Hey there, fine readers! You ever get nervous sometimes about a decision you made, and start to second guess yourself? Like that time you ate at Taco Bell and were somehow surprised by the aftershocks? I’m starting to get that “Taco Bell feeling”… AirBNB hosting is more work than I had anticipated. Where’s the porcelain?!?
I’m downright nervous. Even though I’ve run all the numbers and chatted with other vacation rental owners in the area, I’m anxious for this investment to prove its value.
There isn’t much to complain about. I closed on the sale this Tuesday. It was a pretty easy process. I had to scoot over to our bank branch in the morning to wire $26K for the down payment plus closing costs to the title company in Michigan.
Later in the afternoon, a mobile closer stopped by work and I got to sign all the closing docs down in our lobby. Done in 10 minutes. So yeah, things are moving right along. No hiccups.
Then I started to run the numbers in my head and look outside at the first snow flurries of the season. My inside voice says, “I can’t rent this thing for a long long time.” And like a robot from a futuristic television show, I start to short-circuit. “Does not compute! Does not compute! Error!” I blue screen, shut down, and head back to my cube, with a little smoke coming out of both ears.
AirBNB Hosting Means a Lot of Upfront Work and Patience
This is all planned paranoia. I knew what I was getting into when I first made an offer on this place back in late August. It’s a seasonal rental and the high season, May through September, would be just in the rear view mirror right around closing time. By the numbers, I’ll probably wind up with six months of vacancy before someone wants to jump in the chilly waters of Lake Michigan, next spring.
Each month of vacancy costs $718 in PITI (monthly principal, interest, taxes, and insurance.) Pronounced like “pity.” The one small bonus is that first payment isn’t due until December 1.
Even if on paper it’s not “free”, I’m still calling November a free month. When financing a property with the bank’s money, I’d be happy to get any time up front without payments, since I’m using out-of-pocket funds to make the necessary improvements.
- Calculating the PITI @ 5 months x $718 = $3,590. Gulp.
Let’s also remember that this is a condo. That means I have association dues to pay, each and every quarter. The association isn’t about to give me any “free months” like U.S. Bank is.
- Calculating the association fees @ 6 months x $133 = $798. Sigh.
There are some other costs involved that are fairly minor but worth mentioning. I can winterize the property to keep utility costs low, but I expect some base level costs nevertheless.
- Calculating the utilities @ 6 months x $50 = $300. Damn.
Airbnb Hosting Start up: upgrades and furnishing costs
I’ve already plunked down some serious money to get this place ready, and that was before I’d even CLOSED. In fairness, a couple of our long-term rentals needed upfront repairs that rang up quite a bill. Typically though, you want to keep those costs contained, under $10K or so, to keep your Cash on Cash Returns solid.
With the Airbnb, I intend to keep those pesky upfront costs right at that $10K ceiling, if possible. Nearly half of that amount is just to repaint and replace the carpeting with Pergo. Here’s what it looks like now; like a place you might have rented your senior year of college:
As you can see, without a healthy face-lift, this place won’t fetch a good rent. Or worse, the condo could go vacant through much of the high season. That carpeting is the original nasty from 2005. The walls and trim are abused and dull.
Normally I’d do all the painting myself and save a big wad of cash. But there’s a couple of factors compelling me to hire out this job:
- I have one long weekend of PTO left to fly to Michigan and get sh*t done this fall. The choice is either hire-out the flooring job, or hire out the painting. Both cost about the same, but I prefer to do the flooring and avoid a weekend of paint fumes.
- Vaulted ceilings.
The total cost to repaint with nicer earth tones, including the ceilings (job and materials): $2,500.
The total cost to DIY the Pergo install (materials only): $1,600.
While I’m out there, I hope to find creases of time during my four-day stretch to install a new kitchen faucet, kitchen cabinet hardware, a NEST thermostat, and a Schlage Sense door lock. Those last two items I expect will be quite useful, as both can be operated over the Internet. The NEST allows me to keep an eye out for wasteful energy consumption. The Schlage Sense will help us dole out new entry codes for each new guest.
Throw in a Roku Box, a Google Wifi Station, and some alarm clocks, and there’s another $700 already plunked down. I haven’t even looked at furniture yet! Holy sh*t!
Calming down, with the aid of numbers
When you add it all up, I’ll be in for $9,500 before I’ve even gone shopping for beds, sofas, and dinner plates. There are some tactics I’m using to mitigate the upfront costs. A very handy Home Depot credit card offer allowed me to defer the Pergo, Faucet, and Lock expense of $2,000 for 24 months at zero interest. I figure I can spread that over the next two years as part of a general maintenance expense.
Second, and this is huge: My parents still have a lot of stuff from their recent downsizing. The Airbnb will benefit from a rarely used toaster oven, coffee maker, and other kitchen essentials. All this adds up.
Not to mention, my mom and step-dad are willing and able to help me this weekend with the many projects I have crammed into a tight schedule. Love ’em! Dinner is on me!
Finally, I have to remember to look at those cash on cash returns and realize that once this place is spiffed-up and furnished, a typical summer month could generate over $4,000 in net returns. Given a decent five month stretch from May to September, the Airbnb could yield $20,000 before even considering the low-season months.
So, take a deep breath, Cubert. Nothing ventured, nothing gained. The calculated risks and hard work will come out to reward soon enough. In the meantime, remember that pretty, little lake view you get, if you stand on your tip toes at the living room window?
If you’re new to Airbnb and want to save $40 on your first booking, check out my referral link, HERE.
For the comprehensive “how to” guide on AirBNB vacation rentals, free of paranoia, check out the post:
A Few Months After the Listing Went Live: The Work Continues…
At this point in the Airbnb Experiment, I’m pretty satisfied. I think I’ve made the right choices, and certainly put in the work to make this project an eventual “airbnb success”. I should be happy with how many bookings I’ve got this year. Four guests have stayed already and many more to follow, particularly this summer.
It may be an obvious point to make, but vacation rentals are a heckuva lot more work to manage than our long-term rentals. If I didn’t have time for social media before, the Airbnb condo is making it downright impossible now. What kind of “work” is involved, when you’re hundreds of miles away from the actual premises? Allow me to explain…
Rinse and Repeat For Each Guest: Better Use the Tools Available to You!
Airbnb makes it pretty easy to manage all this stuff, in complete fairness. The thing is, if you want to build and keep up a reputation for excellent customer service, you’ve got to communicate early and often with your guests. That means sending a note before they arrive:
“Hello, Jane! I’m looking forward to hosting you and your group this weekend. Please let me know if I can be of assistance for anything you need. I’m happy to offer suggestions on activities, dining, and sites to see. You’ll receive your entry code the day of check-in via a special link from Airbnb. Best!”
It’s not much, but you need to remember to do this every time. And with Airbnb, you might have 3 or 4 different guests in a given week. My minimum stay is 2 nights, so it could easily happen, at some point.
Thankfully, Airbnb has a few tricks up its sleeves to help us noob hosts out. The “Saved Messages” feature is super helpful. It allows you to keep a set of templates for just about any situation. Just swap out the names and the rest of the content can be sent off as boilerplate.
There’s also a bit of back and forth that can happen during a guest’s stay. Sometimes a guest simply likes to have someone to text with. Must be a social media thing, I dunno.
I had a guest a few weeks back who couldn’t stop gushing about how awesome the place was, which was music to my ears (eyes), but after a few more messages asking “where did you buy this piece or that piece?” it started to get old.
Still, you have to take the time to respond, and treat your guest with respect. That extra effort pays off, especially when you get those 5-star reviews rolling in!
You’ve Got to Be Prepared: Checking-out and Cleaning
After a wonderful couple of days at Cubert’s Magic Kingdom, I send another message, as a friendly prod to prepare to check-out. I set 10AM as the check-out time, in case I get new guests arriving the same day. This allows the cleaning person a healthy window to reset the place.
However, during this slower season, I’m letting guests linger for an extra few hours if they’d like to. These small gestures add up.
“Thank you again for choosing to stay at our cozy pad! Please remember to do what you can within reason, to leave the condo the way you found it. Take any food you brought, and drop your garbage in the dumpster in the back of the parking lot. Our cleaning person will handle the towels and linens, etc. Feel free to stay an extra hour or two if you’d like, but be sure to turn off all lights on the way out. Please come back again soon, and safe travels!”
Wow. That little note wasn’t too shabby, actually. I just saved that one over on Airbnb for future use. Easy peasy!
Not all guests are equal
I’m fortunate to have a pretty reliable cleaning person on the case, but she’s not always able to get over there the day of check-out. This is somewhat worrisome, because I’d like to be sure there aren’t lights left on, or appliances (stove/oven/fireplace/bath fan) left on unnecessarily.
She’ll generally get in within 48 hours, and we haven’t run into any big problems just yet. The worst of the first batch of guests chose to leave ALL the lights on, including the electric fireplace, for God-knows-what reason. And, they figured it a good idea to take an entire pack of make-up remover wipes with them.
Maybe that’s karma for our habit of sometimes taking those little bottles of shampoo from hotels that we’ve stayed at. But taking that sh*t from an Airbnb, in Costco quantities?? C’mon!!
You just need to grin and bear it. I had jumped the gun, and given this guest a 5-star review, and she had done likewise in return. I would’ve still given a good review, even had I known sooner about the lights and swiped wipes, but my commentary would’ve included some flags for future hosts.
Lesson learned – wait until the cleaning person or property manager does a walk-through, before leaving a guest review! DUH!!!
More Work Than You’d Expect: Cleaning and Stocking
Just like all guests aren’t equal, neither is the cleaning that ensues after each stay. Sometimes it takes my cleaner two hours, and other times three. Not a big deal. However, I give my cleaner a $25 bonus for every 5-star review we get for cleanliness. That means a three-hour job could run me $100.
It’s simply the price you have to pay to make sure your place is ready for a steady stream of guests. Cleanliness is something you can’t afford to go cheap on. I’d rather pay a bit more, and offer an incentive, than to get reviews that mention sticky floors, hairs in the tub, or soap scum on the shower walls. It’s really non-negotiable.
In addition to coordinating the cleaning action, and making payments to my cleaner via PayPal, I’ve got to work with her to stay on top of stocking supplies. Simple things like toilet paper, paper towels, tissues, soap, and what-not get used up fast as you churn through guests.
I also have my cleaning lady put out a bottle of wine for each new guest. Whew! Thankfully, I can count on my parents to help with Costco runs to help keep the place stocked.
AirBNB Hosting Is More Work Than You’d Expect: It Is Truly a Part-time Job
So far, the return on investment is in the negative, about -10% cash on cash returns. Same as if you took $30,000 and invested in the stock market, and it tanked 10% by the end of 2018. I’m not discouraged though.
Yes, the cost to set up the pad was almost 25% more than what I had planned for ($15,000 v. $12,000.) And yes, I hadn’t taken into account the extra fees I’d owe to the listing aggregators (3% cut goes to Airbnb.) Oh, and I’m using Beyond Pricing to help me automate pricing – thanks to a tip by the Financial Panther. That’s another 1%. Sometimes it feels like death by a thousand cuts.
All that said, I’ve only booked 50 nights so far this year. There are still almost 250 nights left in 2018. PLENTY of opportunity time left to reach my initial goal of an ROI of 18% this year. Frankly, I’d be happy with an ROI of 10% for this inaugural 12 month period.
A 10% return is respectable for any investment. And I know that with more experience, good reviews and additional effort, this place will yield very nice returns.
As for the “part-time job” quip? Yeah, it is extra work, but as I get smarter about things like “saved messages” and settle into a routine, it’s gotten easier. And hey, I’m almost within 500 days of my early retirement goal. Gotta think of things to keep from getting bored then, right?!?
If you’re interested in visiting the most beautiful part of Michigan, check out my listing. Let me know in your reservation request that you found the pad on this site, and I’ll offer a 10% discount. Oh, and if you’re new to Airbnb, sign up here to get some credit (40 bucks!) on your first trip!