AirBnB in Non-sexy Markets

[Brandon Laughridge]

I currently live in a really popular tourist area in Southern California (La Jolla) and know of many people that are having tons of success renting extra rooms, units, or their whole property through AirBnB.

My wife and I are relocating back home to Kansas City and I've wondered about the viability of operating an AirBnB business there. In the trendy areas of KC, the market looks to be pretty active (e.g. properties have lots of reviews and only a small % of folks even leave reviews in the first place so you can tell that their occupancy is solid).

Has anyone tried, or considered, the viability of buying a property solely for AirBnB rentals? Naturally you'd buy based on good fundamentals and the gamble is just on the startup costs of furnishings, vacancy, etc. I like this idea over a condo because the price per unit is lower and there's no 3rd party HOA or owners involved. Even if those folks bless the idea initially, they could easily change their minds down the road.

Some rough math on a property I think could work (a real property that is listed): $150k fourplex in a cool area of KC (attractive for business travelers, corporate rentals, education related travelers, etc). Supposedly the property is selling at a 10 cap and we'll assume that checks out. PITI with 25% down is $880/month. Utilities and other expenses are around $1500/month conservatively (this is accounting for turnover work/time and so on with a big markup to being conservative). Total rentable nights is 120/month (4 units times 30 nights). Let's say 50% occupancy (this would need to be researched with other hosts in the area, but appears reasonable) and an average of $79/night per unit. That's a gross of right about $4600/month after AirBnB's service fees.

Profit equates to about $2200/month, even after debt service.

I'm curious if anyone sees crazy assumptions in that? I think the real gamble is on the work and cash it takes to furnish the place. I know the ongoing management is pretty easy and flexible so very much worth the $2200/mo in profit (have seen this from friends' properties out here in CA).

[Jenna Y.]

I run a fairly successful vacation listing. A few things about AirBNB specifically

1. Decor is a HUGE part of AirBNB success. Tired/sparse decor will not cut it, even though technically you might have superior "amenities" than other listings. This is a premium hospitality business, even more so than VRBO or standard vacation rentals - so you'll have to wear a different hat to understand your market. If you don't think you can be realistic judge of how well you can deliver on this - please ask someone to help with this.

2. You can research comps on AirBNB directly. Don't just look at similar amenities and location, but also quality of decor. Search comparable listings at a given time frame and see what their overall availability is in their calendar, say for a rolling three month period. Listings that appear to be 100% booked for months on end are likely inactive, so don't factor that into your comps, or it will vastly scew your numbers.  If you are talking about a four-plex, then you're going to be your own competition, so factor that into your occupancy rate too.

3. This is a hand-on active hospitality business - which can be fine. If you want good ratings/reviews, be prepared for being available at all times via text/ phone calls about bus lines, transportation logistics, where the best brunch places are etc. Your response time is reflected on your profile. Plus time/cost for maintenance of your listings - linens, full kitchen, toiletries, cleaning supplies, etc. Sure, you can eventually train someone to do this all - but you'll be needing to do this initially for sure to ensure good reviews.

I've just seen multiple people burned with underestimating how popular their listing will be on AirBNB and not understanding the market, and then confused on why they get no bookings month over month. But if done right, it can be a very great experience (as long as you are happy playing concierge!)