New real estate investor from Duluth, Minnesota
Duluth, MN · Member since 2016 · 6 posts · 1 vote
I have been listening to the Bigger Pockets podcast for about 6 months and I just recently decided to checkout the website. My husband and I are looking to buy our first investment property in the next couple of months. Although we are currently living in Duluth, Minnesota, we are actually looking at properties in the small town of Houghton and Hancock, Michigan. My husband still co-owns a small business in the area and we get back there pretty regularly.
Our current plan is to buy a house for short-term rentals (e.g., airbnb). I would love to hear from others who have tried this - both the good and the bad. Part of the appeal is to have a house we can stay at when we are in the area (usually about once a month).
Our goal is to buy at least one single family home per year for the next several years, so I'm guessing we will end up doing a combination of long-term and short-term rentals.
Thanks for any feedback or thoughts!
@Heather Wendel that's great and sounds like a good spot! I too manage my property remotely and can say that having a reliable handyman and cleaning company on call are key.
I take all of the reservations myself through Airbnb and VRBO and then simply schedule the cleaners as needed. They are very reliable and I have walked the property with them to show them exactly how I want it to look for guests.
A tip I learned from a colleague is to actually ask what the cleaning company would like to be paid for the job and then offer them a small percentage more per clean and tell them this is contingent on them doing an excellent job and reporting any issues to you. I also let them know I am looking to build out a long term relationship that will help their business grow and that the more great reviews I get, the faster I will acquire new properties and thus bring them even more business. This motivates them to clean your house to your standards and act as a watch dog for anything missing or damaged.
The best part is that I pass the cleaning fee directly to the guest through Airbnb so it's a win-win!
Hi Heather and welcome to BP!
If you haven't already tried searching BP for the term "airbnb" I would suggest you do so as you will find quite a few hits across the various areas of the site (forums, blog posts, marketplace, etc.).
I'm sure you'll find some good general information to help you out and quite possibly some specific information to your approach and area.
Another thought is to check out BP meetups in the Duluth area to connect with other investors in your area.
Good luck!
Hi @Heather Wendel and welcome to BP! I currently have a property that we rent out on Airbnb and I can tell you that it can be very lucrative but there are many things to consider with a STR vs. a traditional long-term.
I am not familiar with your area, but I know that demand for vacation rentals greatly depends on the location and proximity to amenities. Are there events that happen regularly? Are you near hospitals and universities that would drive business? Are you in a desirable vacation destination? These are all things that would drive business for a vacation rental. I'd recommend checking out Airdna.co for some data on Airbnb and STRs in the locations you are considering.
Will you have someone managing your property or will you be managing it remotely? Short-term rentals require much more management (turnover, cleaning, maintenance, etc.) However, a lot of these processes can be automated and the business can be scaled quickly if it is managed correctly.
Best of luck!
Welcome to Bigger Pockets. A great resources is the webinars section of the website. https://www.biggerpockets.com/proreplay
Thanks for the welcome and great suggestions!
@Ariel Vincent the area we are looking at has a couple universities and is a popular destination for both summer and winter outdoor activities and we know several people who have been successful with using airbnb at their properties. Since we will be managing these remotely the logistics and costs associated with the STA are something we are currently trying to work through. I'm guessing once we purchase our first property we will have a steep learning curve and will hopefully figure out ways to automate as much as we can.
Welcome to BP.
As you have mentioned, there is a learning curve associated with a vacation rental, both on the operations and on the tax side of things.
They can be good investments if you are in a prime location or if there are many events going on however if you use the property too much personally it no longer becomes an investment and the tax deductions can become limited. For example if you personally occupy the property for more than 14 days or 10% of fair rental days, any deductible loss will be reduced to $0. The income may not be taxed however part of the advantage in rental real estate relates to possible tax deductions. If you spend more than 1 day there every month you may trip this limitation.
Another commonly missed thing is that many localities charge Lodging taxes on short-term rentals which is similar to paying taxes at a hotel. VRBO and Airbnb may or may not collect these taxes on your behalf (I thought they didn't) and I have had clients audited by the state and they owe $10k in taxes over 3 years. Just something to watch out for.
Good luck with your investing, there is a lot to learn on this site!
John Woodrich, CPA
@Heather Wendel that's great and sounds like a good spot! I too manage my property remotely and can say that having a reliable handyman and cleaning company on call are key.
I take all of the reservations myself through Airbnb and VRBO and then simply schedule the cleaners as needed. They are very reliable and I have walked the property with them to show them exactly how I want it to look for guests.
A tip I learned from a colleague is to actually ask what the cleaning company would like to be paid for the job and then offer them a small percentage more per clean and tell them this is contingent on them doing an excellent job and reporting any issues to you. I also let them know I am looking to build out a long term relationship that will help their business grow and that the more great reviews I get, the faster I will acquire new properties and thus bring them even more business. This motivates them to clean your house to your standards and act as a watch dog for anything missing or damaged.
The best part is that I pass the cleaning fee directly to the guest through Airbnb so it's a win-win!
I was not aware of the personal occupancy limitations, so thank you very much @John Woodrich!
@Ariel Vincent I've heard some of the BP podcast guests mention similar tactics, but I hadn't thought about using that with a cleaning person (or company). Great advice - thanks!
@Heather Wendel. As always @Ariel Smith delivers some great thoughts on Airbnb. And @John Woodrich points out the tax implications. I didn't see anyone else mention it so I thought I should. You should consider any local laws ... and the potential for any laws on Airbnb. Here in Denver, the city has cracked down. I sense that vacation spots like the mountains or small beach towns (or maybe small getaways in northern Michigan) aren't as stringent, but as Airbnb's numbers grow more people will start asking questions, and you never know if the town you buy in might decide to do something.
Don't let this discourage you. Airbnb can be a big profit generator. Just go into it with open eyes and have a plan B in the back of your mind in case something changes in a few years.
Good luck!
@Heather Wendel, I just wrote an article on the benefits of using Airbnb. Fun timing!
It's a fantastic way to earn additional income on your property. Using Airbnb for four of my properties, I've come up with systems that help to increase cash flow.
First and foremost, Airbnb is hands-on. Don't jump in if you're not willing to serve your customer. This about a great customer experience. I can't stress this enough.
Secondly, it gives you availability to use your house. You're not locked down like a long term rental contract. You may have to pay cleaning fees to use your own house, but a small price to pay to enjoy a nice little retreat.
Airbnb allows you to exceed earning potential than a typical long term rental property would. For instance, one of my houses is in an area that could probably get $1,000 rental income in a long term contract, but by having it rent on Airbnb I am grossing nearly $3,000 on average. Of this, of course, there are deductions to be had... whether it be amenities (I provide a bottle of wine, fresh sponges, fresh paper towels for every guest), utilities, HOA, and of course the largest cost: cleaning. But this allows for tremendous deductions.
Find a great team of cleaners, and people who are willing to assist you with the home - try to see if your cleaners can take on the responsibility of stocking the home and pay them a little extra for their time at Costco. A solid cleaning team makes this process so much easier - they will be in touch, tell you what is wrong with your property, and help you with the basics of the hosting process. The trick is to offer the greatest product with the least amount of involvement as possible.
Good luck, and happy Airbnb'ing!
Oh and on the lodging taxes, states are getting very aggressive in catching these properties. A client I am now working with was audited by MT because they saw his vacation rental listed online and they didn't have record of receiving any tax payments. He is the one who owes over $10k for the past 3 years. Make sure you don't have that as a part of your learning curve :)
Thanks @James Carlson, @Jonathan Safa, and @John Woodrich - all great advice to know before we get our first property!
@Heather Wendel If you consider working with Airbnb or vacation rental managers, you would open yourself up to wide variety of investment opportunities as you would not be confided to areas you and your husband physically go on a regular place.
I recently helped out on an Airbnb investor's report on the top markets for investors based on ROI opportunities. Feel free to check it out on our site (is the "2016 Rented Rental Income Report").
Thanks @Andrew McConnell. A rental manager is definitely something we may consider in the future and I will check out the report you referenced. Since we are just getting started, I know I'm excited to learn more about STR (both the good and bad!). But since we are currently looking a smaller market, it would be good to keep our eyes out for other locations.