Hiya community, I have recently been asked for my national i...
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Hiya community, I have recently been asked for my national insurance number from airbnb. I asked what this is for as they are...
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I'm looking to purchase a residential property. We're in a tourist town with a solid 6-9 months of highly rentable (moderate to high-demand) time. The original plan was to install a long-term (1-3 year) renter (LTR) -- but now, I'm considering AirBNB and short-term rental (STR).
My questions:
- How does STR compare to LTR in terms of revenue? Can I recoup double the revenue with STR through AirBNB, compared to a standard long-term lease? Or is that pie-in-the-sky myth?
- I'm looking to purchase brand new construction, furnish it, and rent it. With LTR I can vet the renters, including credit and background checks I run myself; plus substantial security deposits. What are the risks with AirBNB? What sort of hassles and expenses are likely, exposing my property to dozens of unknown renters, vs. 1 or 2 every 1-3 year cycle (LTR)?
- Do HOA's (I'm in Virginia) tend to restrict an owner's ability to do STR?
- I'd love to learn more about the realities of regulation on AirBNB. A recent article in our local paper noted new Virginia laws allowing local governments to require registration of AirBNB properties. The same article notes that 1 has registered, yet there are 300+ AirBNB properties listed in our area. I'd love a frank discussion of the realities associated with getting on board with this business model, going beyond theory into what's actually going on and what's working.
Thank you for your wisdom and experience.
You raise some really good questions. Thanks for coming to the Community!
You can start by reading an article I wrote last year. It goes through a lot of the process of setting up a full home as an STR. (https://community.withairbnb.com/t5/Help/How-to-Start-an-Airbnb/m-p/126109#M6481).
Now to answer your specific questions. First, I have been in your shoes. My original STR we started a couple years ago was a guest house located on a parcel we purchased for LTR. We could not rent the guest house so we turned it into an STR that averages 85%+ booked year round. My second STR is a home that had a successful run as an LTR but I wanted more money from it. We debated a while before creating the second STR because of the work involved in running it. (We manage and clean both homes ourselves)
As you mention, an LTR is minimal work. Vet a good tenant and keep the house maintained and all is good for the contract term. However, an STR will keep you busy answering emails, questions, cleaning, increased maintenance, etc. It can be considered a part-time job if you host and clean yourself. I spend about three hours cleaning our three bedroom, two bath STR after each booking.
Secondly, and our main concern, is income. Which model will bring in the highest revenue? To determine your potential income you will need to peruse the Airbnb site looking for rentals that are similar to yours and in your proximity. Look at their rates to determine competition. Get a good average. Most STRs do not rent for as high as the owner would like them to.
In addition, the smallest quirks of a neighborhood can be huge problems for an STR. You might think a nearby park is an asset, but if it causes noise, traffic or loitering the park will hurt your revenue stream. The same goes for major roadways, airports, etc. Since you are planning a purchase then you can mitigate some of these issues through very careful location assessment. Don't get drawn into the property. Stay emotionally remote when looking at houses and locations. Spend time just sitting in the neighborhood watching the people and listening for noise (especially on a Friday or Saturday evening). Location is EVERYTHING with an STR.
Let's get into the nitty gritty of income and what is reasonable. My first STR would have rented LTR for $650/month. Operating it as an STR means I have to pay for all utilities and supplies (electric, water, gas, toilet paper, cleaning supplies, etc.) Those monthly expenses run about $250 per month. Add the expenses to my $650 and I have to make at least $1,000 a month to be equal to an LTR. That particular home grosses an average of $1300 per month. Therefore I make an additional $3600 per year over operating it as an LTR.
My second home would LTR for $900/month. It costs $450 to operate which means I need to make $1300 to be equal. It grosses an average of $2,000 per month with a net of $700 so I make $8000 more per year there as an STR than I would as an LTR.
These are my numbers, but I am sure there are hosts that actually do earn much more and also some that do worse.
Another consideration is insurance. No homeowners inurance will cover an STR. You will need to contract through one of about 3 companies in the U.S. that offer STR insurance and it is not cheap. Think about $1500 per year or twice what you would normally pay for rental insurance. Some people use Farmers as they have a rider you can purchase if already using them. Regular homeowners will not cover LTR or STR.
You mention local laws and HOA's. You must abide by both if applicable. I can't speak to Virginia in particular, but here in Arizona we still have to have a business license, report taxes, etc. to be legal. Although many hosts operate outside the law it is not something you can afford to do if you are making this size of a financial commitment. As the article I wrote indicates it's going to cost you about $8,000 to get a three bedroom home ready with all of the furniture and supplies you need. That money would be completely gone if the government or an HOA shut you down. As for an HOA, stay as far away from them as you can! They are the baine of STR owners.
In summary, I feel that STRs have been an asset to my finances. Although they are much more work, they have provided me with an income roughly equivalent to owning one more LTR. However, my guests are MY GUESTS. Yes it is a business, but I operate my STRs as a HOSPITALITY business. We have rave reviews on our properties because we love our guests and we show that love to them. We answer phone calls in the middle of the night. I respond when there is a problem. I meet each guest at the home when they arrive. These are all issues you must decide if you want to tackle. Even as I write this I am sitting here waiting for a guest that is 3 hours late and has not had the courtesy to update me with a true arrival time beyond, "We are still coming." A succesfully run STR is NOT an LTR. It takes a lot of additional work and if you are not prepared to do it, then forget the extra money and go for an LTR.
I had one more thought. Why would you purchase a brand new house as a rental? A new house is going to cost you more in both mortgage and insurance than an older home that has depreciated, but is still a sound home. I'm sure you have already thought about it, but can you get enough higher rent to cover the cost of a new home as opposed to a used home? Can you earn more per month purchasing a used home? As for things tearing up- new homes are almost as bad as a used home depending on the contractor. If your new home purchase is in a new subdivision you will lose income as an STR if your guests have to listen to or be bothered by nearby construction noises and traffic. (Just a thought).
Please keep me informed as to your decision moving forward and feel free to follow up if you have more questions.
What a thorough, comprehensive response! Wow, I'm impressed by both your mind and heart in responding like this. Thank you.
What I'm coming to understanding is that though AirBNB is a pathway to more significant revenue, is that (surprise!) you don't get something for nothing. I have a full-time career at this time, and LTR is more efficient/less time-intensive than STR. Even if regulations (HOA, municipality) don't become excessive, I need to seriously consider the value of my time and the fact that like all of us I only have 24 hours in a day.
I will read your response and article several times. Thank you, thank you!
There are some options available if you feel that you would still like to try STR. You can manage the responses yourself and hire a cleaning person. We had one for a few months while I was working fulltime. The going rate will depend on your location but you might be able to find a dependable person who needs extra money for $50 per cleaning.
Either direction you go, LTR or STR, you will need someone to make repairs when needed (WHEN, not IF). You can still manage calling people yourself and arranging for them to respond.
As for meeting people on arrival, that too can be solved with smart locks that you can provide codes for thus negating the need for keys or to be present on arrival. Be sure to get a smart thermostat too so you can raise/lower the temperature when the house is not occupied.
Or, you can scrap all of that and go with a property management company. One up-and-coming company is Evolve (https://evolvevacationrental.com). I don't work for them or have any current relationship with them, but the photographer who shot my pictures talked about this national company. They do all of the listing work for 10% and can also manage the cleaning and repairs if desired.
You would just need to calculate the additional cost into your overhead to make sure it is financially feasible.
Since you are purchasing, you can choose a location that is financially feasible for all of the above. Do your homework to the nth degree. Worse case scenario, if STR does not work then flip it into an LTR. You may lose some money on the furnishings, but the neigbors will enjoy a good yard sale!
@Tim-and-Holly0 I am so impressed you provided such a complete response. While I am not contemplating purchasing property for STR, I still appreciate the education. @Daniel733 is very fortunate to have gotten your response. It also shows that many of the hosts who post on this site are truly supporting the host community. Thank you.
Wow, @Tim-and-Holly0, what a great and thoughtful post! I also wanted to add my two cents- the reason I do str vs. ltr on the apartment in my house, is the occupancy laws here in San Francisco. It is really difficult to remove a person after 28 days. If I decided to go ltr, and the person turned out to be less than wonderful tenant, I am stuck. It is an expensive and fairly grueling removal process if the person doesn't want to go. There is no problem with str in that regard. I can also make double what I would be able to charge a tenant. As @Tim-and-Holly0 out, the work is more substantial, and for the first time this year I am not cleaning the space myself (hallelujah!!) but I have to coordinate cleaners, and of course that means less money for me. I do enjoy giving work to others in our community, so that's a plus. I enjoy hosting different guests, so I will stick with Airbnb. But, I also invest a fair amount of time in checking and stocking the space, greeting guests, etc.
Oh my. What a small question you ask.
The answer is:
IT DEPENDS.
As Kate pointed out, it depends where you live. In the West Coast, long-term tenency rights are agregious.
This is why I prefer Airbnb to Long Term Tenants.
Unfortuantely, I am unable to tell where your property is.
Next, it depends on your management style.
Do you have time to bother with short term rentals?
Do you have a cleaning person you trust with the responsibility?
A co-host? Self-checkin?
Just as important is personality.
I'm superficial - I love to say goodbye as much as I like to say hello.
The thought of a one year tenant privately destroying my brand new property would keep me up at night.
Good luck
Just as important, it comes down to personality.
"The thought of a one year tenant privately destroying my brand new property would keep me up at night.
Good luck".
^^This right here! I got a request today from a guest to stay in my newly listed nicely furnished place for 6 months and I broke out in hives in minutes. The thought of being unable to know what was going on inside my place and the fear of destruction and loss would give me panic attacks. STR it is!
Daniel
We have a guesthouse that we rent short-term through Airbnb, we were considering a LTR however we would only be able to charge upto $850 a month and in Los Angeles county once someone is on your property for more than 28 days, it is almost imposible to evict them, it can take years! With Airbnb we make between $1,100 - $2,000 a month, most of our expenses are write offs at the end of the year. We have our profile set that guest have to meet ALL standard requirments as well as verifing their Government ID. We have a minimum 2 days stay and you can book at least 1 day in advance, this works for us as my husband works out of the house and we can turn the guesthouse around pretty quick between guests. In addition to making more revenue with the STR we meet some of the most amazing people! we have met guest from all over the globe, it's like travling without leaving your home. If you are not going to be living in the house you are STR I would HIGHLY suggest hiring (3-10% of income) someone to manage your Airbnb, it is A LOT of work cleaning and laundering after every single guest! Good luck with your venture 🙂
Hello @Daniel733 I'd love to chime in as I own a property in Taos, NM that has two houses.
The main house (LTR) is 2,200 sqft with 2 bedrooms, 3 bathrooms and on a 1/4 acre and has been recently updated. I rent this house unfurnished for $1700 a month and cover water and trash. My first tenant was an absolute nightmare. She was a hoarder and for 6 months had never cleaned the house once. It was infested with mice from her trowing mountains of bird seed all over the ground outside and bags torn open inside. Every corner of the house had little piles of bird seed with mice feces. I had to evict her and the damage was significant. I now have very lovely, clean and tidy couple and they take great care of the property. They have been there for 1 year now.
The Casita in the back is 890 sqft studio with one bathroom and a 1/4 acre that's very private. I decided over a year ago to do a STR so I may come and go when I visit and was very surprised to discover how much more revenue it generates. After my expenses (wine, cleaning, supplies, utilities etc) I average about $2200 a month. Yes there is all the extra work of hosting, coordinating cleaning, occasionally bad guests doing small damage etc. I must say though since I turn it over constantly I am noticing that it gets way less wear and tear as LTR. Cleaning it constantly and being able to access it Im noticing small fixes before they become serious. That to me is a huge perk. Not to mention that my wife and I can come and go as we please or block out dates for friends and family and still make more than if I rented it out LT. LT I would probably only get $1200 a month.
On a moral level I was defienlty hesitant at first with STR's as seeing the impact on affordable housing around the world has escalated to nothing Ive ever seen before but it took me one bad LTR to see that they can do way more legal recourse then a STR who is not taking any form of ownership over your property.