Tips on deciding wether to Airbnb or raise rent?

Question

Recently I have been tasked by my family to determine the best plan of action with the mother-in-law house behind their home. They recently bought this new home that they're living in and a long with it came a separate house which is currently rented out to a tenant who has been living there for years.

The previous owner had made a deal with the tenant that they wouldn't raise rent on the condition that repairs would be forgone on this home. As such, this mother-in-law home is in need of some repairs (not sure to what extent). It is also being rented out for well below market rent. The plan is to kick out the tenant when their contract expires and to either increase the rent to market level or to use the home as a short term rental property.

What advice can you give me to find and analyze current market rents in the area and how can I best compare that to using the property as an AirBnb.

Side note- they would prefer AirBnb for the ability to have space for family when they visit. They understand that this would cut into their potential income but are willing to sacrifice this if their income would still be similar to what they would make if they decided to simply increase the rent and have a permanent tenant.

John Underwood · Answer

First you need to make sure a short term rental is permitted in you area and on your lot.

Then realize you will possible have people coming and going at hours that you might not care for.

You can always try it and switch back to a LTR if you don't like it.

Paul Sandhu · Answer

You probably don't want to hear horror stories regarding STRs, but I'll tell you mine anyway. Dead body, overdose, tenants fooling around with other tenants spouses, break ins, walking in on an intruder (2x), pet rattlesnakes that escape, water leaks, broken air conditioning, flea infestations and people trying to rip you off. But don't let any of that discourage you from doing an STR.

Jon Crosby · Answer

@Ken Francis Thanks for the post and question!

Your revenue will be built based on your occupancy rate and average daily rate of usage. You can get local metrics on occupancy rates from Airdna.co and good old fashion due diligence on VRBO/Airbnb/Homeaway but your ADR and Occupancy is really going to be determined by the experience, value and eventually reviews you are able to garner from your guests. So tread lightly on provided metrics as past performance by others will not necessarily dictate your own future performance. : )

Definitely check your STR regulations first, then you can start assessing the numbers and figure out if an STR is right for your family. Remember, it's basically a little hotel, so expect to provide customer service, cleanings, WiFi, etc. to your guests which you will be paying for.

Here is a quick BP article that I wrote that goes over some of the pro/cons of owning an STR: https://www.biggerpockets.com/member-blogs/10042-vacationhouse4free/64744-5-reasons-vacation-rentals-are-a-bad-ideaso-do-it-anyway

Best of luck!

Michael Baum · Answer

Hi @Ken Francis. I second what @John Underwood said and make sure you can do STR in that neighborhood.

I am assuming the home is in Provo UT. A quick scan on AirBNB shows a few rentals with nightly rates that are all under $100 per night. The average is closer to $50 per night.

A quick scan of Verbo shows an equally lower nightly. For example, an 8 bedroom/4 bath home is going for an average of $196 per night. There are some more expensive luxury places at around $350.

So, I guess you need to run some numbers and see if the extra cost to manage plus increase cap ex is worth it.

It sounds like 2 LTR's might be the way to go.

Tips on deciding wether to Airbnb or raise rent?

Tips on deciding wether to Airbnb or raise rent?

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