Am I crazy for not jumping into AirBnB?

Question

Yesterday, I was talking to friend who has a condo near the convention center... she rents out her place around $180-$200 per night. It's a 1 BD condo unit ~600 sq ft. Her bookings are full about 2 months out.

Now, to buy a place like this in the same building, it's about $300k. Assume a 20% downpayment and your initial investment is only 60k.

Here's the math (conservative numbers):

Rents:

$180/night * 365(.75) = ~$50k/year

Mortgage/Ins/HOA = $21.6k/year

Your cash on cash for year 1 is a whooping 43%.

Am I crazy not to do this? Of course, there are some scaling issues, but that's easily solvable with a paid team. Another concern I have is short term rental regulation (possibly?) in the Seattle area. I know some cities are really clamping down on AirBnb type rentals and regulating them (the way it should be, just like with hotels).

What do you guys think???

Chris Carollo · Answer

Quick thoughts...Have you factored in costs to turn over almost daily? Someone has to change the sheets, clean, etc each time(I hope). Does the building allow it? If the HOA bans short term rentals do the numbers still makes sense as an annual rental?If Seattle does regulate and charge taxes, do the numbers still work?

Maria Keating · Answer

There is already tax imposed on short term rentals in Seattle, you'll also need a business license. In addition, you will need to collect sales tax/occupancy tax, if you do not and get caught, you'll be responsible for the tax. Don't forget that with nightly rentals you'll be subject to Washington and Seattle city B&O tax on your gross receipts from the nightly rentals. Finally, there will be federal taxes beyond beyond income tax, since you are considered running a business, you'll be liable for self-employment taxes related to the business income from your nightly rental business.The proposed legislation limits the total number of nights to 90 per year (for units that are not owner occupied, like a home). I hope this won't pass, but I wouldn't buy a property in hopes of legislation not limiting the total nights per year.... All this may or may not be worth it, but make sure you are fully aware of your obligations. Many short term rental owners do not currently have a business license or collect/pay taxes, they may get away with it for a little while, but since the city is already agitated about the short term rental scene, I would not be surprised if they aggressively come after non-reporters.

Ian Walsh · Answer

I am not against AirBnB but I am also not convinced the hotel industry won't eventually win out and make it much harder to do. I think they are fine, but I wouldn't buy a property and base the numbers on BnB cash flow. I would base on normal market and then do the BnB for as long as I can.

John P. · Answer

Where do the housekeeper and property management costs (or time) factor in to your calculations?

Adrian Chu · Answer

I have not done airbnb before but I understand it is a very seasonal business, especially in Seattle. You will get high rates, high occupancy during the summer, and it's dead quiet in the winter.Is your friend at the Elektra? :)

Maria Keating · Answer

Kathryn, I would love to hear more about your experience with a beach house in Ocean Park. I've been looking at that area for a couple of years, hoping to one day own a beach house there. Right now, the only way to do that is if I can supplement with vacation rentals. Few properties are zoned for vacation property though. I'll private message you.

Kathryn Jones · Answer

I would look at other short term venues as well. Maybe court business, executive housing venues. This is from a user stand point. My husband does Locum Tenens and hospitals Such as UW, others will lease short term for 3-6 Months at high rates, all inclusive to house their Locums. Must be safe convenient neighborhoods, good buildings with amenities, parking. Nicely furnished. Does not need to be large. Studios in good buildings are fine. Conversely, we had our beach house at Ocean Park managed for 2 night minimum stays for 8 years by a local vacation rental manager. Never a problem in all that time. We are now looking at building/buying another on Whidbey Island. Must be beach front. Simple, charming, friendly for kids, dogs, mobility impaired. We had tons of small family reunions, Wedding receptions. People love the winter storms season. Festivals, clamming, or just snugging in with a good book. We have board games, kids sand toys. Strict pet policy no one ever objected to. Above all else: Very Very Clean! Hire well, pay well, Expect performance. I If you make it your home, and invite people to share it, you can make money one way and another. But in my opinion, you need to enjoy it or it won't work for you. So no, you are not crazy for passing. It may not be a good fit for you.

Michelle Fenn · Answer

I agree with Andrew Slyrios, it is a niche. I am using it for a friend that had a non-performing property near downtown Cleveland. They made the investment to house a group for the RNC, so the investment in furniture, upgrades was made. We are new to this, but the bookings have been consistent thus far. AirBNB marketing and host reminders are remarkably good. The amount they take is relatively small. It is a much better alternative than a section 8 tenant in this neighborhood. I would describe this property as urban camping or a youth hostel for adults. It is solving a short term vacancy problem, I will keep the group informed as to how it works in the long haul.

Andrew Syrios · Answer

AirBnB is a great niche strategy, but I wouldn't do it just as a one off here or there, unless you have someone else to manage the whole thing for you. If it's going to be your main strategy, it's just going to become a time suck and you'll get pulled in too many directions. You don't want to be a jack of all trades and a master of none.

Lisa S. · Answer

Ok - in my experience, it's really hard to keep occupancy that high. And yes, you can charge the cleaning fees to the guests, but the wear and tear on your unit from short term guests is really high. Seattle is tricky. Now, if you had a prime apartment in the Mission district of San Francisco, I might say do it (barring the short term rental laws that are now in place). But anywhere else...iffy. Check those numbers carefully, and have a plan for the wear and tear.