Short Term Rentals / AirBnb - How many houses is too many?

Question

I have an investor that wants me to partner with them to buy 100's of houses in AirBnb Friendly markets. I am concerned that scaling to this level will cause the system to break.  Does anyone have experience buying 100's of properties and managing several property managers that will manage our portfolio?  I am trying to figure out how to best organize my team.  I figured i need an acquisition group that can evaluate and analyze opportunities. We will also need a Manager to keep tabs on the different property managers we will need to manage the houses across the country.  Book keeping and other general admin tasks should be pretty straight forward.  Does anyone have any advice?

Chris Mason · Answer

Hi @Sukhi Singh,

That's a LOT of exposure to a single asset class that could be regulated out of existence overnight.

I personally would probably want to make sure that at least X% of them could/would also make sense as a traditional rental. That way I could ride the AirBnB train while it lasts, for however long it lasts, partying and counting money the whole way, but have a proven long-term strategy that will continue to work if/when AirBnB blows up on me.

Ben Navarre · Answer

My concern would be not managing expectations/guest experience effectively resulting in poor reviews. That could be deadly

James Carlson · Answer

@Sukhi Singh As Airbnb's biggest fan, I am intrigued by your idea. I agree with what @Ken Graham and won't retread about STR-specific property management companies. To @Andrew Kerr 's point and yours about regulations and Airbnb-friendly cities ... I think there is a difference between an Airbnb-friendly city that just has nothing on the books about short-term rentals and an Airbnb-friendly city that has passed a law that allows them in a capacity that you can take advantage of. The former type seems like a place that just hasn't discovered Airbnb yet and may still pass something. the latter is a place that recognizes Airbnb and wants it in their city. If you don't want to have to keep up with regulations in tens, if not hundreds, of different jurisdictions, I'd look for places that have already addressed it in a favorable way.

Arizona, for instance, passed a law last year that just went into effect that overrides any local ban on Airbnb and basically allows it anywhere in the state. Now that's a pretty good place to look.

Good luck and keep us up to date on your project. Very interesting.

Shelby Pracht · Answer

Have you heard of a company called Vacasa? It sounds like they could be a good asset to you. They are managing STRs all over the country with local employees in each market. If you want to buy a bunch of units all over the place it could be beneficial to have them all managed through one company.

I definitely think there are markets that you can buy in where STRs are not going anywhere anytime soon. I know a lot of areas are regulating this kind of thing but here in Mammoth STR are the backbone of our economy. If they placed regulations against short term rentals here the hotels wouldn't be able to accommodate even 10% of the tourists that come here at any given time. It would be financial suicide for our town to do something like that. I only have info about my own area, but there have to be other places in a similar situation. Investing in areas like that will definitely lower your risk. Good luck! Let me know if I can be of any help. I love Airbnb :)

Nicole Jones · Answer

I agree with @Chris Mason 100%

I would be careful over-leveraging in something as uncertain as can be Airbnb right now. I'm confident that the sharing economy like Airbnb/Uber will always exist in one way or another but in this phase of figuring out regulations, I might just be cautious with the amount. Also agree with @James Carlson regarding the cities and states that have already gone through the legislation in a favorable way.

Jon Latorre · Answer

Hard to pinpoint an exact ideal number of homes without knowing your entire management strategy. Less if self managing through AirBnB (don't want to receive 10 different calls from 10 different guests at midnight on a Friday). More if using a property management company who can handle concerns/issues/problems.

I also want to add that both the Phoenix and Nashville markets have specific regulations/restrictions with regards to short term rentals so be careful in the area and be certain you know the zoning laws before buying.

Good luck!

Jon Latorre · Answer

@Sukhi Singh It takes a lot of moving parts to accomplish what you are talking about and finding the right property management company with the infrastructure already in place is key.

My company has housekeepers, maintenance techs, local operations managers and a 24/7 guest service department to help with guest issues/concerns. Would love to talk to you more about your management needs if you are interested.

Best,

Ken Graham · Answer

This is a concept I have also explored.

There are several large property management companies than manage 100's of vacation rental properties. From my research, they vary on how well they perform but from a management standpoint it can be accomplished.

One of the biggest concerns would be over saturating a specific market with too much inventory. That would definitely disrupt the market and depress rates.

Also don't underestimate the amount of resources and management involved. Its essentially like running 100's of mini-hotels scattered across multiple locations.

Turner Monroe · Answer

I don't like competing with myself, but demand is usually a lot higher than you realize. I think it would be very hard to actually buy too many units in one area (think of how many rooms are in a hotel!). I think the biggest issue is having the laws change and being to big and bulky to pivot to another business plan.

Unless you are in a market with a very long history of vacation rentals (many coastal cities) I would recommend having a quickly implemented 'option B' to fall back to in case your business gets regulated away by new laws. Personally I evaluate all STR as LTR, if they won't at least break even easily then I won't look at them.

You also need a plan for what you're going to do with the furniture, people that have already booked, etc. You could start renting out the units as monthly furnished apts., if the area has a market for it, or use them for corporate rentals, long term vacation rentals, etc. Maybe start a staging or small furniture rental company with the assets.

There's many exit strategies, and maybe you never have any issues, but if you do it's better to be able to pivot quickly and with minimal vacancy. Have a plan in place before it's an issue.

Robin Hughes · Answer

We are acquainted with a group who have developed an effective algorithmic computer program to determine a neighborhood's potential for profit.  Our company provides property management within one state - Texas.    We're best suited to build up the guest's experience since we know the areas personally.  [BTW - building up the guest's experience should be everyone's top goal since that will lead to higher, positive feedback which will then impact the decision to book for the next guest.]

I suggest you employ a supervisor who would then hire property management groups within each state or region where your properties are located.  They could then coordinate the overview of your investments without having to learn each region's specific guidelines.

Short Term Rentals / AirBnb - How many houses is too many?

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