Step-by-step guide to owning an Santa Cruz Airbnb

[Dax Nollenberger]

Creativity is often the name of the game when it comes to owning Santa Cruz real estate. I’m constantly brainstorming ways that I can help my clients own this super valuable appreciating asset. Many traditional investment strategies don’t quite pencil with our housing prices. Breakeven is considered a win, especially in the short term. The highly profitable rentals- short, mid, and long- are those that have been owned for a long time (and therefore have lower costs).

The curiosity/desire to know more about owning an Airbnb in Santa Cruz is STRONG. And frankly, this is not an area of expertise for most agents. Why? Because it’s complicated! I really think intentionally so. The downside of Airbnb homeowners is that they take away long-term housing opportunities for Santa Cruz residents. The regulating bodies in Santa Cruz know this and have placed heavy restrictions on short-term rentals as a result.

Lucky for you, I’ve researched so you don’t have to (do as much).

The question that produces the biggest hurdle for prospective owners is: Where do I start?

I’ve created a step-by-step guide to help.

Step 1: Get Pre-Approval

The first step in any homebuying process. You need to know if you qualify and how much home you can afford. It makes very little sense to shop around, get super excited about properties in a certain price range, and then realize later your budget is less. This is a recipe for disappointment and inaction.

Step 2: Set your Goals & Strategy

Every person has their own reasons for wanting to purchase Santa Cruz real estate. Maybe it’s because you realize the appreciation potential of coastal markets and you want to ride the wave to long-term wealth. Maybe you just love to visit and want to supplement some of the cost. Maybe you are hoping to make it a true-cash flow strategy that generates a significant yearly return. Your goals are going to determine your strategy. Your goals will determine what location you want, what home type fits your needs, and what return on your investment you’ll accept.

This is something that I’m happy to work through with clients of mine. Clear goals and strategies help me narrow the search and focus on homes that fit your criteria.

Step 3: Find a Realtor

As noted before, this is not an area of expertise for most agents. I’ve put in the time and understand the intricacies/complexities of purchasing Airbnb’s. If you already have an agent, that’s ok too. Make sure they are well versed on the local regulations. It’s important so you’re not wasting your time on homes that you can’t (legally) Airbnb. If you have loyalty, you could even ask them to refer you out. It’s a win-win. Some questions to ask your Realtor:

• What areas in Santa Cruz County are restricted?
• Who regulates each area?
• What are the occupancy rate and nightly rate for this area?
• What are the most popular times of year for these rentals?

If they struggle with these, consider someone else.

Step 4: Analyze Deals

This is where the money is made. Determining area, price point, and potential profit will be critical to the success of your Santa Cruz Airbnb.

The first thing to discuss is what areas are ineligible. I wrote about the regulations extensively in this blog: What about a Short-Term Rental? so I won’t dive in too much here. The general premise is this:

• There are three regulating bodies in Santa Cruz County: The City of Santa Cruz, The County of Santa Cruz, and the City of Capitola. They each have their own rules.
• Capitola has a map, if you fall within it, you are eligible.
• City of Santa Cruz only offers Hosted Permits. Meaning you must live in the property for 6+ months out of the year. They no longer offer Non-Hosted so it must be a primary residence.
• County of Santa Cruz has restricted maps that all have waitlists. Areas along the coast are most likely restricted by the county. To see maps, waitlists, and restrictions, reach out. 
• The rest of the county outside of these zones is eligible for immediate permit approval (no waitlist).

The next thing you need to know is how much a house can potentially get. There are some excellent (and pricey) resources that can help estimate income.

One of my favorite experts to follow is Robuilt. He provides excellent step-by-step guides and resources for how to set up a proper Airbnb.

The go-to resource for data and projections for Airbnb is Airdna. They can provide occupancy, rates, and revenue estimates for the property. The cost is significant. Another (free) resource is awning.com. If you would like me to do a quick Airdna search for you, reach out!

In the next blog/video, I’ll dive into how to analyze a specific property. Be on the lookout for that.

Alright, let’s look at some valuable Airdna data that gives us an idea of how the Santa Cruz market operates.

A couple of takeaways from the data above. The rate and occupancy fluctuate depending on the time of year. The summer months are by far the most popular for Airbnb. Also, performance revenue is highly varied as it’s dependent on the host, property condition, property presentation, location, and overall experience. More on this in a coming blog.

Step 5: Identify a Property and Submit an Offer

If you get to this stage, congratulations you have overcome paralysis by analysis. So many get stuck in the what-if stage. What if the numbers are wrong? What if this isn’t a desirable property for guests? What if the market for Airbnb changes?

Those fears and anxieties will exist no matter how long you have been in the game. Having that fear and taking action anyways is a commendable step that requires courage.

Submitting an offer that makes sense based on the numbers is the key to long-term wealth in Airbnb’s. This means you may have to submit many offers. I am not condoning lowball offers; those lead to anger and distaste from the seller side. I am condoning submitting offers that are right (mathematically) for you.

Step 6: Remodel and Prepare for List

In an ideal world, the home that you just purchased is ready to list right away. In all likelihood though, some work will need to be done. In some cases, more than a little. Often times homes that present poorly when placed for sale (poor photography, no staging, and cosmetic issues) are the homes that you can get the best deals. Make sure you are aware of the condition of the property with proper inspections and ensure the rehab cost is factored into your overall budget.

You’ll also need to furnish the place. Experts like Robuilt suggest better quality furniture. You don’t want something breaking during every guest’s stay. He estimates $10 per sq foot as a furnishing budget.

Another stage in this process is submitting a permit application. Get on this ASAP because the processing can take some time.

Reach out for resources on how to apply. 

All three areas require Transient Occupancy Tax payments (14%).

Step 7: Professional Photography

DO NOT SKIP THIS STEP! This is critical. Potential guests are choosing your house based almost exclusively on the pictures. You want it to look good, right? Professional Photography provides an immediate return on your investment and the cost is reasonable ($300-$1000). Think of it this way, when you shop for homes on Zillow, which ones are you most attracted to? My guess is 95% would say the ones that are professionally staged and photographed. On average, quality staging and photography earn the seller an extra 5%.

Step 8: List and Earn!

You’ve (almost) made it! The final step before you start earning cash is to place on sites like Airbnb & VRBO. Make sure to set your rate appropriately. If you have made it this far, you probably have a pretty strong idea of what the home can get on a nightly basis. Tinker and adjust as you go to ensure your getting the ideal combination of rate and occupancy.

This, of course, is not all. It’s not a set-and-forget approach. There are many more decisions to be made and things to learn along the way. But, rest assured, the best way to learn is to dive in. If you have taken action, congratulations, you now own an incredibly valuable, appreciating asset. One that, if you did your homework, your guests are going to pay for.

Interested in owning a Santa Cruz Airbnb, let me be your guide.

Thanks for reading. – Dax