Leasing homes to then sublet through Airbnb? Viable business?

[Eric Moeller]

Hey all!

I wanted to get this conversation started to see if any investors out there are currently sandwich leasing properties for the main purpose of subletting through Airbnb. 

I came across a landlord who is looking to rent her home here in San Diego for $2,700 a month. I ran the property through my Airbnb formula and I figured if I sublet this home through Airbnb I would be able to bring in $1,500 a month ABOVE rent, management and reserves. This is crazy to me and made me this would be a great model to explore. (yes, I considered vacancy, management, reserves, staging and local fees into my projections) 

Has anyone done this before? Have you leased a home with the purpose of subletting exclusively through Airbnb? What has worked? What was the biggest surprise? We're landlords kept in the dark or aware of the subletting? What is the benefit for the landlord? Did you cut them in on the profits? 

I have a million questions so lets get this one rolling....

Eric D. Moeller

Koda Homes

[Andy Whitcomb]

@Arlen Chou

Yes, the owner loves it!  It's a win-win for everyone. I've had many other investor friends here in Seattle approach me to do the same strategy, but nothing seems to pencil out as well as the house we currently have.  We really lucked out with the location.

[Andrew Wong]

@Andy Whitcomb, wow congratulations. 15k profit a month is amazing.

Currently going with six 1BD/1BR apartments in my area doing this, definitely not getting anywhere near that.

I feel like my problem getting more profit will be getting into the multi bedroom apartments to get more money per bed.

[Richard Scherf]

@Andy Whitcomb

More owners should be as open to the Airbnb model as your friends have been. I have been doing the lease & sublet model for years but some long term owners seem to be even more hesitant lately because of negative press and local laws changing in San Diego. All the properties I manage have been beach but just now I am finding out that some inner-neighborhood properties have margins that are just as good. It truly is a win-win if you can get them to take a look at the numbers!

[Fabio Salas]

@Eric Moeller I rented out my duplex in San Diego last year through Air BnB.  It can be a cash cow for sure...when managed properly, furnished appropriately, customer service is responsive and responsible, and tenants are screened thoroughly.  Also, beware of changing laws in CA.  Some cities in CA are already cracking down on Air BnBs.  It's hard to tell where this business is headed, although I'm hopeful for the future.  In any case, you need to be financially prepared to cover yourself if the laws turn against you.

And of course, as many others have already mentioned, be upfront with the landlord about your plans.  I would be pissed of someone utilized my rental property for something other than what I expected them to as live-in tenants.

[Brian Vanyo]

This sounds like a wonderful strategy.  Does anyone who is doing this have a script they've found effective when talking to the landlords?

[Ola Rask]

I really like this thread!
I am looking at relocating to LA and setting up this very model either there or in Las Vegas. I am a strong believer in the AirBnB and vacation rental future, and I think going through landlords is a very good option right now, with property prices being so high.
I think paying market rent and profit sharing, combined with signing a long lease absolutely should be a good way to convince landlords that vacation rentals is the way to go. This would allow me to still "own" my listing, and not be just a manager, whereas the landlord is still just a landlord, the passive owner. Essentially this is exactly what the big hotel chains are doing - except this model works "horizontally".
What I really like is the scalability of the model, potentially allowing for hundreds of listings spread over multiple cities or even countries, without the need for cash heavy investments.  

I would love to connect further with some of you guys who are already doing this successfully and maybe exchange ideas on how to move this whole industry forward. Seeing as there are a lot of Californians commenting - perhaps we could even organize a meet-up at some point.

Cheers

[Terry Woolard]

@Eric Moeller hey, Eric I'm thinking about doing this, do you mind sharing your formula spreadsheet or anything you used to analyze these deals?

[Max Wiseltier]

@Andy Whitcomb:

I'd love to learn about your business strategy in Seattle. This was actually a city I was considering targeting for this type of project, given the current legislation. Could I email you a few questions about your model and logistics?

[Jennifer Jacobus]

@Andy Whitcomb are you still doing this? What was the outcome? Is this something you plan on doing long term or just to increase monthly cash flow? Have you seen an increase or decrease in business? Any change in legislation over the last 2 years (since original post) that has slowed you down or stopped business altogether?

[Andy Whitcomb]

Originally posted by @Jennifer Jacobus:

@Andy Whitcomb are you still doing this? What was the outcome? Is this something you plan on doing long term or just to increase monthly cash flow? Have you seen an increase or decrease in business? Any change in legislation over the last 2 years (since original post) that has slowed you down or stopped business altogether?

 Yes, I am still doing this. The house has recently changed hands and the new owner is excited to continue the same model, but we are doing away with the 20% profit share and just adjusting the rent a bit.  The vacation rental climate has changed a bit over the years, with the increased popularity of STVR's, however, despite that fact our home has made even more money than ever.  We are on track to clear $170k in gross revenue for 2018.  Our success is due to our location, our tastefully designed in interior (we design and build our own furniture), and by offering both whole-house rentals and individual room rentals. 

The legislation has changed a bit, and will come into effect this January.  We'll need to jump through a few hoops, but it's not as bad as it could have been. 

Now we are focussing on buying properties outside of the city, mostly cabins in the mountains.  Our first one closes this Friday and looks like it will provide a handsome return for us and our partners (we still have some partnership shares available if anyone is interested).

[Jennifer Jacobus]

@John Jacobus 

[Greg Scott]

I found this thread kind of late. Anyone in San Diego still using this model ?

[Paul Sandhu]

@Greg Scott Buy a bank repo and make it into your own STR.

[Greg Scott]

Originally posted by @Paul Sandhu:

@Greg Scott Buy a bank repo and make it into your own STR.

Paul - that sounds interesting. Have you tried it?

[Paul Sandhu]

Originally posted by @Greg Scott:

Originally posted by @Paul Sandhu:

@Greg Scott Buy a bank repo and make it into your own STR.

Paul - that sounds interesting. Have you tried it?

Yes, 7 times.  An 8th time I bought a property that was on the sheriffs delinquent property tax sale.  Paid about the same as a bank repo.  About 25% of the county appraised value is what I paid.

[Sam Shueh]

Any damages incurred by others will constitute immediate expulsion by your landlord. Check your lease most carry a restriction not to sublease without expressed approval in writing. Also sales tax part can get IRS interested.

[Greg Scott]

Originally posted by @Paul Sandhu:

Originally posted by @Greg Scott:

Originally posted by @Paul Sandhu:

@Greg Scott Buy a bank repo and make it into your own STR.

Paul - that sounds interesting. Have you tried it?

Yes, 7 times.  An 8th time I bought a property that was on the sheriffs delinquent property tax sale.  Paid about the same as a bank repo.  About 25% of the county appraised value is what I paid.

 
Nice biz model. This is in KC MO?

[Paul Sandhu]

Originally posted by @Greg Scott:

Nice biz model. This is in KC MO?

No way.  This is in Coffeyville KS.  It's a Wild West Refinery town in the middle of nowhere.  I don't bat an eye when I see someone riding a horse or a riding mower down a street.

[Greg Scott]

Just read about Coffeville on Wikipedia. Doesn't sound like you'd have a lot of tourists looking for AirBNB... do you ?

[Paul Sandhu]

@Greg Scott There are only 4 occasions anyone comes to Coffeyville for any sort of tourism and spends more than a night.

1. College graduation

2. High School graduation

3. Holidays (Christmas and Thanksgiving)

4. Weddings

I've been contacted by people through Airbnb that wanted to stay for just one of those weekends, but my minimum stay is one week.

[Greg Scott]

Originally posted by @Paul Sandhu:

@Greg Scott There are only 4 occasions anyone comes to Coffeyville for any sort of tourism and spends more than a night.

1. College graduation

2. High School graduation

3. Holidays (Christmas and Thanksgiving)

4. Weddings

I've been contacted by people through Airbnb that wanted to stay for just one of those weekends, but my minimum stay is one week.

Wow - impressive. Looks like it works well for that area.

[Bac Nguyen]

@Greg Scott, I am in San Diego. I just fixed up one of my rental and do Airbnb for trying out. If it works then my goal is leasing from the landlord and repeat the cycle. For an incentive to the landlord and as needed basis, I can offer them a % of the profit.

[Bac Nguyen]

@Greg Scott  I am in San Diego. I just fixed up one of my rental and do Airbnb for trying out. If it works then my goal is leasing from the landlord and repeat the cycle. For an incentive to the landlord and as needed basis, I can offer them a % of the profit.

Have you done airbnb? Let networking.

Bac Nguyen

[Greg Scott]

Originally posted by @Bac Nguyen:

@Greg Scott  I am in San Diego. I just fixed up one of my rental and do Airbnb for trying out. If it works then my goal is leasing from the landlord and repeat the cycle. For an incentive to the landlord and as needed basis, I can offer them a % of the profit.

Have you done airbnb? Let networking.

Bac Nguyen

Not yet. I'm wondering if many landlords would want to sublease. After all they're already in the business. But worth a try.

[Earl Hatmaker]

@Eric Moeller often have wondered about this in Downtown Dayton as the hotel selection is weak sauce... great subject to post on!