Dipping toe in, Airbnb gut check request

[Will Lotherington]

TL;DR should I rent a 2bed 1bath for $1200 if I can Airbnb it for ~$1600?

Hello, I recently discovered BP and am extremely excited by everything I've learned over the last few weeks.

I believe I found a low risk opportunity to dip my toe into managing an Airbnb, but I would greatly appreciate a gut check before signing anything.

I rent an apartment in a suburb of Chicago (Elmhurst) and found a second apartment (2 bed, 1 bath, 1200sqrft) 2 blocks away. The second one is renting $200-$300 below market at $1200/mo since the owner is a retired 77 year old living remotely and just wanting a low maintenance property, and the property manager is the owner's old friend who primarily wants a reliable tenant who pays on time (she's been getting several subpar applicants).

The unit is in a great spot less than a block away from the metra train that goes into downtown Chicago, and in the center of all the stores and restaurants in the little town. I talked to the property manager about wanting to rent the place so my friends and family who visit about every other month from CA don't have to get a hotel (this is completely true and something I have to factor out of my numbers), and asked if she would be comfortable if I listed the apartment on Airbnb the rest of the time. She thought it was a great idea.

I reached out to several current Airbnb hosts in my suburb and they all said there weren't any weird legal issues like the city of Chicago has. Airbnb estimates ~1600/mo average, and I think it is a bit conservative given the location next to public transportation, "coolness" of the unit (100+ year old building that will stage and photograph well), and relatively underwhelming alternative Airbnb and hotel options.

Furnishing everything is my biggest unknown that I'm working on, but I would greatly appreciate hearing about any red flags/concerns/oversights that jumped out at you while reading this. Sorry for the crazy long post, but thank you very much for your help!

[John Underwood]

@Will Lotherington You will also have to pay for all utilities, add internet, cable or satellite (to do it right).

You'll need to furnish it with good to nice furniture, provide consumables, sheets, towels, cookware etc.

You will need to replace items as they wear out.

You will need to clean the place after each stay or coordinate and pay someone else to do it.

I think these cost will eat into or eliminate any potential profit over what a Long Term rental would bring in with much less effort.

[Marcia Maynard]

Running an Airbnb is stepping into the hospitality business. Different mind set than being a landlord. Works well if you enjoy hosting and have a knack for it. @John Underwood is absolutely right. You need to know about all the costs involved and be prepared for this kind of commitment. 

You will have a high season and a low season, as well as the shoulder season to consider. Less demand in the winter will mean your summer season needs to be strong to carry you through. That also means more guest arrivals and departures in the summer, so if you are doing this yourself, you'll need to stay in town for the make-ready between guests. Also, make sure you have adequate insurance to cover potential risk. And, consider parking availability and how the neighbors might react to seeing a variety of people coming and going.

We have 17 residential rental units and rent one of our houses as an Airbnb. We enjoy providing hospitality and sharing our place/town with travelers, so that's our motivator, not just the income we can generate. I suggest you think about your WHY before you jump in, then pencil it out. Good luck!

[Paul Sandhu]

$400 over your monthly rent?  Forget it.  Like Captain @John Underwood said, you're going to have other expenses besides the rent.

[Denise H.]

As the others have said I really don't believe you have enough room to cover the expenses. STR insurance can be very expensive, ours went from 800 per year as a vacation home to 4400 when we converted to STR.

[Julie McCoy]

TL;DR - no you should not.  That's not nearly enough margin, and I'm sure everyone else has expounded on why rental arbitrage is not an awesome idea anyway.

[Paul Sandhu]

It might work if you do the cleaning and management yourself.  But when you take into consideration your time spent, it comes to about $10.00-$15.00 an hour if there are no problems.  You'd be better off taking a part time job with no headaches or responsibilities.

[Andrea Cole]

$1,600 per month for Chicago? That sounds LOW. As everyone has mentioned, you'd need to gross way more to make it worth it. Think 2-3x what it would rent for LT. That said, I think you need to do more research on what revenue to expect as an Airbnb. When estimating, I try to project weekday and weekend rates, then factor in occupancy for those days. Depending on how you plan to furnish it, you may want to use a service like AirDNA to determine an avg occupancy and shoot higher/lower based on your design plans. Good luck!

[Michael Baum]

So just a quick look at the area on AirBNB and the average nightly rate for all unit available in the Elmhurst area is $58 a night. 

If you were renting it every single night, a one month gross is $1740 at the average. Of course you might get more per night, but the margins are very thin at best and if the owner decides to raise the rent, you are on the losing end.

Now, if you look at it as a way to house your friends when they visit (have them cover some of the cost) and then STR it the rest of the time to help cover expenses, then it could be something to do. I doubt it will ever make money for you.

[Anthony R.]

@Will Lotherington I’d also recommend checking out airdna.co to see what may be real in terms of ADR (average daily rate) & expected occupancy. The start up costs to furnish etc can be considerable if you only have a 1 year lease.

[Federico Gutierrez]

Which person would want to come to Chicago and stay all the way in Elmhurst is my initial thought. 

I would consider it as a long term rental not as an AIR BNB.

[Will Lotherington]

Hello everyone, thank you so much for all of the responses, I did not expect such quick input and I really appreciate all of the answers to my inexperienced questions.

Thank you for the quick check @Michael Baum (and pointing me towards AirDNA), I plugged in the specific address and details and it gives an ADR of $77 and an occupancy rate of 80%. The potential annual revenue is $22,528 which comes out to $1,877/mo on average. There are only 4 other active "Entire Home" listings, and this apartment is in a significantly better location and will photography better, so I am optimistic that the projection is on the conservative side.

That being said, based on @John Underwood's feedback, I do see that these margins are still extremely slim (especially taking into account utilities etc.), and the likelihood of this being a profitable venture are very low. @Andrea Cole, I did not realize people shoot for 2-3x LT rent, even with the higher estimate I'm pretty far off.

I am still considering trying it out though as a low risk way to learn if I enjoy the hospitality side of things @Marcia Maynard talked about. If things go amazingly I could potentially keep doing it, or more likely use the experience to decide if I want to buy a property for STR. I'm only about 1 month, 2 books, and a handful of podcasts into the real estate world and buying anything is still a pretty terrifying idea to wrap my head around.

Thank you all again for all of the information, I deeply appreciate it.

-Will

[Paul Sandhu]

@Will Lotherington Set up a STR in Carbondale. I went to school there from 85-90.

3.5 year plan for bachelors, the rest was M.B.A.  I suggest the Moat House.  It was for sale a few years ago.  It's a small castle out in the country surrounded by a moat.  It was tradition that the people who rent the house throw a huge party after finals week with 6 bands and probably 20 kegs of beer.

[Will Lotherington]

Thats a good question @Federico Gutierrez, there is probably a reason there are so few airbnb listings in Elmhurst. Looking at AirDNA, there are very few international guests, and the top guest city is Chicago. It is relatively close to the airport and can be gotten to from the city by train, so maybe its related to that... but I'm not sure.

[Linda Carretero]

Just be mindful of the numbers, and go with your gut.  Maybe it works and maybe it wont. I am not an Airbnb fan. I am not into the hospitality of it. I would rather fully rent out a 2-4 flat and have less hands on investing.  But you might really fall in love with Airbnb.

Good Luck!

[Richard Tomlin]

@Will Lotherington Hi Will,

If you are interested in STR's in the Coachella Valley please feel free to reach out. It's an excellent place to invest in with a great ROI let me know if I can help out. I have sold many STR's in the desert to BP investors and they are all doing great!

[Josh Slater]

Originally posted by @Denise H.:

As the others have said I really don't believe you have enough room to cover the expenses. STR insurance can be very expensive, ours went from 800 per year as a vacation home to 4400 when we converted to STR.

[Josh Slater]

AIrbnb and VRBO bookings both come with one million dollars in insurance (for free). Is it necessary to change your homeowners policy when these companies are covering the insurance? 

[John D.]

Neither platform provides insurance.  Yes, you will want a homeowners insurance plan built specifically for short-term rentals.

[Account Closed]

Yea no STR is worth the extra 400 you could get. And it would be all lost on expenses and repairs. Take the mailbox money and enjoy. That is if the numbers work for a long term rental.

[Alia Ganaposki]

I would suggest airbnbing your own space to see if you like it. Then your investment/risk is much lower (linens and air mattress). 

Plus, guests behave a little better when they know they're sharing a roof with the host. 

https://airhostsforum.com/ has a lot of wisdom and experience.