Would you believe a $300,000 home could generate $5,000 a month in gross revenue? And that much of the work of maintaining your guest home can be automated?
I was intrigued when Boris from Build Your BNB reached out to me offering to write up a detailed account of he and his wife’s experiences as Airbnb hosts.
I’m a big fan of the platform. I’m writing this from an Airbnb rental in Spain in the midst of spending 4 out of 5 months in Airbnb homes throughout Mexico and Spain.
If you’re new to the platform, you can save up to $55 with $40 off your first stay and $15 off your first Airbnb experience with this referral link.
I’ve thought about ways we could become hosts ourselves, but I haven’t yet pulled the trigger on that. If and when I do, I will refer back to this post and to the other resources put together by my friends Dr. David Draghinas, Kevin Ha, and my new friends Susan and Boris.
For people who are thinking about financial independence and have considered investing into real estate, there’s a specific niche option should be on your radar, as it’s been growing by leaps and bounds and can outperform virtually any traditional real estate investment. Specifically, we’re referring to short-term rentals.
In this article, we want to talk about how we’ve gone from zero to hosting nearly 10,000 guests per year and becoming financially independent primarily through our properties. We’ll talk about how short-term rentals can actually be more stable, secure, and reliable than long-term rentals and how we automate most of the processes so that it doesn’t become a second full-time job for us.
How We Got Started with Airbnb.
My wife, Susan, and I (Boris) are a professional couple living and working in the Northeast. I run a small e-commerce company and she works as a marketing manager at a large corporate company.
We’ve been using Airbnb for many years ourselves — whenever we’d travel to a new destination, we’d typically check to see what options are available through that platform first.
It has led to some spectacular experiences as well — we stayed at a cozy houseboat in Seattle, a treehouse in Latvia, and a colonial house filled with history in the center of Shanghai – not to mention dozens upon dozens of regular apartments and bedrooms.
Inevitably, we’d come back home and think about becoming hosts ourselves, but were always concerned about having the ability to manage it and unsure whether it would be worth the hassle. Looking back, it was also that we didn’t really see the big opportunity in it – beyond just making a little bit extra on the side.
In 2017, I purchased my first apartment and we decided that it was as good of a time as any to try it out. We jumped into it and started by renting out the bedrooms. The revenues that we were able to generate from a few rented bedrooms exceeded all of our expectations.
Fast forward three years later and we’ve purchased a number of properties in cities around the U.S. that we now run as short-term rentals. Between them all, we’re on track to host 10,000 guests per year, while doing it entirely remotely – living hundreds and sometimes thousands of miles away from our cities.
For us, doing short-term rentals has been a much stronger strategy towards building passive income and wealth than long-term rentals due to a much higher return on investment.
In this piece, we want to break down our exact strategy and numbers of acquiring and setting up a property. We’ll do it with a specific example of one of our properties that we acquired in 2018 that grosses us about $62,000 per year (or $5,000+/mo).
Find a Great Credit Card
Earn More Money
Our typical Airbnb investment:
Everybody will typically have their own strategy for what properties they consider to be the right fit, so we want to share what a typical Airbnb property investment looks like for us.
It’s usually a single family or a duplex, has four or more bedrooms, and it’s in an urban environment – although never right downtown where the prices tend to be too expensive for us.
This particular property, we purchased for $300,000 with 20% down. It’s a single family house in the Twin Cities with 4 bedrooms, 2 bathrooms, in a good condition and almost ready to move in.
It’s not in the downtown area, but is fairly close to the central business district, as well as the airport, university and shopping. You can get pretty much anywhere within a 15 minute drive or so, which is good because it widens the demographics of the guests we can cater to.
Plus, the neighborhood itself is very walkable and pleasant – with some great restaurants, coffee shops and bars within a few minutes away.
Our setup costs on that property were as follows:
Below is a breakdown of what we spent to acquire and setup that property:
- $8,200 into renovations – interior paint job, new appliances, some other minor things around the house.
- $13,000 to furnish it from top to bottom – this is in line with most of our properties. To do it nicely while on a budget, we’ll typically spend about $12-$14K on furnishing. You can do it for less or for more.
- $7,000 in closing, licensing and setup costs – this is also fairly in line with what we’d spend on a typical property.
Combined with a $60,000 (20%) downpayment, we were all in for about $88,000 to buy the property, renovate it, furnish it and get it ready for launch.
Revenue breakdown:
Now, let’s take a look at what a property like this actually generates in revenue.
We launched in January which is the slow season, so it took a little while for our numbers to ramp up. However, in our first full full year, we generated about $62,619 in gross revenue with about 90%+ occupancy rate.
Our revenues were as follows:
January: $3,335
February: $3,777
March: $4,454
April: $4,892
May: $3,955 *
June: $5,429
July: $8,171
August: $7,953
September: $4,954
October: $5,610
November: $4,888
December: $5,200
*In May, we actually underpriced ourselves by accident, which resulted in lower-than-could-have-been revenues for that month.
January and February traditionally are slower, as fewer people travel to the region – either for work or for leisure. Revenues started to pick up in March and went strong through December.
The busy months in the late Spring through the end of Summer more than make up for the slow months during the Winter.
Related:
What we charge for this Airbnb property:
We typically charge anywhere from $200 to $400 per night for the full house rentals (with 2-3 night minimums) and about $30-50/night for the private bedroom rentals (with no minimums).
Full house reservations tend to book up several months in advance, whereas private bedrooms typically sell out within 7-30 days prior to check-in. This makes sense, as larger groups typically need to plan further in advance and individual travelers tend to decide things more last minute.
We expect that our rates will increase by another 5%-10% in the second year, as we have the benefit of having more positive reviews, as well as a better understanding of this market.
We’ve also started to be more aggressive on weekend full house rentals which are very profitable, so we’ll dedicate more attention to that. And, across the board, this will allow us to raise rates a bit, focus more on the premium stays (full house rentals), and even optimize occupancy and other fees.
Of course, the expenses are quite different on a short-term rental than on a long-term rental. For example, we spend between $900 to 1,000 per month on a housekeeper alone that handles the cleaning between guests. We’re also responsible for all of the utilities and have to purchase regular supplies. These are the things that are usually the tenants’ responsibility when you rent long-term.
That said, after all of the expenses – including the mortgage, utilities, housekeeper / cleaning costs, supplies, and maintenance – our end cashflow is around $22,000 per year or around 25% cash-on-cash return ($88,000 that we invested in it).
Lastly, paradoxically, we also find that the house remains in a better condition with short-term rentals than with longer-term ones.
In part because we have our housekeeper who is there 4-5 times per week, so we can keep things clean and catch any maintenance issues immediately. And in part because guests who stay 2-3 nights usually just come home to rest and sleep, so there’s very little wear-and-tear on the rooms and the common areas.
Digging deeper – what makes for a successful Airbnb investment?
We firmly believe that there is no single right way to do an Airbnb, as it means different things to different people. However, if you do approach it from the perspective of a financial investment and want to generate maximum return without creating a 2nd full time job for yourself, these are the steps that we personally follow:
Step 1: Finding The Right Property
What’s interesting about Airbnb is that it doesn’t have to be done in a major city nor does it have to be in the downtown area to be successful. In fact, some of the best results are oftentimes found in smaller cities and areas where the housing prices are still reasonable.
When searching for a new property, there are a few things we always take into account:
- Check legal requirements. Everything starts with this – you want to ensure that you can legally operate your short-term rental, so check the regulations and ordinances in your city first.
- The more bedrooms the better. We typically focus on properties that have 4 or more bedrooms because it will provide the highest return in most (although not all) markets.
- Stand alone home is better than a condo. There are multiple reasons for that – it’s easier to automate check ins and check outs, there are fewer potential issues with neighbors, and it gives you the most control.
We also typically don’t do properties that require extensive work because oftentimes they are not in the city that we live in. As such, the amount of time that we have to spend doing a renovation is a significant factor for us as well.
We’d rather pay a premium but be able to launch within a few weeks than have to spend a few months overseeing a renovation.This is quite a different approach from investors who are focusing on the fix-and-flip style properties.
Step 2: Deciding on a Hosting Strategy
Every market is different and the property should cater to the types of visitors that come there. We generally prefer to focus on urban markets with a wide mix of industry, academia and travel.
Other people will find success in more traditional vacation markets or other areas, so it’s quite subjective. But for us, this is what works.
More specifically, our approach to short-term rentals essentially focuses on renting out the full house as a single listing on the weekends and then renting out the bedrooms – individually – during the week.
The logic is simple:
- On the weekends, there are more groups traveling together and they are willing to pay a premium for accommodations that allow them to stay together.
- On the weekdays, on the other hand, there are many more individuals and couples that are passing through a city – be it for work, travel, or other reasons. So it’s much easier to rent out rooms individually than a 4-bedroom unit as a whole.
- Contrary to many people’s expectations, we generally find that at the right price point, people don’t mind the fact that the common areas and bathrooms are shared. After all, they are paying a fraction of what they’d pay at a hotel.
- From the revenue perspective, this will help keep occupancy high and will ensure that the property is not sitting empty during the week. We generally see occupancy rates of 90%+ across all of our properties when we follow this approach.
Step 3: Setup & Decoration
Once the property is found and acquired, the next step is to get it setup and launched. This includes handling any needed renovations, doing the decoration, and finding a local housekeeper and handyman that will help run the day-to-day.
If it’s local to you, the process is quite easy. However, if it’s not, you’ll need to figure out how to optimize the process.
The specific steps that you need to figure out is:
- How to decorate and furnish the house.
- How to apply for any necessary short-term rental permits.
- How to find, train and hire a long-term housekeeper.
The last point is typically the most challenging part because it’s a bit of an art as much of a science. We typically post a few ads on Craigslist, speak to about 6-8 people and invite 3-4 of them for a trial day to our property. This allows us to see how they work, whether they show up when they say they do, and so on.
For us, as well, we have a housekeeper and a handyman team in every city where we operate. Once the right people are found, we usually continue to work for them for years and after a while, the entire process is quite smooth.
Step 4: Automation
This is actually the most important point and what separates an amateur from a professional host. If you simply launch and proceed to handle everything manually, it can quickly become overwhelming to manage it – especially if you’re running multiple properties.
In fact, it’s almost impossible to really scale it if you’re doing this all on your own.
Fortunately, there are now a number of tools on the market that can automate 95% of your work in a really simple and elegant fashion.
- Use Smartbnb.io for Guest Communication – this tool allows you to automate all of the check-in and check-out communication for your guests. Combined with a smart keyless lock, your guests can come and go without you ever needing to manually tell them how. Moreover, Smartbnb can even detect questions about parking, early check-in, and so on – and send a pre-determined response to the guests, so that you don’t need to. It handles hundreds of messages per week for us and is worth its weight in gold.
- Use PriceLabs.co for Price Management – this tool monitors the demand, competition, and myriad of other factors and automatically adjusts pricing for every single one of your listings every day. It gives you the same sophisticated, algorithmic approach that hotels benefit from when they adjust their pricing to ensure maximum revenue.
At the heart of it all, this is probably the single most important thing we can tell you. If you’re running Airbnb, automate all of the routine processes, so it doesn’t become a 2nd full time job for you to manage it.
Taking this to scale
What we love the most about short-term rentals is the fact how scalable it is and how quickly you get to see the results.
We’ve always loved the idea of real estate, but generating a few hundred dollars per month on a property on a side just seemed a bit too slow to really make a dent in our overall financial picture.
With short-term rentals, on the other hand, you get all of the traditional benefits of real estate investing, as well as a very respectable cashflow even from fairly small properties.
We’re now seeing that cashflow from having several properties can typically yield enough in profit to put down a downpayment on a new property every 9-12 months thus further accelerating the pace that you can build your portfolio.
About Boris & Susan
Boris & Susan are experienced Airbnb hosts and real estate investors hosting close to 10,000 guests per year around the country and managing their properties remotely while working full-time.
They write more about their experience, as well as help other people get launch, scale and automate their short-term rental properties at www.BuildYourBnb.com.
Drop by to say hello or email them at hi@buildyourbnb.com with any questions you may have!
Preparing for and Protecting a Child’s Financial Future
How To Utilize Your Professional Skills as a Retiree
My 5 Current and 3 Future Passive Income Streams
Any Airbnb success or horror stories to share? Do you use Airbnb as a guest? Or as a host? Why or why not?
