How to Know if My Home Can Make it As an AirBnB

15 Replies

To all the STR property managers out there or people who have had success in turning their home into an AirBnB, what kind of analysis did you do when making that leapt or what kind of analysis do you do on clients homes who are considering the transition? I'm guessing you looked at other listings/comparable homes that were already up in the market but what exactly did you look for and how did you justify the transition.

Also how did you estimate all of your costs before making that leapt? 


I currently have one AirBnB that is running successfully but it was not based on much analysis and I want to be more sure when considering a new market. 

Thanks in advance for all the help!

Originally posted by @Wes Short :

To all the STR property managers out there or people who have had success in turning their home into an AirBnB, what kind of analysis did you do when making that leapt or what kind of analysis do you do on clients homes who are considering the transition? I'm guessing you looked at other listings/comparable homes that were already up in the market but what exactly did you look for and how did you justify the transition.

Also how did you estimate all of your costs before making that leap? 

 I didn't turn my home into an AirBNB; I've purchased three houses in two markets for the specific purpose of using them as STRs.  My houses are in tourist-driven vacation markets, and I chose properties that have desirable elements that make them stand out from competition (all of which are location-based - e.g. one is on a river, one has a view, one is very private but also very close to town).  

You're on the right track - look at what the successful competition is doing and emulate it.  Every market is different, so there's not one list of criteria to pull from.  So bottom line is: know your market, understand what a short-term renter is looking for, and find an appropriate property.  (or, zoom in on what kind of short-term renter you want.  One of my properties caters to families, the other two focus on couples; if I had an urban property I'd cater to traveling professionals, etc)

As for expenses, there's a decent amount of guesswork involved unless you already have a comparable property (because how do you really know what your power bill is likely to be in June?), and overall it's more tedious because there's more expenses to consider.  But think it through and map them out same as you would with a LTR, use conservative estimates, and remember to factor in a monthly allowance for the occasional thing like replacing broken glasses or ruined sheets.  Always remember to include an estimate for furnishings and household items in your initial budget - I've generally spent about $10k up front, per property, on furnishings, replacing old appliances or HVAC (I've replaced the HVAC at all three of my properties), and generally making them nice, updated, and inviting.  None of my purchases have needed significant rehab.

@Wes Short

Scaling a STR is about research. Most major players pull reports from AirDNA, EverBooked, and similar sites. These are paid services based on zip codes, cities, states, the more dialed down you get the better your results. Do you have an idea of what areas you are looking to add a property in?

As far as budgeting, it depends on the size of the property, how you want to decorate it, where it’s located. For example you can do a low budget unit with Craigslist furnishings and second hand items (this takes time to track down) for a reasonable cost but you are left up to what you find. You can also just roll the cost of furnishings into the full amount you want to pay for the property. On average just for a middle of the road number 3 bedroom units cost us about 6-8k for all new everything including linen, terry, dishes, tv’s, etc.

I hope this helps, if you have any other questions I’m happy to help.

Happy Hosting

I had a regular 2 bedroom month to month rental that brought in $350 a month.  Renters paid the utilities and furnished it.  They moved out because the lady found another boyfriend and the guy went back to stay with his parents.

A refinery turnaround was going on, and my wife was trying to sell her house she had before we met.

We put her furniture and appliances in the 2 bedroom.  4 beds total.  Charged $210 a week for each bed, $840 total.  Took about 3 hours to rent it out.  That lasted 2 months, until they moved out.  2 hours after they moved out, some of their friends called me and wanted the place.  That lasted a month, and they moved out.  2 hours later their friends called me and wanted the place, but just 2 guys.  They paid $420 a week for another month.  We decided this kind of housing is a good idea.

We bought another house after that, then another, and another.  It's not the number of bedrooms in a house that determines how many people can stay there.  It's the number of bathrooms. 

My housing market is not normal.  Google "worst place to live in Kansas".  Coffeyville is at the top of the list.  I keep a weapon in arms reach at all times.

@Wes Short , I have had a short term rental for about 6 months and not making much money, so take my advice with a grain of salt. AFTER I started one I began my heavy research. Before I got started I just looked up every STR on AIR B&B and VRBO and craigslist. There were not many. Then I looked at their prices. After I got started I got smart enough to check for availability and find out how far they were booked in advance and how many times they were booked. It appears my market is not that great for STRs. There is one strange exception. A local guy runs a outdoor recreational items like paddleboats etc. Who is killing it. He bought a VERY expensive house in very nice shape on the river.er, it has outside glow lights on it, fire pit, at least 4 bedrooms, etc. That guy also markets constantly everywhere. He is more than 3X my price per night, is by fat the most expensive STR in town and has 3X the bookings of any of us. Don't know if that helps but it is what I found out by doing booking research.

I mainly buy in vacation destinations. I research by going to VRBO and Airbnb and looking at the listings and then looking at the booking calendars to see how full the properties are. I haven't had much luck with the accuracy of AirDNA so I've just done a rudimentary calculation of room rates during different times of the year and then try to guess the gross rent for the year by how blocked the calendars are. There is a ramping up period usually for a new property since other properties have reviews, repeat business, super host status, etc so keep that in mind. I usually spend $6-$10k on furnishings depending on how much work needs to be done. I buy properties that only need some cosmetic rehab. 

Best way to estimate all their cost, ask them.  Then verify them.  I know in FL you can call pwr\water company and just get their average monthly payments.

Hi @Wes Short , thanks for the post.  

You received some great info on this topic from the best in the STR business. I still believe that unless you are paying a very large down amount on a home to make it an STR, you will want to make sure that home has the benefit of being a place you actually want to visit. Or, you have a strong passion for guest services and/or hotel management operations.

My personal STR business model is vacation home for free, but for my other investments, I would obviously require a higher rate of return then break even. The reason is, if I break even on cash flow, I'm getting the extra benefits of:

  • Providing a clean and enjoyable vacation experience for families all over the world
  • My own vacation home in a place I love to visit several times a year
  • Other people paying off my mortgage while I enjoy the property
  • Potential equity (although I never specifically count on equity in my modeling)
  • Tax benefits that can spill over into my other passive RE investments

As far as analysis I used a spreadsheet for a while but eventually created my own mobile app to make analyzing them much faster.  Once I find one that looks good on  Clik2Flip , I usually plug it into this Excel sheet and research each line item to make sure it's as accurate as possible. 

Finally, and this is really important. I make sure I look for any STR regulation, permitting restrictions or ongoing legislation in the area to make sure nothing crazy is about to pop up in the near future from an STR compliance perspective.

Hope that helps! 

Cheers!

@Julie McCoy Thanks for the response and the advice on making sure the home has a desirable element. The home I currently run has the same appeal as the third home you mentioned, private but close to town, I think that is a good mix. Also I never thought about creating listing for specific groups before (families, couples, or professionals), thanks for that.     

@Michael Melendez Yeah I am currently running one in Bloomington, Indiana but wanted to do more research on the outskirts of Indianapolis as well as the Brown County area. I will definitely have to do some research on those sites you mentioned, thank you for those and the start up estimates.
@Paul Sandhu Thanks for the success story Paul and yeah as long as I put in the time on listing and booking the home stays pretty full. Could you expand on your statement about how bathrooms determine the number of people who can stay there? I've never heard that before but would love to hear your take on that. Thanks again!

@Jerry W. Thanks for that Jerry, yeah it sounds like the STR market here in Bloomington is more for just common visitors but where you are it seems it is for like week long vacation sites. I wonder if that guy requires week long stays or not? Just curious.

@Wendy Schultz Thanks Wendy, I think someone above also mentioned their cost estimate was close to 6-10k when first starting up the unit. What sites/stores do you normally use to purchase the furnishings and is it the same furnishing for each place? For the first one I just went diving on placing like Craigslist or Facebook Marketplace but I would love to know where you guys are finding great furnishing at solid prices. 

@Jon Crosby Wow, thank you so much for sharing that excel file. I've built a couple but they don't compare to that, will 100% be using it when doing analysis. 

Thank you again to all of you, this was a ton of information and it led to a lot more questions haha. 

@Wes Short   The people I rent to are working contractors at a refinery for short term jobs.  Their schedule is this:

Wake up.  Use the bathroom. Eat. Work 10-12 hours. Take a shower and use the bathroom. Eat and drink beer. Sleep. Repeat. 

They can sleep in a bedroom, on a sofa in the living room, or on their own inflatable bed if they brought one.  Some guys that are good friends even share a king size bed.  I've had 9 guys stay in a house that only had 3 beds in 3 bedrooms.  One guy was even sleeping in a 3'x8' closet.

Only 1 person can comfortably use the bathroom at one time.  The other people have to wait for their turn.  When they wait, it cuts into their time to eat and drink beer.

@Wes Short I have a design division so I'm lucky enough to be able to buy furniture, bedding, etc at wholesale prices. We find a lot of our decor at TJ Maxx/Homegoods. I tend to buy new furniture and decor to make the house look spectacular so it commands a good nightly rate. I spend more upfront but I am usually profiting within 6 months.

@Wendy Schultz   6 months is also my magic number.  That's how many months of rent it takes to recoup the purchase price of a house in this town.  It can take 6-10 months to get 6 months of rent. If you google "worst place to live in Kansas" my town is #1.

Wes, who is your target customer in Bloomington? Students during the year that only need housing for a semester? Parents in for graduation weekend? Knowing this is critical in Bloomington. Bloomington has a TON of vacancy over the summer, so it would be difficult to fill your STR for 4 months out of the year and be profitable over that summer. AirBnB and craigslist is already filled with too many properties and sublets.

Also, Bloomington has a lot of new apartments coming online in the next 12-18 months... This is going to suppress rental prices of individual houses, be it for STR or regular rentals. Unless of course you create a very high end AirBnB like Grant Street Inn, catering to parents able to pay $250-$400/night. I think that is a niche that has not been filled, but any houses within walking distance of campus or downtown are 400K+.

We have an AirBnB in our neighborhood on the south side of town.  Its been going for over a year now, so I assume it is profitable for the owner... BUT, they used to live in it, so it probably has $10,000 worth of furniture already in the house, so keep that in mind. The neighborhood is 240k-400k houses. 

@Paul Sandhu it sounds like you are succeeding despite the challenges of your town. Good for you! 

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@charles sunn

One of the people from city planning talked with our REIA here in Bloomington and said they are estimating something like 20 or 30k new rental units needed over the next 5-10 years, so from what they said I don't see vacancy being a huge issue if you buy right.

I'm planning on trying airbnb in a new duplex on north side of town I'm purchasing. I did research and compared rents and airbnb prices, so I'm fairly confident it will work, but like with most things nothing is for certain.

My focus will be vacations/trips to town for graduations, games at IU, family coming to town/etc.

For costs, I added all utilities and a bit more to maintinance costs. Also, I am looking into management, but I live 5 min away and have someone to do lawn and maintinance so plan to self manage for now and bring in help as I expand.

I did read an interesting article that cited Bloomington as 3rd highest airbnb stays behind SouthBend and Indy.

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