CapEx for short-term rental properties (Airbnb)?

Question

Hi everyone, I have an Airbnb property fully managed (20% commission) in Oakhurst, CA. The property makes about 55k in revenue per year. I am trying to build Cap-Ex into the financial model. What is the average percentage of the revenue do people re-invest in the property?

John Underwood · Answer

I just keep plenty of cash in the bank and I don't worry about it.

Have enough for a complete HVAC or roof and you should be fine.

Don Konipol · Answer

@Tim Shi

In terms of comparison with long term rentals, repairs and maintenance may be a little higher, or more often needed.  Although it’s tough when you’re stretching for a down payment, most problems that occur for landlords come in one of three areas.  All can be alleviated, at least somewhat by having a nice cushion in. Reserve

1.  Repairs/maintenance needed in excess of expectations

2.  Neighborhood deterioration leading to long term rental rates falling, as well as occupancy and quality of tenant.  Think Detroit 1965- 2018.

3. Change in Governmental regulations.   STR restricted, occupancy tax, occupancy certificate, etc.

Paul Sandhu · Answer

I don't really reinvest in properties, I just maintain them.  In other words, I'm not going to remodel the kitchen but I'll replace a broken garbage disposer.  But I rent to refinery ruffians.  Big burly guys that smell like diesel fuel, drive jacked up 4x4s, chew tobacco for breakfast and have neck tats.  Wait, that sounds like me except for the tats part.

Alecia Loveless · Answer

@Tim Shi I use 5% as the figure when calculating on a purchase but then once I own the property I just build up a big reserve to work from in case something goes wrong. I usually don’t start taking any of the cash flow out for 2 years while I am building up my reserves.

When I say this keep in mind I live in a rural area and my rents are under $1,000 per unit per month for the most part so building up reserves takes me more time than it might someone who’s rent was $3,000 per door.

Alex S. · Answer

@Tim Shi

I use 5% in all my pre-acquisition due-diligence, because I want to be consistent when analyzing different properties. That said, @John Underwood is right...just always have some cash in the bank for a roof or HVAC and don't worry about it.

CapEx for short-term rental properties (Airbnb)?

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