Switch from individual manager to airbnb given advertising crisis

[Mahmuda Liza]

Sorry it's too big but I don't post often. And really need some advice.

I bought a big old 5b2b house couple years ago. I had a management company but saw them struggling to find tenant. It's a single family house. Not only that it's hard to find a single family who needs 5 bedrooms, but also it's hard to find group of 5 friends who want to live together. The potential rent would have been 3k/m but the company had to advertise for 2k because 3k is too high for that area for single family with mom, dad, couple kids.

Anyways, very quickly I switched to an individual manager who rents rooms to students or young professionals. Current rent is 3k/m. The business has been profiting but one caveat: she does not advertise. So I, as owner have to. It is a rent per room business, so it's hard to find advertising agent who would legally do that in Philadelphia given 5 strangers are not allowed to live together. Also, all 5 tenants share 1 kitchen which I do not have the money to remodel currently. It's too messy with that many people using common space. I bought shelves for now.

Few dilemas I have:

• I look for long term tenants but people are more interested in 3 to 4 month lease. So I have to constantly find ones who want 9 to 12m.
• Even if I settle for 3m lease, then I have to start advertising again in couple months.
• My manager has one girl who does ad on the side who charges $50 to find tenant per room. What’s frustrating is, I have to give her $50 if she find 12m AND $50 if she finds 3m. And it’s mostly those 3m ones. And she isn’t that regular either. I have to constantly be on the lookout.
• I look for prospective tenants for 12m lease but my manager shows them her other houses too when they don’t like mine. Note, her other houses are brand new. So basically I am transferring tenants to her other landlords without getting paid for it. And I don’t wanna cause any friction so I stay quiet about it even though it does not seem fair to me.
• I really tried to find individuals to advertise on the side but haven't had luck. Even my family members are too busy for this.

If you are still reading, I am contemplating to switch to airbnb and hand it over to an airbnb management company who does full service. But usually companies charge 20% fee and I would have no clue who stays because they will handle advertising and booking. I see they might take advantage of that. And the high fee will cause a huge drop in my net income.

I am sharing this here to see what your thoughts are. I am a frustrating OUT OF STATE landlord with a full time engineering job and it brothers me to do my own advertisement. But I have been very close to my property manager and found her to be reliable (except transferring prospective tenants to other landlords). I worry, with new airbnb company, I will have these situations (in no order):

• Lose (trust in) my current manager and cause friction in our business relation
• Not sure how much transparent an airbnb company will be with bookings and net profit
• Much much higher management fee. Currently I pay 8%. It will become 20% and I won't have constant stays like rental
• Switching management while I can not be in that place physically adds more communication risk
• Also, my place is furnished. But I might need additional cost to make it airbnb ready
• Not only there will be less money coming in due to short sporadic stays, there will be more money going out

I’ve been contemplating on this for about a year. Please give some advice. I wanted to sell too but with capital gain tax and losing a source of passive income stopped me. I just wanna avoid handling advertisement myself and not pay fortune to have someone do it. And this kind of patching FIVE rooms between tenants for 3m to 4m honestly terrifies me when I have to handle the advertising for that myself. It's simply not sustainable that way. I would really appreciate your advice on this.

[John Underwood]

I skimmed this since it was so long.

How about option C. STR and you self-manage using the tools Vrbo and Airbnb provide and their advertising.

Get a cleaning service to handle turnovers and you can self-manage from anywhere.

[Lauren Kormylo]

Have you tried paying a commission to your current tenants if they find a new tenant? 

Most of the people who rent rooms like you have will be lower paid workers who work in restaurants, landscaping, hotels, cleaning, convenience stores, and low end retail stores. I would contact owners of those places nearby and tell them you have rooms to rent that would be a good fit for their employees on a budget. 

Craigslist has a category for rooms for rent, you might also post there. 

[Mahmuda Liza]

Quote from @John Underwood:

I skimmed this since it was so long.

How about option C. STR and you self-manage using the tools Vrbo and Airbnb provide and their advertising.

Get a cleaning service to handle turnovers and you can self-manage from anywhere.

 If I am handling the advertising for Airbnb, it will be even more work than advertising for 3 to 12m lease. With my current work life, it will be practically impossible

[Mahmuda Liza]

Quote from @Lauren Kormylo:

Have you tried paying a commission to your current tenants if they find a new tenant? 

Most of the people who rent rooms like you have will be lower paid workers who work in restaurants, landscaping, hotels, cleaning, convenience stores, and low end retail stores. I would contact owners of those places nearby and tell them you have rooms to rent that would be a good fit for their employees on a budget. 

Craigslist has a category for rooms for rent, you might also post there. 

The house is located walking distance to two universities, so I've been targeting mostly university students and young graduate professionals. 

[Ryan Moyer]

So you have a long term rental manager who does not find the tenants?  What the heck are you even paying them for?  The occasional call to an HVAC guy or a plumber and in return they get $240/mo to sit on their hands?

Punch the address into airdna or rabbu and see what is says.  Then do the math with 20% fee and utilities expenses.

You can always give it a try.  You really have nothing to lose here.  I'm not sure why you're so worried about using the relationship with your PM.  8% for an LTR where they don't find the tenants, if you decide to switch back and need to hire another PM they'll be lined up around the block for that kind of deal.

[Mahmuda Liza]

@Ryan Moyer That's a very good point. She is 66 years old and knows basic tech at its best. She is very lively though. It feels more like she has been mentoring me given I am very young. So I am trying to be super solid on my decision before I say no to her. Given very low retention at my place, most of her management work goes to handling the showings I would say. But yeah advertising is the biggest piece actually.

[Lauren Kormylo]

You have a low retention rate because you’re targeting university students and recent graduates. Reread my suggestions and change strategies to get longer term tenants. 

[Mahmuda Liza]

Quote from @Lauren Kormylo:

You have a low retention rate because you’re targeting university students and recent graduates. Reread my suggestions and change strategies to get longer term tenants. 

Hmm that's a good point too. I am 4y out of college and not sure if I am ready to handle that demographic myself. And my current manager mostly handles students and grads who are working in offices. And it brings up different set of problems I think. And even to support that demographic I will need to change to another manager.

[John Acheson]

get out while you can,

then wait...patience :)

I can tell you're stressed,

health is #1 in life!

you will only see a few

opportunities in your life

by Charlie Munger

this property doesn't

sound like one to me...

[Colleen F.]

@Mahmuda Liza  You need to turn university students at the same times of year each year. If you are only getting 3 month leases you are getting them for one semester. If you get them for 9 months its two semesters and they aren't going to stay year round if they don't have to. For advertising Use the web site for students on campus that the universities have.  We have one that URI uses and another that is for the graduate students. Some places just advertise constantly. My guess is since you were just talking somewhere about putting shelves in the kitchen  and needing to update it is student quality and you may not get an airbnb person in there.  Also the shorter leases tell you it isn't attractive to stay.  Are the rooms furnished well?  Is the kitchen well equipped and a good size?  Do you have a cleaner? What is the yard like? Leverage what you do over other rentals. And if you can get a target subgroup who favors your place that works too, they will find your replacements. Foreign students, the volleyball team etc.     Your other option is to turn it to a  one lease option for all rooms at the time of the university turnovers.  

[Michael Baum]

So did I miss something @Mahmuda Liza or is this actually operating illegally? You say that regs say that 5 strangers can't live together. How is this going to work as a university student housing option? Is there a exception for student housing?

What universities are we talking about? I bet you can contact the schools and they have ways to get your property listed as student housing. 

[Michael Porche]

@Mahmuda Liza Being that this is a crazy long post and a lot to consider, I just messaged you.

[Andrew C.]

I've heard of companies that are getting into the co-living space where they will manage that type of rental.  One I know of is https://livehomeroom.com/.  I'm not sure if they are in Philly but there are other co-living management rental companies but I don't recall their names.  You can look into them as they specialize in that type of rental.

[Andrew C.]

Quote from @Andrew C.:

I've heard of companies that are getting into the co-living space where they will manage that type of rental.  One I know of is https://livehomeroom.com/.  I'm not sure if they are in Philly but there are other co-living management rental companies but I don't recall their names.  You can look into them as they specialize in that type of rental.

 Okay, I found a few other companies that specialize in co-living management: Tripalink, Common, and Bungalow

[Peter M.]

@Lisa Connor Sell it and 1031 exchange into a different asset or assets that give you the same or better passive income. You say passive income is the goal/driver for keeping it but it sounds like you're not passive if you have to advertise this much.

[Mahmuda Liza]

@Andrew C. This is very helpful. Thank you for sharing the names. I reached out to each one for more details.