and they can follow the instructions to replicate the same end result you would have. 

Being an agent is great since I know a couple owners I've worked with, but not necessary.

As far as your first lead that the universe just threw you...I always go with the 'ready, fire, aim' approach. Do some research on what you can make on his units and see if the numbers make sense first of course, then jump in. Making systems based on real life experience is key, otherwise you're basing it off theory.

Good luck!

@Jenessa NeSmith I got started in a similar fashion as you- I purchased a duplex, of which one one side I slowly converted into a STR. I used some of the proceeds from that property to purchase my next. Along the way, a friend of mine noticed I was a 'super host' on Airbnb, and asked if I could advise him on how to make his properties more attractive. We set a general budget and I worked on making his places fully functional, beautiful places to rent. After some time I became a co-host of his homes, and then gradually took over all aspect of his bookings, repairs, coordinating of cleanings, guest communications, etc. We were also able to increase his gross revenue by over 30% in two years!

While that venture started organically, I saw the need for something like you are proposing in my area, and started a consulting firm as an offshoot of my corporation which already handled my STR ventures. After some time, I developed a 3 part contract for consulting, designing, and then managing a STR. The idea being that each stage of the contract releases to the next one. In Stage 1, I charge a flat fee for consulting, In stage 2 I charge an hourly rate for purchasing and designing the home to be an optimal STR, and Stage 3 I charge a percentage managing the property (if both parties agree) Happy to provide more information in detail if you'd like, a similar business model could be used for your new venture!

@Jenessa NeSmith

Jump in! You'll likely make a few mistakes along the way, but that seems like a pretty great way to learn. I love the podcast "How I Built This," and so many of the self-made entrepreneurs interviewed often come upon an opportunity before they're totally prepared. They dive in, fake it till they make it, and -- it turns out -- they always seem to make it. 

Maybe do enough research to feel confident in talking to your neighbor about your fee structure and exactly what your services look like. 

So exciting! Congrats on the opportunity.

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

@Jenessa NeSmith I am a local investor and have recently acquired a property that I was considering doing a short-term rental. If you have interest I would consider leveraging my property for a test run for your business model. 

Hey @Jenessa NeSmith@Tyler Work@Tim Thornton

This has been a really informational thread. My wife and I are in the process of starting our STR management company. I do have some questions, if anyone wants to help me wrap my head around this.

  • How have you setup your business structure for liability and tax purposes?
  • Do you use any liability insurance products for the rentals that you do not own?
  • Is your commission inclusive of any booking fees charged by the sites? Or do you pass those fees along and then get your 20%?
  • Do any of you use management software?
  • What extras do you provide? Wine, snacks, beverages, etc.
  • Outside of the rental sites, what kind of marketing do you do to keep the listings full?

Thanks for all your help.

@Brian Seelos yes, I have general liability insurance that covers my team for any rental we manage.

Booking fees -To alleviate owners nitpicking the fees many call it a marketing fee which will be included in the rate to offset those charges. Or some PMs just pass it on. You will have to decide what works best for your team.

Software - I've used Escapia but looking for a more modern software. I personally would not use Escapia because that gives Homeaway full access to your entire reservations database.

Extras - Welcome card. If it was my own rental I would provide water/snacks but as a mgmt company you don't want to take on that cost unless you either A) have owners pay for it per booking i.e. restocking fee or B) increase your mgmt fee.

Email marketing/Social Media is the basics and asking owners to promote to their friends and family as technically it's their business too.

@Richard Ibeh Thanks for the Input Richard. We are thinking of using an on-demand liability policy through Slice for bookings.

I am actually in the process of evaluating a number of software options. So far, Lodgable, Tokeet, and 365 Villas seem like good tools with upside.

We discussed including extras (snacks, drinks, wine, soaps, etc.) and adding those costs to the cleaning fee.

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