I've made $740,000 on Airbnb this year. Here's my best advice for beginner hosts to maximize success and avoid common mistakes.
Michael Elefante
- Michael Elefante and his wife built a portfolio of six vacation rentals in Tennessee and Florida.
- They bought their first short-term-rental property in 2019 and scaled while working full time.
- Here are Elefante's best pieces of advice for people looking to get into short-term-rental investing.
This as-told-to essay is based on a conversation with Michael Elefante, a real-estate investor and an Airbnb Superhost. It has been edited for length and clarity.
My wife, Jill, and I bought our first short-term-rental property in November 2019 after moving to Nashville. I thought it would be a lucrative investment now that we lived in a tourism hot spot.
By March 2020, only three months after putting our property on Airbnb, we were set to make $7,000 in profit. Although COVID-19 cancellations dented that goal, the income potential from investing in STR properties was clear.
We continued to work full time while scaling our short-term-rental portfolio. In May 2020, we liquidated our retirement funds to purchase our second Nashville property. Three months later, we used savings from our salaries and cash flow from our properties to put a deposit down on a cabin in Gatlinburg, Tennessee.
We now own and manage six Airbnb properties that generate up to $118,000 a month, and I run a successful online STR coaching business. This year so far, our bookings have come to $740,000.
I think we've been so successful because we focus on selling an experience, not just a place to sleep, but it's been a learning curve. These are my best pieces of advice for beginners to avoid common pitfalls when investing in short-term-rental properties.
1. Conduct basic market-research analysis of the area in which you're looking to buy or rent
The first thing prospective investors should do is look at travel trends in the area they're considering investing in. Then research the area's local laws and regulations regarding short-term rentals — local government sites usually have these details.
If I'm unsure about a property, I call the city or county zoning office to ask if the address can legally be a short-term rental.
2. Leverage as much local knowledge as you can by reaching out to people already in the industry
Finding a profitable short-term rental is different than hunting for traditional real estate.
To avoid investing in an area that won't be lucrative, find a real-estate agent who works with investors or has experience with short-term vacation rentals in the area where you're looking to buy. They will know which locations are the best for STRs and why people are willing to pay more to stay in a specific ZIP code.
3. Do a thorough investment analysis before you invest in a property
If you're considering investing in an STR, always do a complete investment analysis first. I use an Excel spreadsheet to help me visualize where my money will go and the potential outcomes of a new short-term-rental investment.
When I first looked into investing in real estate, I did online research and used investment calculators on sites such as Bigger Pockets to work out the purchasing costs, operating costs, potential earnings, and costs of additions like furniture or decorations.
I then conducted market research on other short-term-rental properties in the area that were similar to the property I wanted to pursue and compared their prices and characteristics. I would also look at AirDNA to see what I could expect for daily rates and occupancy in a given market or ZIP code.
With all this information, I crafted my investment-analysis template on Google Sheets, which I use to analyze properties to this day.
4. Always plan for the worst-case scenario
I always use conservative numbers when I evaluate potential properties in my Google Sheet template. I input slightly lower-than-expected daily rates and occupancy and slightly higher-than-expected operating expenses.
Once I have a subject property that matches my return-on-investment criteria, I then "stress test" the investment. I rerun the numbers to see what the break-even point is and what the best potential profit could be. Running these numbers gives me a lot of confidence when buying a property.
I've only had one major unforeseen cost crop up. One of our Florida homes has a pool heater, and the electricity and general-maintenance costs have been higher than expected most months. Our monthly cash flow is lower, but it hasn't been detrimental to the investment overall.
5. Invest in property-management software
I currently use Guesty and pay $31 a month for it. Property-management software allows you to manage multiple properties across sites such as Airbnb, VRBO, and Booking.com. You can have one synchronized calendar and centralized correspondence for check-in and check-out messages.
This software can prevent you from making rookie errors that can hurt your ratings, such as double booking locations.
6. Use dynamic smart-pricing software
Everyone should be leveraging smart-pricing software such as Price Labs or Wheelhouse. These applications automatically adjust the nightly rates of your rental in line with market conditions. Using software can help you increase occupancy and find the best rate for a property faster when you're unfamiliar with a market.
7. Automate and outsource cleaning and maintenance
One of the biggest mistakes people make is cleaning their properties themselves. It may be cost-effective in the short term, but it's not scalable.
If you want to build your portfolio, you need to learn how to outsource. Consider hiring cleaners as an efficiency boost to your business. Tools like TurnoverBnB and ResortCleaning help to automate calendar syncing.
8. See what your competitors are offering and one-up them
Use AirDNA to find the top-performing properties in your area and consider what makes people want to book those places. What are their design features? Do they have pools, games rooms, or hot tubs? Do they have accent walls? Use that knowledge to choose and build your vision for your property.
Our first property was in Nashville, where you can find murals across the city. We commissioned an artist to create a mural at our property, which attracted guests to our place and separated us from the pack.
9. Don't underestimate the earning power of good design
Many people don't focus on design because they don't understand the return on investment when it comes to design and STRs.
If you don't have a big budget for furniture and design, my advice is to look for a smaller property that costs less to furnish. You can bargain hunt for furniture and decor. It can be more time intensive than shopping online but will save you money and make your property stand out.
Once you start turning a profit, you can spend more updating the design or hiring an interior designer, ultimately boosting your future revenue and cash flow.
10. Use a professional photographer
Photos are everything. Even the best property can get passed up by thousands of potential guests if the first photo on your listing is poor quality.
from Business Insider https://ift.tt/y4vnmxU
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