Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
Think of it this way:
If stabilized operations presume 5% physical vacancy, then if you could squeeze 2x the income from 5% of the units in the community, you could effectively "erase" the entire 5% vacancy.
This is the second unit we furnished at Canyon 35. This is a studio that typically rents for $750. As a furnished unit we just took a 45-day booking with a payout of almost $2,900. Thus, on a monthly basis, this is about $1,900 of revenue out of a $750 rental.
The other unit we have is clearing about the same.
We will have about $300 in costs associated with each of these units, thus the Net is about $1,500 - $1,600. Basically double, which was the goal.
As we have discussed on FB this is a great idea and strategy to implement. However, my main concern would be the added headaches, liability, or management strain to implement 5% of the units as short term rentals. In your experience thus far, have you seen any major time or stress as a result of this rental type? If so, is it worth the pay off for double the income per unit? I would imagine you have employees and systems in place to help reduce these factors but what has the outcome been so far? Great work as usual!
If stabilized operations presume 5% physical vacancy, then if you could squeeze 2x the income from 5% of the units in the community, you could effectively "erase" the entire 5% vacancy.
This is the second unit we furnished at Canyon 35. This is a studio that typically rents for $750. As a furnished unit we just took a 45-day booking with a payout of almost $2,900. Thus, on a monthly basis, this is about $1,900 of revenue out of a $750 rental.
The other unit we have is clearing about the same.
We will have about $300 in costs associated with each of these units, thus the Net is about $1,500 - $1,600. Basically double, which was the goal.
5% of the units will get this treatment.
Ben - this is a great strategy in my region as well. In addition to one of the top wedding destinations and huge wine country we have a major university, major military bases, state capital and DC in my region. They are marketing units as executive rentals in the apartment complexes and some houses as well as vacation/visitor rentals. They all have printer/copier/scanner/fax for business travelers.
As we have discussed on FB this is a great idea and strategy to implement. However, my main concern would be the added headaches, liability, or management strain to implement 5% of the units as short term rentals. In your experience thus far, have you seen any major time or stress as a result of this rental type? If so, is it worth the pay off for double the income per unit? I would imagine you have employees and systems in place to help reduce these factors but what has the outcome been so far? Great work as usual!
Thxs for sharing, Ben! Such a great idea that just by offering 5% of your units as furnished units you can essentially "erase" your physical vacancy by doubling the income of the furnished units
@joseph cornwell
Very Good question, Joe! I'm curious too. Would there be additional headaches, liability, and management strain to implement 5% of the units as short term rentals.
I'm assuming it is worth it considering Ben is moving forward
If stabilized operations presume 5% physical vacancy, then if you could squeeze 2x the income from 5% of the units in the community, you could effectively "erase" the entire 5% vacancy.
This is the second unit we furnished at Canyon 35. This is a studio that typically rents for $750. As a furnished unit we just took a 45-day booking with a payout of almost $2,900. Thus, on a monthly basis, this is about $1,900 of revenue out of a $750 rental.
The other unit we have is clearing about the same.
We will have about $300 in costs associated with each of these units, thus the Net is about $1,500 - $1,600. Basically double, which was the goal.
5% of the units will get this treatment.
Ben - this is a great strategy in my region as well. In addition to one of the top wedding destinations and huge wine country we have a major university, major military bases, state capital and DC in my region. They are marketing units as executive rentals in the apartment complexes and some houses as well as vacation/visitor rentals. They all have printer/copier/scanner/fax for business travelers.
As we have discussed on FB this is a great idea and strategy to implement. However, my main concern would be the added headaches, liability, or management strain to implement 5% of the units as short term rentals. In your experience thus far, have you seen any major time or stress as a result of this rental type? If so, is it worth the pay off for double the income per unit? I would imagine you have employees and systems in place to help reduce these factors but what has the outcome been so far? Great work as usual!
Joe
Joe, are you stalking me? Everyone, watch out for Joe - he's probably stalking you too LOL
Joe, the answer to your question is - yes. There needs to be additional infrastructure to accommodate furnished rentals. We chose to bring it in-house. @Patrisha Leybovich and I with the help from @Sam Grooms are handling the buildout, but when we reach critical mass we will pass this off to an employee. Soon enough there will be 30 such units across the portfolio, and the income more than facilitates a partial salary of the office staff.
Now, to the question of whether it's worth it. You are making a classic (short-sided) mistake of just seeing the income, while not seeing the value. 5% vacancy on the revenue of $100,000 per month adds up to $60,000 - this is what I am creating/saving. This is nice, but more than nice is the reality that capitalized at 5 cap this $60,000 represents a value of $1.2M
So, the question is less about whether or not $60,000 of annualized revenue is worth the headaches and more whether $1.2M of valuation is worth the trouble...
Finally, there is actually more to this in two ways. One - 5% physical vacancy is accompanied by bad debt, turn costs, marketing costs, etc. So, in reality, 5% physical vacancy really costs 7% - 9% economic vacancy. And, two, - with these vacation rentals I am thinking I can do better than double the income, thus cut into some of this economic loss at the property.
When looking at real estate it's important to see past real estate :)
I understand the added income is a minor factor compared to the increased value represented from the additional income, but I did not realize it would be 7 figures, so that is awesome. Here in Cincinnati we work from 7-10 caps (as you probably know having invested in Ohio previously. See I am a stalker.) typically in the current market, so obviously we do not benefit as greatly from the added income! However that certainly answers my questions, it would seem to be easily worth the added time and management in your market, congrats!
@Ben Leybovich . What have been your biggest challenges so far and what is your average cost per unit for the furnishings?
Kyle, let's get the easy question answered first. I've been an AirBnB host for 3 years now, as the costs are all over the board. Depending on your approach and the unit size you can be anywhere between $2,000 and $8,000. If you toss the extremes out, you are left with something in the range of $3,000 - $6,000, depending on what, where, how, and why.
As to the challenges, the realization that the best way to do this is to bring the whole thing in-house has represented the biggest challenge. The PM is not equipped to handle furnished short term rentals. It's out of their wheelhouse. Which means we need to build out the internal infrastructure separate and in parallel to the PM. This is challenging but doable.
Having said this, globally-speaking, what I know is how to rent a nice unit, with new cabinets, granite countertops, and stainless appliances. This is what I do and what I know. What I don't know is anything about attracting guests to units that do not have these Class A finishing surfaces. As always in real estate, the quality of your management experience is a function of who you attract to the unit. And that's all about the unit itself. So, it's not clear to me that if I were to pick up my infrastructure and move it to a lesser unit, that I'd have the same management experience.
Which leads me to this - I am guessing that you've toured some of our units, and you know that our renovation scope includes all of those finishing surfaces I mentioned above. Each and every one of our units look like the one in the picture. For this reason, I don't have the issue of upgrading the specific units for AirBnB; it's already done. That is a potential challenge for you, should you decide to go this route.
I understand the added income is a minor factor compared to the increased value represented from the additional income, but I did not realize it would be 7 figures, so that is awesome. Here in Cincinnati we work from 7-10 caps (as you probably know having invested in Ohio previously. See I am a stalker.) typically in the current market, so obviously we do not benefit as greatly from the added income! However that certainly answers my questions, it would seem to be easily worth the added time and management in your market, congrats!
Joe, you are smart!
The thing about 5 Cap markets is that while the high prices scare price-centric buyers, those markets are 5 Cap for a reason. A lot of sophisticated buyers who are interested in safety deem those markets to be safer, and as such more valuable.
A side effect of a low cap is exactly what you are talking about - the multiplier of the value add is much greater, and thus it makes sense to do value add. I would not be doing anything that I do in Phoenix anywhere in the Mid West. And, in fact, I moved out of the Mid West :)
The name of the podcast is Multifamily Syndication Unscripted. I believe it was Episode 3 in Season 1 we discussed these issues in detail. Take a listen, if you haven't yet.
Well, I knew I'd be doing more units, but I didn't realize I'd be doing another one so quick.
Someone reached out and booked unit #3 (which I still need to put together) for 45 nights. This will be another studio unit. These rent unfurnished for $750 per month. The booking will have a payout of about $2,850, which is about $1,950 per month.
That's going to be 3 at this complex. I think I'll do 2 more here, and start setting some up at another property.
