All Forum Posts by: Patrick Diamond

Hi everyone -

I'm rather new to the site & REI but am hoping I can get a little insight from some more experienced folks.

I have been very successful in the past with short term rental / bed and breakfast properties utilizing Airbnb, VRBO, Homeaway, etc., and have been looking for a place since we had to close our L.A. based B&B this past March when the property was sold from beneath us as the property owner was going through a nasty divorce...

We have found a property in Wrightwood, CA, which is a resort town in Southern California (home to Mountain High Ski Resort and one of the gateways to the Angeles National Forest / San Gabriel National Monument).  The area receives over 1MM visitors per year, and new amenities are continually added, however there is a lack of quality lodging.  We have developed a comprehensive solution to the issue, and our first step is to acquire the only existing 5-star bed and breakfast in the area, which is currently for sale.  We have developed a rapport with the seller, and she has been advising us and connecting us with the local chamber of commerce, lodging association, etc., which has all been great, however, we have a problem:

The current owner treated the BNB as a semi-retirement job, and did not keep good records in regards to the previous stays... many were cash paying guests and were not recorded at all... this has forced her to have to sell the property as a residence, and is making it difficult for us to finance through regular channels.  We have put hundreds of hours into due dillgence and have an extensive and thorough plan, and are confident that we can refinance in a year as a commercial property after we get in and keep good books, etc., and will be able to valuate it as a Bed & Breakfast, which will generate a nice chunk of equity, but the problem is getting in.

I wonder if anyone has suggestions on equity or crowdfunding approaches that we may use. We currently have approval for 70% through a hard money lender, but several people I have talked to from here in the past few days as well as some of our contacts and mentors from our local REI community have suggested we could structure it as an equity dealmore easily than a HML and for less... One issue is that there's kind of a grey area where this deal falls... it's got two standard rentals on site (a guest house and a cabin) as well as the three rooms in the main house which are currently a BNB. We of course plan to convert the standard rental units to short term like the main house to increase our revenues.

If anyone has any suggestions I would appreciate it greatly!  We also have a full plan with financials, marketing videos, etc., already created.

Also:

I created this calculation using Biggerpockets.com with the numbers we came up with. Please let me know any thoughts you may have on it:

https://www.biggerpockets.com/calculators/shared/432470/81e3ff6b-4e6e-4d6a-b345-3bbc4a39df81

Hi Dan -

In the line of resources, for a more simple way to get some info on occ rates and going rates, you'll also want to check out something like www.airdna.co , which can give you a bit more comprehensive information on short term rental analytics... there's a free report which will probably be all that you'll need.

I would add that when you're looking toward other listings to drill down a bit more, keep in mind that it can be difficult to get apples to apples comparisons, as the success of one listing over another depends often times more on the way it is managed than the amenities.  One mistake I find people making quite often is thinking that their location isn't ideal for Airbnb or other short term rental sites, because it's not near any tourist spots... Many people shoot themselves in the foot on this and leave a lot of cash on the table.  Often times, the areas which aren't "touristy" can be a gold mine for someone who really does their homework on short term rental.  A great supply of guests, usually 1-3 month long stays, comes in the form of just about any hospital or medical research center... I've hosted countless doctors and nurses over the years, all willing to pay a premium for a furnished and convenient pad without a long term commitment needed.  I know people who have forged relationships with the HR departments of nearby large campuses (academic and corporate) to get to the point where their income is generated on autopilot (some no longer even need to list via airbnb, homeaway, etc.).

Along the lines of management, you can turn to a company like Pillow, which likely operates in your area.  I can also provide you with some other recommendations along the lines of management if you get to that point.

The bottom line is that, though it takes more work to set up properly in the beginning, you can make 40-50% more through short term rental (notice I didn't say vacation rentals :) )

There are other regulatory caveats, etc., and I feel like the extra work in setting it up cause some people to just say "it's not worth it"... I have taken apartments that were renting on the regular rental market for 1,400 dollars in L.A. and had them making over $6,500 verifiable income in the busy months, netting around 3K after management expenses, etc... It's definitely worth a second look!

I filed my first corporation in Deleware (we are in California). It ended up being a waste of money as no investors would do anything with us until we were "properly" set up. It also made developing corporate credit a headache. 12 years later I never try and skimp by setting up foreign corporations (that's what you'd be doing)... I would recommend going to some local REI meet ups and getting connected to attorneys or tax advisors who specialize in working with REI's and get their advice. There's usually a free consultation. You may find you will end up having to file in your state anyway at some point.

Also, check out a listing of mine which has been very successful in a cramped space.  It's mainly been rented by nurses and corporate types... You'll notice that I have no range in the space (or dishwasher)... you'll also note that nobody complained about the lack of dishwasher lol

https://www.airbnb.com/rooms/2072538

Airbnb Peoria Basement Example

I would honestly nix the dishwasher... It's not something that typically raises the value of a STR... almost none of mine have had dishwashers, and the ones that have I find the guests rarely use. If you were doing a standard rental that's another thing.

Hi Chad,

I don't look at this as something that you need to contact an attorney about; I think it's a matter of common sense and it's also nice to be sensitive to your customer's backgrounds in any business, so you're already showing that you're taking that extra initiative, and I applaud you for it!  It's double nice that you're taking the time to send cards to your tenants!

That said, it's always a good idea to be as neutral as possible in business... the litmus test is "could a reasonable person be offended by what I am putting out there?"... Of course, you can't please everybody (that means the "unreasonable" people) :)

Just do your best, and remain neutral... Personally, I only send out "happy holidays" or "season's greetings" cards, unless I know personally that the recipient is celebrating Christmas.  It's important to be mindful that everyone is different.

So go with your gut, and keep being a nice enough landlord who sends out cards!

And Happy Holidays!

Hi Christy,

I would recommend looking into doing a short-term rental via Airbnb or another provider... I have personally had tremendous success with it, and I'm quite sure if you're near the beach you can pull in much more than 1000-1400 a month.  To start you can check out the website www.airdna.co to get a report on the area... There are some other sites that provide that type of information as well.

Beyond that, you'll need to have a bit more information as to the area and the regulations on STR, etc.

While it is a different model than taking a standard renter, I think you'll find that if you do your homework and set up good systems for its operation, it can well be worth the extra legwork.

Are you local to the property?

I would concur with a few of the responses in here in that I think your number one question should likely be:

What is your demographic for your guests?

I have had a tremendous amount of success in using Airbnb to turn some apartments making minuscule rents into big money makers (e.g. I took one apartment which was generating $1,400.00 gross into about $4,500 net by renting the three rooms in the apartment individually).  

Check out www.airdna.co to get a free report on what the area is doing in terms of short term rentals.  If you're not local to many tourist attractions, you'll want to take into account nearby medical centers or hospitals and research centers, followed by corporate campuses and schools;  you'll find that all of these are typically going to pull a longer stay.

For the kitchen, I have found that on a shorter stay (up to 14 days), full amenities including sink and larger fridge, etc., are not required, and often go unused.  I get the feeling, however, that in your area, you'll be working with corporate or traveling nurse/doctor type guests.  I have gotten by with induction cooktops (safer than hotplates) and micro/fridge hutches.  Don't know if that would work for you, but worth it to throw out there.

Best of luck and happy holidays!

Hi Tucker -

I would echo Jenna's remarks... 

Also, I do have a few spreadsheet tools I have created which I am happy to share if you're interested.