Rental Properties via AirBnb

7 Replies

So my husband and I have enough to put 25% down on a lake house that is about an hour and a half away from where we currently live. We have four other rental properties right now (just for background). 

My question has two parts: 

A.) Would it make more sense to purchase property to AirBnb (approximately $325.00/night) and have the $1,500.00/month mortgage or to pay off our existing house to decrease interest paid over the course of the loan? 

B.) Has anyone done AirBnb before and, if so, how did you handle cleaning and maintenance? 

Thanks! 

Which option gives you the highest return? If you can make more with the AirBnB returns than what you are paying in interest on the current mortgage, go with the investment property. Keeping in mind the added appreciation, tax benefits, etc. on the investment property. Or, if you would save more money paying down the mortgage than you would get in returns on the AirBnB, go that route. It's all about numbers.

I haven't done AirBnB but from what I've gathered, people either do the cleaning and such themselves, or they have a go-to housecleaner to do it each time, or some companies specifically manage AirBnBs and charge a management fee to keep everything where it needs to be.

@Allison Patterson . You will have to answer the first question for yourself. I would never dream of paying off any home I own. Maybe if I were in my 70s. Kiyosaki GOOD Ramsey BAD. As far as managing your vacation rental that’s a phone conversation but the short answer is.... study your neighbors. Find a housekeeper, take good pics, put it on line, don’t over think. @Paul Sandhu ever feel reading the forum is like groundhogs day?
@Allison Patterson Hi Allison, you pose a great question. As others have said for your first question, it comes down to running the numbers and seeing what provides the greatest return. On top of considering the bonuses of mortgage paydown, tax advantages, and appreciation (even if just as a tiebreaker for appreciation since its not guaranteed), you also need to dig deeper into the second question. You cannot properly compare the numbers until you have ironed out the details on cleaning and have a good sense of projected price, seasonality, and vacancy. Keep in mind the airbnb route will take up more of your time as well, which should be a factor. Airbnb property management can get quite expensive (average 20% or more of revenues as their fee). Although you have not given much detail, my first hunch is that an airbnb would be more likely to generate more money for you, but that it will be more time consuming and hands on. Best, Jonathan

Vacation rental can be lucrative, but it is a lot more work if you don't hire out a property manager. You have to build up a good reputation through reviews and have it show nicely in photos. Also keep in mind the seasonality and that you might not be able to keep it occupied year round. Property management and cleaning is key - since you don't live far away, you can get away with managing it yourselves (communicating with guests, arranging cleaning, arranging repairs) but you need to find a cleaning service who would be available in the short turnover window. You can try reaching out via the vacation rental platforms to other hosts in the immediate area of that property to see what they do about cleaning - to get ideas or recommendations. Look closely at the lake house numbers, in my STR experience, the start up and ongoing costs were higher than expected to maintain quality.

The question of acquiring more investment property or paying down debt is definitely a personal choice, and depends on your current income and other factors. If you can really get $325 per night and have decent occupancy, you can use the extra AirBNB income to make additional payments on your primary loan, to slowly reduce the interest and timeframe.

@Allison Patterson STRs is not something you just want to experiment with. Either you are all in or all out. I have 24 STRs in a refinery town, the furthest one is about 7 minutes away. Yes, I self manage with my wife. Other people have tried to do what I do here, but they fail within 1 to 2 years. Every one of those people have full time jobs, their STR is something on the side. I have a part time job, it's giving pre-employment drug screens to people starting contract work at the above refinery.

I would be very cautious about having a STR 1.5 hours away. There are a multitude of simple things that can go wrong, break, need fixing, or otherwise take 5-10 minutes to fix. If your round trip is 3 hours for a 10 minutes job, you're going to get tired real fast about having an STR 1.5 hours away.

Take your projected numbers.  Cut your monthly revenue in half and double your expenses.  If you're still in the black, then go for it.  If you're in the red, forget it.

@Paul Sandhu Love you brother but my vacation homes are 4 hours each way from where I live and I never have any problems. Systems. It’s about systems.

Putting the financial part aside, do you and your husband want a lake house?  Is this a way to get the vacation home you always wanted, while letting it pay for itself?

If so, I'd do more research, but then go for the lake house!  Have a chat with your CPA, but there are some very nice benefits with, say, going to work on your property on Friday and Monday, but then enjoying the weekend at your lake house and being able to deduct travel and some of your meals.

Airdna.com is a good resource for estimating vacancy and revenue potential. Property management on STRs is expensive, but it doesn't have to be all or nothing. I self manage our STRs and communicate with guests, but I have a cleaning staff, backup cleaning staff, and a handyman who can typically respond the next day. With remote rentals, you just need better contingency plans. Is there a nice neighbor who could, worse case scenario, run an extra blanket over or see why the breaker isn't flipping back on. With our local STR's I get maybe 1-2 calls per month from guests needing something outside of my normal cleaning/maintenance process; and it's usually simple requests for things like an extra blanket or the cleaning lady forgot to restock toilet paper. The nice thing about Airbnb is that people are pretty forgiving. As you bumble through getting your processes figured out, there's not much that a partial/full refund won't remedy.

Is it remote?  Will you get year around traffic, or is it a seasonal destination? As you start crunching numbers, think through your plan for a worst case scenario.  On the one hand, at $325/night, you only need 8-9 nights per month to cover your mortgage, utilities, and cleaning.  However, what if you only got 5 nights/month for 3 months in row—would that put a huge burden your monthly finances?  If needed, is there enough demand that you could slashes prices to $75/night+cleaning and keep it close to full?