My experience running a short term rental in Nashville, TN

[Luka Milicevic]

I recently lost my short term rental permit for an Airbnb in Nashville. I wanted to share my experience and the numbers in order to help guide folks that are thinking about starting one.

I had quit claimed my property to my LLC. Something that I'm sure everyone on this forum considers standard real estate practice. I didn't think a single thing of it until I received a notice saying my permit had been revoked due to a transfer of ownership.

Of course, I was given the chance to appeal by going to the board of zoning appeals. This would only mean getting a lawyer, having a vacant property for 6 months and then losing the case. At least on some level they acknowledge the 14th amendment.

Decided to sell the house instead.

110% my fault. I take full responsibility, I should have known quit claiming would do that. Didn’t think a thing of it at the time. I say that as I don’t want anyone thinking I feel sorry for myself. Choices=consequences. Take responsibility.

Let me start from the beginning.

Getting the permit….

I managed to get a Type 2 “non-owner occupied” permit the day they banned type 2 permits (literally).

It took me 6 attempts to get my permit.

Attempt 1: Go down to zoning. Realize that one does not simply go down to zoning and get things done. There is a line. To get into the line you have to sign up on your phone the second the line opens.

Attempt 2: Sign up in line while still at home using my phone. Head down to zoning to find out the lady at the front desk told me the day before to sign into the wrong line

Attempt 3: Sign into the correct line this time, wait 2 hours even though I was second in line. Bring all of the documentation that was required. The codes inspector told me he could not issue me a permit because the house had not been issued a CO (certificate of use and occupancy) as it was a brand new house that I was building. Fair enough I thought.

Attempt 4: I go down to zoning 3 weeks later with CO in hand. At this point the law had changed, and you needed additional documentation that you did not need 3 weeks ago. Specifically you needed to mail the adjacent properties notifying them that you are applying for a permit. I saw a different codes inspector this time and he made NO mention of needing a CO. It all depends on who you get and what mood they are in that day

The day before attempt 5, I went in real quick to see if the law had changed in terms of documentation and it indeed had changed. I got all the new documentation needed before I went back again.

Attempt 5: This time I had EVERYTHING I needed……. just like I did every other time. The codes inspector that day had a different interpretation than I did of what the word adjacent meant. To him: every house on the street was adjacent to my property so he did not issue me a permit

Side note: The guy in front of me was denied a permit because he did not send a notification to the house across the street from his property. The “street” happened to be I-65, which is an 8 lane highway. I am NOT exaggerating. I kid you not, the person ahead of me was denied a permit because he did not notify the house across the interstate.

The lady in front of him was denied a permit because she did not send a notification to the 48 unit apartment complex across the street from her. You can’t even make this stuff up. I was there and heard the argument between these folks and the almighty codes inspector.

Attempt 6: By the grace of God, the permit was approved. Passed the fire inspection 2 days later. Went down to pay for the actual permit on a Friday morning. That Friday evening, the Metro Nashville council met and banned all Type 2 permits.

Permit issued, off to make my billions!

Not so fast….

Before my first guest checked in, I received a stop work order on the door because I was “operating without a permit”

Off to court I go to defend myself for operating without a permit that Metro had just issued me.

This was right after the one judge “resigned”. For those of you that don’t know the story the judge owned short term rentals himself and was putting 3 year bans on everyone that was given a citation. Yes, he was shutting down his competition using the power of government. True story-it’s in the Tennessean.

It turns out, they had issued my permit for the wrong house number……and I STILL LOST THE CASE!!!!

My lawyer appealed immediately as the decision was made and it was quickly overturned by someone that had some sense.

The lawyer representing me is the lawyer for NASTRA (Nashville short term rental association). He said that this is the most contested issue in the history of the Nashville Metro council. I can’t imagine the new Westin, Marriot and Richard Branson’s hotel have anything to do with it?

Here are the numbers for 2017 and 2018

2017 Revenue April – December

(This includes management fees and cleaning fees-manager scheduled/paid for cleaning)

$24,333

2017 Expenses:

Legal expenses: $209 (Does not include defending the permit)

Repairs and Maintenance: $497

Insurance: $1,875

Hotel occupancy and sales and use taxes: $2428 (Airbnb also collected some tax, therefore this number is lower than the actual taxes paid-it was taken out of revenue)

Property taxes: $2,200

Electricity: $1,014

Netflix: $78

Storm water: $34

Water: $262

Internet: $475

Total expenses: $9,072

Debt service: $14,689 (This includes both P+I)

2017 Net cash flow: $572

2018 Revenue January – July

(This includes management fees and cleaning fees-manager scheduled/paid for cleaning)

$21,541

2018 Expenses:

Legal expenses: $50

Repairs and Maintenance: $752

Insurance: $849

Hotel occupancy and sales and use taxes: $3,889 (Airbnb did collect some tax, however; most of this was filed individually)

Property taxes: $2,639

Electricity: $1,609

Netflix: $84

Storm water: $0

Water: $325

Internet: $350

Supplies: $144

Total expenses: $10,691

Debt service: $12,590 (This includes both P+I)

2018 Net cash flow: -$1,740

Net loss over two years: -$1168

Yes, a loss. On $45k in revenue-A loss. Running one of these operations is EXTREMELY expensive. I had just taken over mgt in June and found a new cleaner to cut cost. It was actually about to start being profitable.

Since I built the house, I had some equity. When I went to sell I didn’t lose money-didn’t make much of anything either. When you add up the time and life energy spent, it ending up being a rather big loss.

Between the winter months of Dec-Feb, we had one check in. $1.4k in revenue for 3 months. Be prepared for those winter months.

When it comes to furniture-I recommend going cheap. Yes, cheap. Buy the Ikea furniture that you put together yourself. You can find stuff that looks okay and won’t break the bank. Get memory foam beds. They are cheap and comfortable. Get all white linens and towels as you will have to bleach everything.

I recommend self managing. You will have a lot of text messages to answer, but really that’s it. It’s not overbearing to self-manage.

Leave about 5000000 keys around the property, hidden in every corner you can find. Guests will lock themselves out if you only leave 5 keys. They somehow manage to find a way to lose every single key during every single check in.

If you get on East Nashville’s Facebook page, you will see there are neighbors colluding to shut down Airbnbs. They are calling in false reports on properties so that they can try and get them cited. The city is enforcing all Airbnb complaints/issues with lightning speed. They are so adamant about shutting down short term rentals that the government is being efficient. Imagine that!

2 cleaners have told me that “I’m losing all of my clients. They have all lost their permits”

Airbnb in Nashville is not dead. It just requires a different approach. I personally would only do it in 3 circumstances:

1-Commercial zoning where you are not subject to all of the above mania. You are practically a hotel.

2-RM zoning where you can own an entire block of properties. Again, you are practically a hotel

3-House hacking your own home in order to supplement income.

I, personally would strongly advise against buying a single family home to try Airbnb. The numbers are not what they once were with all of the added taxes. The city is actively trying to shut down the short term rental industry by using their most powerful, anti-business weapon-Tax. The regulation has made it extremely difficult to stay compliant. Neighbors are actively trying to shut you down and the smallest mishap could cost you your entire investment. I sat in court on multiple occasions and watched as investors lost their permits for one reason or another. During STR court cases the public is there holding pitch forks.

This is just my experience. I’m sure there are other folks out there that have had it better. Some maybe worse. I just wanted to share with the BP community some knowledge.

If you have any questions, comment below, send me a message.