AirBnB vs. Traditional Rental Income: A Creative Way for Investors to Cash Flow in Expensive Cities

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We have quite a few friends here on BiggerPockets from expensive West Coast cities like Los Angeles, San Francisco, and San Diego, and we frequently see these would-be investors look for out-of-state investment opportunities because of the relatively high price to rent ratios seen in their local markets. There just don’t seem to be any properties that even come close to matching the mythical 2% rule in these pricey cities, and investors often complain about the relatively low cash-flow these properties generate compared to similarly sized investments in other areas.

In this article, I want to challenge the assumption that folks in expensive cities need to look for out-of-area properties. I’m going to challenge that with some data provided by our friends at Mashvisor and look at how AirBnB can make an impressive difference in rental cash-flow in certain cities. In some cases, the data suggests that investors in certain markets may be able to cash-flow at double, triple, or even four times the rate of their traditional landlord competitors by swapping traditional tenants for AirBnB guests.

Related: How To Use Vacation Rental Sites To Make Money Off Residential Income Properties

The Data

You can check out the full dataset in this file, found at the BiggerPockets Fileplace. It’s got neighborhood data from each of ten major cities and is a great case study on the usefulness of AirBnB as an alternate form of cash-flow generation from rental properties.

This study looks at four pieces of data for various neighborhoods in ten U.S. cities:

  •  Median Rents
  •  Median Single Family Home Prices
  •  Median AirBnB nightly rates
  •  Occupancy Rates for AirBnB Properties

Those may not be the most useful data points for some investors, and this study should be treated as just a start in your own market research.  I’m using the aggregate data simply to challenge the assumption that cash-flow properties don’t exist in expensive cities.

I went ahead and adjusted nightly AirBnB rates by average occupancy rates to compare annual price to rent ratios of fully traditional rentals to potential AirBnB income. It turns out that in certain cities, the cash-flow potential of properties appears to increase dramatically with AirBnB.

Check out the chart below to see the comparison:

TopCities_AirBnB_xlsx

All of the sudden, San Francisco and Los Angeles seem a little less forbidding. In fact, from a revenue perspective, AirBnB makes properties in these cities more attractive by a factor of 3-4! While property in these cities still may not cash-flow at the same rate as properties in Milwaukee, WI or Memphis, TN, this data may at least give resolved investors a glimmer of hope that the extra work that comes with AirBnB tenants may actually mean that properties in their city can cash-flow at reasonable rates.

A Case Study

This data gets even more useful when you delve into specific neighborhoods. A great example of this is Westchester, Los Angeles, where median rents are about $2,118 vs. AirBnB nightly rates of $319 per night.  Assuming that this beach neighborhood is only rented out for 110 days per year (30% occupancy), then landlords can expect to bring in $35,090 per year through AirBnB vs. $25,416 per year from traditional rental income.

While AirBnB tenants are likely to require far more work and are likely to increase the operating costs of your rental property over time, that extra $10,000 in cash-flow might be great recompense for the added effort. That’s a decision that will have to be left to you as an individual to weigh. Just remember that in order to run your business using AirBnB, you may have to clean, make repairs, and contact guests more frequently than you would with a traditional tenant — or you’ll have to pay a property management company to do those things for you.

Related: The 10 Best Real Estate Investments for Smart Real Estate Investors

Conclusion

Personally, I think that this data could be most useful to house hackers living in expensive cities and looking to get started in real estate investing. House hackers benefit from appreciation more than the average investor (assuming that they are heavily leveraged using FHA financing) and may therefore be willing to take on the burden of managing ever-changing AirBnB guests in exchange for the opportunity to experience appreciation in a popular neighborhood they know well and would enjoy living in. Further, because they live in the property, managing tenants might be less of a burden for a motivated house hacker than for remote landlords looking for more passive returns.

The other folks that might benefit most from this data are vacation rental owners. That said, these folks are likely already aware of the benefits of AirBnB or have other means of finding guests.

Finally, I wanted to thank our friends at Mashvisor once more for providing the data used in this study.

  • What do you think? 
  • Would you be willing to take on the added management costs of using AirBnB regularly in exchange for increased cash-flow potential?  
  • Do you think that this data changes your opinion of certain markets?   

Voice your opinion in the comments below!

About Author

Scott Trench

A longtime fan of BiggerPockets and a Real Estate Investor managing his first property, Scott is the company’s Director of Operations. BiggerPockets is a BIG website, and Scott’s background in finance and big data analysis will be instrumental in the next phases of company growth and in helping to bring the resources of BiggerPockets to more investors worldwide. Scott is passionate about helping others build wealth and serving his community in whatever ways he can. In his spare time, Scott enjoys skiing, biking, and cooking, and he is a lifelong rugger.

56 Comments

  1. Jerry W.

    Scott thanks for taking the time to help us think outside the box. I have been considering a similar situation. We have traveling nurses who rent for 2 weeks at a time. I cannot help but think they would prefer a house to a Motel room. it deserves more thought anyway.

  2. Beth L.

    Yes, this does give thought to another avenue in which to go. Some things to consider is the cost in furnishing the unit completely. We recently estimated the cost for a 4/3 house to be between $25,000-$30,000, including appliances, beds, linens, towels, electronics, all furniture, decorations, complete kitchen ware, game room supplies or other things to make a guest feel welcome.

    Also, like you said, the operating costs are higher. You will be paying ALL utilities, and most likely a PM if you aren’t local, or don’t wish to meet with the guests. If you normally would have the tenant take care of the lawn, now you do, and that would be an extra expense. The wear and tear on rental homes is worse since guests are always wheeling around luggage. Since they are not paying for utilities, they don’t care if the lights and A/C are left on, or if they take long showers.

    You also now have to follow different laws since you are in short term rentals (usually classed like hotels). You must register as a business, collect sales/tourist taxes, and file those taxes each month. Some cities/neighborhoods do not allow short term rentals, so this is something that would need to be confirmed before going ahead.

    (I am speaking from vacation home experience in the Orlando area.)

    Scott, great job comparing data! I am sure that this will be helpful to those in some of the bigger cities as another option for renting out their place.

    • Scott Trench

      Beth – thanks for this comment – very informative and value added. I agree completely with you that the operating costs, furnishings, etc will all be higher with an AirBnB property than with a traditional rental property.

      The AirBnB space is still very new. It seems like a lot of cities are just kind of making this up as they go along, and that the rules vary from state to state and city to city like you said. This definitely needs to be researched thoroughly at a local level by anyone trying to get into this business.

    • Brandt Tingen

      Beth – just a thought. 25-30k seems like way to much to furnish a house. By appliances, did you mean the countertop stuff or like actual washers/dryers/dishwashers/fridges etc. I think if one was frugal an entire 4/3 could be furnished for under 8k, maybe even less. I mean we’re talking about big wealthy cities, which contain an abundance of wealthy people and high income earners. At least what I have found in my market (D.C.) is that if one scouts craigslist for what they need, I find bargains all the time. A lot of times I find lightly or even seemingly never used mid to high end furniture, being sold for 10-20% of it’s cost by the wealthy in this market. Sometimes these things will be sitting in one of the 20 rooms in a 10,000 square foot house… and it was never used until is was sold. I just think that by being a bit more resourceful you could cut your furnishing projections in half or maybe more.

      I’ve seen some great articles here about reducing utility expenses in vacation rentals, from regulating the pool filter, to up-charging the tenant if they use the pool heater to using some unconventional looking motion detecting lights (if anyone finds interior lights that turn off automatically without looking out of place please let me know), but I’m not sure how applicable this would be in metropolitan areas of the N & NE (due to the seasonality of pools). I’m thinking that utility costs are a sunk cost with regards to vacation rentals that we just have to bite the bullet on, but I’d love to be proven wrong and find out there’s some great solution for recouping utility costs on vacation rentals. Maybe the best way would just be to ask the guests in your welcome packet to please be considerate of the lights/water/HVAC to keep the rates low for all future guests to enjoy.

  3. Jeff Chi

    Interesting. So NYC is the only big city where airbnb occupancy adjusted price to rent ratio does not fair very well against traditional price to rent ratio, Even though median house price in San Francisco is more expensive than NYC, the higher rents it command on airbnb and extremely high occupancy rate more than make up for the higher house value.

  4. Alex Zemianek

    Well said and excellent data Scott! I stumbled into the Airbnb opportunity due to not having luck renting one of my 4 family apts furnished. A friend of mine that has his listed in STL told me about his success, so It was worth the 300 dollar investment(Since I already had it furnished) to give it a try and gather the linens, kitchen supplies, etc.. To my surprise .. within 48 hours of a live posting, I started receiving request for nightly, weekend, month long, and occasionally 3+ month stays. It does cost me a little extra in operating cost, but the cash flow is well worth it. I rent my other units for 825 a month(2 bed/1ba 900 sq ft apts) , and i’m not collecting around 1500-2000 a month through Airbnb on ONE unit. Also, we managed it ourselves for 1 year and it’s pretty easy through Airbnb’s website. Homeaway and VRBO aren’t as user friendly in my opinion. To save us time and trips, we setup a lockbox, send every guest detailed instructions, and email our cleaning company the calendar each month, so it’s pretty seamless once you get it going. We’re now on our 2nd listing with Airbnb, and it’s been more successful then the 1st example because we took a small 2bdrm 1ba single family home, completely renovated it, and listed it for 120-130 a night(1800 at the least a month on a 6-700 mortgage with about 200 in total running cost)… we’re starting to create a business strategy around it because you can potentially cash flow 3-4x more on one single family home. The important thing though is that your property is in a good area and has some sort of tourist attractions near by.

    • Scott Trench

      Alex – it’s great to hear from someone who is actually implementing and succeeding with this strategy! That’s awesome! I think that you are correct in that a huge driver of long-term successful AirBnB properties will likely be proximity to tourist attractions and appeal to out of towners. That should definitely be factored in when making the decision between traditional tenants and AirBnB guests!

  5. Maura Paler

    I would assume the income from nightly rentals in any city would FAR surpass a yearly lease. We have had incredible returns and occupancy rates from 6 years of numerous vacation rentals in NYC. Wish we could continue!

    However, it is now illegal in NYC – and many other metro and urban areas – to rent by the night or week. There is now a one month minimum in NYC, the return is not so great, and the occupancy is lower as it’s hard to find someone coming for a month or two who is moving in the same day or close to your last guests departure date.

    The same for our building in South Beach Florida, after 10 years of very successful nightly and weekly rentals with a gross income at $265,000 for 8 studio and one bedroom apartments, income decreased to $170,000 after being forced to switch to monthly. The headaches involved, and the utility bills (again – no control over what tenants use!) we just switched to yearly leases. What a bummer!

    The only exception to this monthly rule is if you own your own home, you can rent a room out in that home on Airbnb by the night, but you must be present in the house during their stay. Apartments may not be eligible – your condo association may have a rule against it and your neighbors may protest once they see strangers coming and going in the hallway. If you own a townhouse and rent out many rooms – you may then be subject to proper zoning as, and conversion to, a legitimate B&B.

    Be aware – they KNOCK ON DOORS and ask tenants for their lease when they suspect illegal weekly rentals, we have had it happen in FL and NY, so be sure weekly rentals are legal before investing any $.

    That said – we LOVE the vacation rental business, and now have 4 in a VR friendly town, and are in contract for our fifth. These are all on lakes in the Adirondack Mountains, we are very happy with our returns. RE is still relatively cheap here, we are 4 hours from metro area (NYC) so still within a weekend drive away, we purchase attractive locations, provide good amenities (houses have great views, comfy interiors, kayaks and other fun stuff), and really enjoy doing this vs working in an office.

    We are looking to do the same somewhere warm down south, having a hard time finding the right spot with reasonable pricing. Would like to invest with others – our experience is the more you have, the easier it is to hire reliable maintenance and housekeeping, which are crucial in keeping things running smoothly and relatively stress free!

    • Scott Trench

      Maura,

      Thanks for this thoughtful comment. It is absolutely imperative that any budding landlords are aware of the laws in their local districts. As you noted, many cities require at least a one month stay else you must register as a B&B.

      I approached this with more of a “first time investor” mindset, and I think that for a lot of first time investors, AirBnB could be a good option. An owner-occuppier in a fourplex in San Francisco, for example, would not be required to register as a B&B, and could rent the place out by following new laws that favor this type of strategy.

  6. It would’ve been helpful to note that in most of these cities, including San Francisco, the short-term rentals you’re recommending are illegal and subject to substantial fines. That’s a pretty key fact, don’t you think?

    • Scott Trench

      Dale – it seems like a lot of folks are commenting on the legality of this strategy.

      First of all, short term rentals are not illegal. They simply require a different type of registration that may or may not be worth the hassle to some landlords. The biggest problem with the short-term rental business (or hotel business) for new entrants was in finding guests. AirBnB makes that a lot easier nowadays.

      Second, It is my belief that San Francisco in particular actually makes AirBnB MORE appealing than other cities on the list. Check out this article from Business Insider, titled “San Francisco Makes AirBnB Legal At Last” for more information.

      http://www.businessinsider.com/san-francisco-makes-airbnb-legal-at-last-2014-10

  7. Kevin Dickson

    In most cities, short term rentals of less than 30 days are absolutely illegal. So that’s a problem.

    NYC fined one Airbnb host $1M. Yikes!
    http://observer.com/2013/11/infamous-airbnb-hotelier-toshi-to-pay-1-million-to-nyc/

    Many cities realize this new market is inevitable and are trying to change the old laws:
    http://www.denverpost.com/News/ci_27585730/Council-committee-mulls-plan-to-regulate-shortterm-rentals-in-Denver-neighborhoods?source=infinite

    In Denver, for example, it will still be illegal to do short term rentals in a house or condo that is not your primary residence.

    Portland was the first city to try to regulate Airbnb but has found that their regulations are being ignored.

    • Scott Trench

      Kevin,

      Sounds like the folks in NYC didn’t register properly and follow the law. That is a problem. As discussed by other commenters, it’s important to follow the law in your local area and register your business appropriately. In many cities, like San Francisco as noted in a previous comment, AirBnB may be used by folks that live in the property and they can rent out the unused parts.

      That’s a decent strategy for first time investors who might want to live in a decent area that they know well, but can’t justify extraordinarily high-priced housing at current price to rent ratios.

      • Matt R.

        Great article Scott. You do have to look out for regulations. Cities can guestimate fines and it is up to you to prove otherwise. My brother does well with his vrbo but it took months and a couple thousand in fees to get the ball rolling.

  8. Justin Ashton

    Nice article, Scott. It pays to be creative… but since I am a REI living in SF and you highlight SF as a market that may be attractive to investors wanting to do short-term rentals for better cash flow, I just want to caution readers to dig deep on local ordinances.

    SF’s new law on short-term rentals went into effect on Feb 1st, 2015 and it is designed to prevent non-SF residents / investors from renting SF units on a short-term basis (sorry HomeAway’ers!), so I was surprised you included a pic of SF on the blog cover. I think other big cities on your list will be watching SF closely, especially how much new tax revenue this brings in. There are many risks that should be covered.

    SF’s new law was designed to kill RE investments for units planned as Airbnb-type rentals for all but those who plan to live in the unit. So, a SF house-hacker renting spare bedrooms in her unit instead of getting traditional roommates might do pretty well per your data, but an out of city investor would not be able to rent a unit short-term at all (unless doing so illegally). SFH seems to be excluded but do your own due diligence. I am willing to bet SF will have staff checking Airbnb and other sites against their new registration list and heavily fining violators to make some public examples.

    I give a more thorough rundown of SF’s new ordinance in this thread: https://www.biggerpockets.com/forums/48/topics/124597-airbnb-impact-on-condo-values?page=1#p1221544

    Finally, there are new lawsuits being filed by both sides of the argument, so keep any eye out for new developments.

    P.S. Would love to hear thoughts from any REIs / owners in SF who see the new ordinance differently (pm me if you don’t want to chat in public).

    • Scott Trench

      Justin,

      Thanks for the comment. I highlighted San Francisco because it seems that San Francisco is often dismissed by investors on BP as a good place to invest traditionally due to the high price to rent ratios found there on average.

      My goal was to show that there is possibility there when you think outside the box, and I think in particular we get a lot of folks on BP from LA or San Francisco that are trying to get started in Real Estate Investing, and want to get started in some faraway city like Milwaukee or Memphis, TN. Nothing wrong with careful out of state investing, but for folks that want to stay closer to home, it’s a good idea to consider all the options.

      In particular, a young professional looking to make a very first property purchase, might not do too badly to buy a small, owner-occupied multifamily in a good spot in San Francisco or the like, live there, and airBnB the other units.

      • You’d better read the SF law more carefully, Scott. Short-term residential rentals to tourists are only legal if you’re renting your PRINCIPAL RESIDENCE. It needs to be registered with the city planning department and requires documentary proof that you live in the unit at last 270 days/year. And even then, you can only rent the unit 90 nights a year when you’re not present.

        • Scott Trench

          Thanks for the comment Dale. It’s great to have someone so informed on the specifics of these laws. I see that you represent ShareBetter San Francisco, an organization with the following mission:

          “PROTECTING SAN FRANCISCANS FROM THE PROBLEMS CAUSED BY “SHORT-TERM HOTEL RENTALS” OF RESIDENCES IN THE CITY OF SAN FRANCISCO THROUGH MUNICIPAL ZONING, REGULATION, AND OVERSIGHT.”

          I applaud the recent steps that San Francisco has made in moving toward making AirBnB more accessible, and am excited to watch the next few years as more and more opportunity for Real Estate Investors is created as the demand for affordable housing becomes more and more extreme.

      • Justin Ashton

        And if my warning above wasn’t clear enough for REIs in SF, we now know that non-profit groups interested in preventing Airbnb rentals in SF are watching REI forums and cross-checking Airbnb registration with the city with Airbnb units for rent.

        I guess the 3 full-time employees at SF city hall who are handling the Airbnb permit applications and watching Airbnb listings are not enough…

        I personally think the city will mostly catch lower-income tenants who have been offsetting their rents for years using Airbnb to sublet during the myriad of conferences, festivals, etc.

  9. margaret smith on

    Beth, you said it best. Beware!! In Sarasota, FL, I tried the “Motel “thing, full vacation place management, registered for local and state taxes (together they were 12%, take on ALL income, including the income you spend for management, cleaning, etc). Taxes were a pain and took most of the profit out of the deal. I ignored the fact that I was not zoned for motel use- luckily, my neighbors liked me and did not turn me in. I spent good $$$, really tricked out the property to provide a lovely experience for the guests (I did not live there when guests came in)- and guests were just lovely- until they weren’t. The last called police, got a restraining order on her fellow guest while she was in my house, the “bad guy” had the key to my house. They had brought in animals, left the place in a mess, and all systems had to halt until I had sent upholstered furniture out to be cleaned, locks replaced, just miseries all around the place that more than ate up the security deposit. If you live there, you need to be prepared to be tour guide, help them with car rental and restaurant advice, etc. Also, watch for theft, or worse, from strangers you really cannot vet in advance. Bottom line for me: My personal security would not be worth this highly risky operation.

    Would love to hear of some experiences, good and bad, with revolving door rentals.

    • Scott Trench

      Margaret,

      It’s good to hear your perspective on this. The “Hassle Factor” with AirBnB is going to be a lot higher than with traditional rental income in a lot of cases. That hassle is going to come in the form of increased regulation, registration, maintenance, operating costs, and communication with tenants.

      Is that worth it? I don’t know. I will say that I would be willing, personally, to deal with a lot of extra hassle for an extra $10,000 – $15,000 per year, even if that’s before taxes.

  10. Adam K.

    Thanks for this — it’s tough to find any data on Airbnb, though I’m not sure I buy these numbers, either — a 65x price/rent ratio in SF? That’s definitely way off. You can’t just average the listings for homes with the listings for average rentals. That’s not how it works — that’s comparing apples with oranges. My family has a house in SF that’s probably worth $1MM and we rent it for $4K a month.

    I also would think that the rates you can get on Airbnb are unsustainable, because more and more people will enter into the market to undercut prices.

    • Scott Trench

      Adam – I love this comment on the data. There is always going to be dissent on how the data is collected and from what sources.

      I received the AirBnB data from Mashvisor. You are definitely welcome to check out their dataset in the fileplace, or do even more digging on their platform!

      With regards to price to rent ratios, your right, there are a lot of ways to make that call. I used median, not average home prices, and median rents for the city as a whole. Is that the best comparison? I don’t know, but it is certainly one that is easy to understand, clear, and simple.

      As noted in the article, this data isn’t for everyone, but I believe that it clearly, fairly, and objectively displays results, and that my findings from the data suggest that AirBnB is definitely worth a look in certain high priced cities.

      • Adam K.

        I think the central thesis of the article is fine — that AirBnB is worth a look. However, median house prices don’t match up with median rents, especially in cities. Renters are primarily renting out studios – 2 bedroom apartments, and most homes being sold are 3+. There’s no value in comparing the two. I also looked at the Mashvisor site and the spreadsheet and it’s mostly junk data (at least in the NYC and SF numbers, the two markets I know well) because the comparisons are pretty meaningless.

        • Scott Trench

          That’s a heavy criticism of the data. You are right that it’s not apples to apples, as I pointed out in the main article.

          I’ll just disagree with you that this data doesn’t work to make the point I was trying to make. It is my belief that this data provides a great glimpse at the market level impact of AirBnB vs. traditional rental income across cities. There absolutely is value in comparing the two data points as they are the most accurate numbers in the datasets that we used. If you have better data on home prices and rents, broken down by size, sqft, number of beds and baths, etc across 10 major cities, I’d be open to redoing this study with your better data. It’s just not a reasonable dataset to acquire, when the results of the data that I used clearly demonstrate the market impact of AirBnB as it stands.

  11. Al Williamson

    Solid article. Yep, Airbnb is a great tool. Also, check out AirDnA.com for stats on your area.

    I a big Airbnb user when I travel. I’m also trying to become an Airbnb Superhost.

    The Collaborative Economy is here to stay!

  12. My wife and I co-own an apartment in the Greater Vancouver (BC) area with my in-laws. It’s an expensive area and properties don’t cashflow well. Because they aren’t there all the time, we’ve been posting on AirBnB. My goal was to offset some of the costs of the property, not to make it an ‘income property’. We own income properties, so I can comment. So far, it’s been very positive. It’s more work, but we’ve already paid for most of the expenses for the property for the year. I wouldn’t go out and by a strata (condo) apartment as an income property, and I’d hesitate to use this as an income property rental strategy, but it might work in some locations and it’s certainly been positive in our situation so far.

    Another note – AirBnB isn’t the most user-friendly site sometimes – in fact I’m trying to fix a problem with Support with no resolution at this point.

    • Scott Trench

      Peter – thanks for the comment! It’s great to hear that you are using this strategy with some early success. I think that you are using AirBnB in the manner that landlords will benefit from most – putting the extra work to get a little better cashflow in an expensive city that likely sees lots of property appreciation and growth relative to more rural areas.

  13. Great article, we have a cabin that we rent out on VrBo weekly over the summer in Northen Michigan.
    It cashflow about 5000$ a year.

    We are now looking in to get a 2nd property, but not sure what make most sense another VRbo place or a sfh that’s rents year around.

    • Scott Trench

      Thanks for the comment! I think that with regards to your next property, it has to be about how much work you are willing to put in and how much added cashflow you’ll require to put in the work on AirBnB.

      For me, if the net difference was only $1,000 – $3,000 per year, I don’t think that I’d be willing to put up with the hassle of dealing with ever changing guests. If I made $7,000 – $10,000 more, I might be willing to go that extra mile though..

  14. David Oberlander

    Scott, if you were trying to get people thinking of different ways to be in the HOTEL business, congratulations, you succeeded.

    But if you were trying to prove that cash flow investing in LA this way is great, you’re about to fail.

    Let’s book a one-night romantic getaway thru AirBnB. Why, on the day (mid-week) chosen we have 12 “whole house” properties available at an average rate of $280. (Just a little bit short of your $319. A problem for the owner, not me). Then, we’ll look at Panama City Beach, Fl. Well, there we have 25 “whole houses” available for an average of $857 a night. I know a little about PCB property prices (but not LA) but I’m willing to bet that most of those LA properties cost more to purchase. And you can rent out those PCB properties at least 110 days a year (also Corpus Cristie, TX, Nag’s Head, NC, Mrytle Beach, SC, etc, etc).

    Like Beth and Margaret warned, there’s more involved in this “business” than just “investing”.

    • Scott Trench

      David – 100% Agree.

      It sounds to me like you don’t think that this is a type of Real Estate Investing. There are many extremes of ivnesting that we cater to here on BiggerPockets, such as Buy and Hold, Fix and Flip, Vacation Rentals, Raw Land, Mobile Home Park Investing, and more. These strategies all work well for different folks in different places around the world, almost all of whom describe themselves as “investors” here on BiggerPockets. With that, I think it is not unfair to add this potential strategy into that mix as a viable Real Estate Investing strategy.

      You are absolutely right that AirBnB is going to be more successful in some areas than others. PCB (a favorite vacation spot from my college days down south) is probably going to cashflow more than LA. But what about the first time investor from Los Angeles that would like to get started in Real Estate? Some folks prefer to invest locally, rather than in some random high cashflow market in the midwest, or in a vacation rental market across the country. If that’s you, you might consider AirBnB as a viable alternative to traditional rental income and take on the added management required to make that work.

      And we always dismiss appreciation as just the “icing on the cake” here. But LA, San Francisco, and some of these booming cities on the list I presented are growing. Quickly. If you believe that growth is going to result in appreciation, or just believe that your neighborhood is going to improve, you might be able to mitigate some of the financial risk of the property by increasing cashflow with the added effort that comes from managing AirBnB guests.

      • David Oberlander

        I don’t consider it investing when you have to work at it. Which you will with daily rentals or you will hire someone else to manage the property.

        My company does Fix & flips quite well. We’ve gotten 98% of asking price within 30 days while raising $ per SQ. Ft (above recent sales) in one of the worst market areas (Tampa Bay) for the past five years. This is how I work.

        Our last flip of 2014 stayed in out Rental Portfolio because it cash flows so well. Could have made 40% gross profit on it but it has 90% NOI right now.

        Mobile Home Parks down here are best turned into Raw Land and then have New construction built on them. I’ve got money in one of those and someone else is managing that. This is how I invest.

        So a Vacation Rental is one of the things I’m investigating now. Fifty weeks a year income and free beachfront vacation sounds about right. I don’t think its a bad strategy but for a first time investor in LA? Find something better.

        Once you’re using an outside manager it makes better sense to invest outside your hometown. Go for the maximum return. I prefer to think of appreciation as dessert (ice cream and cake) after the main course. All cities boom and burst. I prefer to go in after they burst.

        Now I’m late talking to my banker. Have to mortgage that rental. The NOI will drop to 65% but I love the smell of Chinese drywall in the morning. It smells like victory.

  15. Kristina Modares

    I love airbnb! Living in Austin, I definitely plan on renting out my home (I plan on house hacking) via airbnb. There is such a high demand for hotel rooms. During large events like F1 & SXSW you really can’t find a place to stay unless you think outside the box. There are so many events like this that I think using airbnb in Austin would be better than renting, for me. Meaning I have used airbnb in Austin and am very familiar with it and don’t mind strangers staying with me. I know I can usually make more this way than through renting.

    • Scott Trench

      Thanks Kristina! That’s another great point – there are certain weekends where AirBnB makes a huge difference. I definitely understand how cities with big events could have a huge upside for AirBnB hosts!

      SXSW sounds like a particularly interesting one though – I wonder if you get a certain type of person at SXSW that might be a little less desirable than your average guest 😉

  16. Walker Hinshaw

    Interesting article, love the outside the box thinking. I’ve wondered in the past if it would be worth listing a property on Air BnB in between tenants for a fairly popular city like Denver. I was thinking just throw a couple of blow-up mattresses in there and rent it out for cheap with full disclosure that the place was not furnished. As a young adult who likes to travel cheap and not stay in my “hotel”, a place like this would be a perfect way to ensure I had a place to crash for cheap. I wouldn’t need furniture because I would be out doing stuff the whole time anyway. I haven’t looked into the AirBnB rules or Colorado laws but think this could potentially be a decent way to make a little cash in between tenants.

      • Kevin Dickson

        Scott,

        There are no “Airbnb laws” in Denver yet. There is an old zoning law that prohibits lease terms of under 30 days. You can’t register or pay the proposed lodging tax yet.

        I’m thinking about trying something like Walker’s approach myself. I think that the air mattress approach will not sell well. Couchsurfing.com is legal and free. (It’s legal BECAUSE it’s free)

    • Scott Trench

      😉 Personally, I think the goal is write about topics where about 50% of the audience can reasonably take a strong stance for and against my argument. Why bother writing something that everyone agrees with – that’s a boring opinion and does not provoke thought.

  17. Mike Palmer

    Not trying to stir the pot or dissuade from this idea (which I think is great), but what would happen with a ‘professional’ renter in a short-term rental situation like this? Say someone signs up for a one night stay, then they ‘move in’ and refuse to leave. Are you then faced with having to evict?

    • Justin Ashton

      Mike –

      this has happened numerous times including some very high profile cases that lasted many weeks… google “Airbnb squatter”. not pretty and the owners options to respond are probably heavily dependent on which state the rental unit is in (CA vs. TX)

  18. Matt Brookshier

    I’m just jumping into this thread late but I’m very interested in running some numbers. Does anyone have a base proforma on how the operating costs differ between a standard rental and a “by the night” rental? Is it just the huge taxes and the need to pay utilities, furnish the place, etc. or does the operating expense go up dramatically?

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