How to Know if My Home Can Make it As an AirBnB

Question

To all the STR property managers out there or people who have had success in turning their home into an AirBnB, what kind of analysis did you do when making that leapt or what kind of analysis do you do on clients homes who are considering the transition? I'm guessing you looked at other listings/comparable homes that were already up in the market but what exactly did you look for and how did you justify the transition.

Also how did you estimate all of your costs before making that leapt?

I currently have one AirBnB that is running successfully but it was not based on much analysis and I want to be more sure when considering a new market.

Thanks in advance for all the help!

Account Closed · Answer

Wes Short Scaling a STR is about research. Most major players pull reports from AirDNA, EverBooked, and similar sites. These are paid services based on zip codes, cities, states, the more dialed down you get the better your results. Do you have an idea of what areas you are looking to add a property in? As far as budgeting, it depends on the size of the property, how you want to decorate it, where it’s located. For example you can do a low budget unit with Craigslist furnishings and second hand items (this takes time to track down) for a reasonable cost but you are left up to what you find. You can also just roll the cost of furnishings into the full amount you want to pay for the property. On average just for a middle of the road number 3 bedroom units cost us about 6-8k for all new everything including linen, terry, dishes, tv’s, etc. I hope this helps, if you have any other questions I’m happy to help. Happy Hosting

Julie McCoy · Answer

I didn't turn my home into an AirBNB; I've purchased three houses in two markets for the specific purpose of using them as STRs. My houses are in tourist-driven vacation markets, and I chose properties that have desirable elements that make them stand out from competition (all of which are location-based - e.g. one is on a river, one has a view, one is very private but also very close to town). You're on the right track - look at what the successful competition is doing and emulate it. Every market is different, so there's not one list of criteria to pull from. So bottom line is: know your market, understand what a short-term renter is looking for, and find an appropriate property. (or, zoom in on what kind of short-term renter you want. One of my properties caters to families, the other two focus on couples; if I had an urban property I'd cater to traveling professionals, etc)As for expenses, there's a decent amount of guesswork involved unless you already have a comparable property (because how do you really know what your power bill is likely to be in June?), and overall it's more tedious because there's more expenses to consider. But think it through and map them out same as you would with a LTR, use conservative estimates, and remember to factor in a monthly allowance for the occasional thing like replacing broken glasses or ruined sheets. Always remember to include an estimate for furnishings and household items in your initial budget - I've generally spent about $10k up front, per property, on furnishings, replacing old appliances or HVAC (I've replaced the HVAC at all three of my properties), and generally making them nice, updated, and inviting. None of my purchases have needed significant rehab.

Paul Sandhu · Answer

@Wes Short The people I rent to are working contractors at a refinery for short term jobs. Their schedule is this:Wake up. Use the bathroom. Eat. Work 10-12 hours. Take a shower and use the bathroom. Eat and drink beer. Sleep. Repeat. They can sleep in a bedroom, on a sofa in the living room, or on their own inflatable bed if they brought one. Some guys that are good friends even share a king size bed. I've had 9 guys stay in a house that only had 3 beds in 3 bedrooms. One guy was even sleeping in a 3'x8' closet.Only 1 person can comfortably use the bathroom at one time. The other people have to wait for their turn. When they wait, it cuts into their time to eat and drink beer.

Wes Short · Answer

@Julie McCoy Thanks for the response and the advice on making sure the home has a desirable element. The home I currently run has the same appeal as the third home you mentioned, private but close to town, I think that is a good mix. Also I never thought about creating listing for specific groups before (families, couples, or professionals), thanks for that. Account Closed Wow, thank you so much for sharing that excel file. I've built a couple but they don't compare to that, will 100% be using it when doing analysis. Thank you again to all of you, this was a ton of information and it led to a lot more questions haha.

Andrew Meyer · Answer

@charles sunnOne of the people from city planning talked with our REIA here in Bloomington and said they are estimating something like 20 or 30k new rental units needed over the next 5-10 years, so from what they said I don't see vacancy being a huge issue if you buy right.I'm planning on trying airbnb in a new duplex on north side of town I'm purchasing. I did research and compared rents and airbnb prices, so I'm fairly confident it will work, but like with most things nothing is for certain.My focus will be vacations/trips to town for graduations, games at IU, family coming to town/etc.For costs, I added all utilities and a bit more to maintinance costs. Also, I am looking into management, but I live 5 min away and have someone to do lawn and maintinance so plan to self manage for now and bring in help as I expand.I did read an interesting article that cited Bloomington as 3rd highest airbnb stays behind SouthBend and Indy.

Charles Sinn · Answer

Wes, who is your target customer in Bloomington? Students during the year that only need housing for a semester? Parents in for graduation weekend? Knowing this is critical in Bloomington. Bloomington has a TON of vacancy over the summer, so it would be difficult to fill your STR for 4 months out of the year and be profitable over that summer. AirBnB and craigslist is already filled with too many properties and sublets. Also, Bloomington has a lot of new apartments coming online in the next 12-18 months... This is going to suppress rental prices of individual houses, be it for STR or regular rentals. Unless of course you create a very high end AirBnB like Grant Street Inn, catering to parents able to pay $250-$400/night. I think that is a niche that has not been filled, but any houses within walking distance of campus or downtown are 400K+. We have an AirBnB in our neighborhood on the south side of town. Its been going for over a year now, so I assume it is profitable for the owner... BUT, they used to live in it, so it probably has $10,000 worth of furniture already in the house, so keep that in mind. The neighborhood is 240k-400k houses.

Paul Sandhu · Answer

@Wendy Schultz 6 months is also my magic number. That's how many months of rent it takes to recoup the purchase price of a house in this town. It can take 6-10 months to get 6 months of rent. If you google "worst place to live in Kansas" my town is #1.

Wendy Schultz · Answer

@Wes Short I have a design division so I'm lucky enough to be able to buy furniture, bedding, etc at wholesale prices. We find a lot of our decor at TJ Maxx/Homegoods. I tend to buy new furniture and decor to make the house look spectacular so it commands a good nightly rate. I spend more upfront but I am usually profiting within 6 months.

Jon Crosby · Answer

Hi @Wes Short , thanks for the post. You received some great info on this topic from the best in the STR business. I still believe that unless you are paying a very large down amount on a home to make it an STR, you will want to make sure that home has the benefit of being a place you actually want to visit. Or, you have a strong passion for guest services and/or hotel management operations. My personal STR business model is vacation home for free, but for my other investments, I would obviously require a higher rate of return then break even. The reason is, if I break even on cash flow, I'm getting the extra benefits of: Providing a clean and enjoyable vacation experience for families all over the worldMy own vacation home in a place I love to visit several times a yearOther people paying off my mortgage while I enjoy the propertyPotential equity (although I never specifically count on equity in my modeling)Tax benefits that can spill over into my other passive RE investmentsAs far as analysis I used a spreadsheet for a while but eventually created my own mobile app to make analyzing them much faster. Once I find one that looks good on Clik2Flip , I usually plug it into this Excel sheet and research each line item to make sure it's as accurate as possible. Finally, and this is really important. I make sure I look for any STR regulation, permitting restrictions or ongoing legislation in the area to make sure nothing crazy is about to pop up in the near future from an STR compliance perspective. Hope that helps! Cheers!

Wendy Schultz · Answer

I mainly buy in vacation destinations. I research by going to VRBO and Airbnb and looking at the listings and then looking at the booking calendars to see how full the properties are. I haven't had much luck with the accuracy of AirDNA so I've just done a rudimentary calculation of room rates during different times of the year and then try to guess the gross rent for the year by how blocked the calendars are. There is a ramping up period usually for a new property since other properties have reviews, repeat business, super host status, etc so keep that in mind. I usually spend $6-$10k on furnishings depending on how much work needs to be done. I buy properties that only need some cosmetic rehab.