The expenses just keep rolling in. Was I naive to think this experiment would be all roses? At the mid-year point of the year-long experiment, let’s take stock in Cubert’s Airbnb return on investment.
Spending money. It’s an easy thing to do. Credit cards are such a joy. You don’t even have to worry about the mag-stripe working anymore. Those fancy embedded chips will make sure your card gets charged every single time.
At least with the vacation rental, these charges are business inputs. The idea is that the more toilet paper and complimentary wine I buy, the more impressed my guests become. And voila! More five-star reviews for shiny hineys and white wine from the viney. Or something like that…
Airbnb Return on Investment: Still Holding My Breath
The reason I’m still holding my breath is because available nights this year are running out fast, and my cash on cash return is a mere 5.5%. You’d hold your breath too, if a rental property investment were yielding only $150 in cash flow (after expenses) per month. It stinks!
My expectation after year one is to break 15% cash on cash or higher. That means a monthly cash flow of $475 or more. Can Scrooge McDuck reach this impressive goal? Next year, my feathers will be tickled to reach $900 a month or more. Gotta have goals.
For comparison, our four local long-term rental units yield about $500-$600 in cash flow each month. That’s after all expenses and mortgage payments are factored in. It’s a primary driver for enabling an early retirement goal. Whether the Airbnb Experiment reaches this level of performance remains to be seen.
Then there’s the unknown variables that pop up
S**t happens. Like this past week, when we learned the air conditioning wasn’t coming on, and temps had surged into the 80s. CRAP!
Our guests were very cool (haha) about the situation, but we treated it like an emergency. No one wants to lose sleep on a second floor unit when it’s ungodly hot outside. And because the Airbnb is in a smaller city away from critical mass options, the best the local HVAC shop could muster to come by was a full week out. FUDGE!!!
Once again, my parents to the rescue. Did I mention they live next door? They went over and setup a box fan in an open window, blowing OUT. This is a brilliant strategy to employ right after sun-down. The air cools off quickly outside, and the fan will force out the warm inside air, and bring in cool fresh air through the other open windows.
By the time we got that set up (about five days into the ordeal) the AC decided to start working again. The likely culprit? My theory is this: A month-long guest closed all the vents. They weren’t used to forced air systems, being from Brazil and all. That forced air dries you out!
The next guest got warm, and cranked the AC. Problem was, the cold air had nowhere to go. The GDMN’ed vents were closed! As a result, the condenser coil seized up. It wasn’t until four days later that the coil thawed enough to allow the unit to run.
So there you go, nascent Airbnb investors. Never let your vacation rental guests F with the air vents.
Frosty the AC Coil, was a very solid brick…
The Calendar is running the show
There are a whopping 9 (nine!) non-booked days on the calendar the rest of this summer. Assuming a nightly rate of $120, I could squeeze another $1,000 out of this season, if each and every night gets booked.
The problem is, these open nights are scattershot across June, July, and August. There’s just a single stretch of three nights strung together, non-weekend mind you. And then two other two-night openings. Fortunately, summer is so popular in Northern Michigan, I’m optimistic at least half of those days will be filled.
In the fall, there are festivals and brilliant fall colors to be had. September and October are where I hope to make more hay. I’d argue there’s another $3,000 to be squeezed out of the prime autumnal months. Time will tell.
The secret weapon: Good reviews
The first couple of bookings were hard to come by. A ski weekend here, a retreat weekend there. I was charging maybe $60 a night during late winter and early spring. Nowhere near a high enough rate to meet my 15% cash on cash goal.
Then things started to pick up. A combination of winter latency prompted people to book their summer vacations early. And good reviews kept streaming in. I’ve now achieved 10 5-star reviews out of 10 possible tries. Airbnb is excellent at promoting guest and host mutual feedback. (Then there’s VRBO, which hasn’t produced a review yet, after two VRBO guests.)
I’m now eligible for Super Host designation on Airbnb. This should also encourage more bookings, and I feel somewhat vindicated for achieving this standard. Especially considering all the work I and my parents have put into this place!
Pricing: constantly tweaking
I’ve mentioned before that I use Beyond Pricing to manage and automate the pricing of the condo. I honestly don’t know what I’d do without it.
But even though “BP” automates future date pricing for multiple platforms (thank goodness), you’re still on the hook to set the base price and minimum price for your average single night of stay. That’s quite a lever to have control over.
Starting out, I kept the base price lower than I’d have preferred, at $79. It wasn’t until I started obtaining more bookings and 5 star reviews that I was in a place to raise prices. This is supply and demand stuff. Basic economics.
Over time, there will inevitably be a shortage of available vacation rentals as units get booked. That’s the supply constraint.
And of course, the higher the demand for prime properties (i.e., those with 5 star reviews) puts even more pressure on pricing. Now, I can’t justify $300+ per night at a humble, though very clean and modern pad, can I?
What Beyond Pricing factors into the pricing equation:
As you can see, I have upped my base price from $79 at the outset of the listing, to $119 today. Seasonality is actually a negative, because summertime is lights-out amazing. But then, voila! There’s a few local events happening this weekend, that bring people up in droves. Boom. +$108.
Finally, because it’s a Saturday, a healthy +$38 “day of week” bonus is added. This is how valuable Beyond Pricing is. I wouldn’t have dared to more than double that Saturday rate. Leave it to the pricing algorithms to crack this nut. The 1%-of-revenue fee I pay Beyond Pricing is well worth the investment.
In the midst of gearing up for the helter-skelter summer, just last week actually, my cleaning lady quit. She was great about it though. She called to tell me, AND she hooked me up with a new cleaner. We still had to work quickly to get the new cleaner up to speed, with turnovers happening same day now.
I stumbled upon another lifesaver tool to help my cleaner keep track of multiple listing turnovers: TurnoverBnB. It’s a free app, and as far as I can see, it does a nice job of integrating both Airbnb and VRBO calendars. My cleaner can accept turnovers and mark them complete as she goes.
The pay structure is pretty sweet too. She gets $62 for every cleaning. For every 5-Star review (or stamp of approval from my mom’s post-cleaning inspection), the rate goes up to $87.
That $25 bonus is my way of ensuring a happy cleaner, who’s incentivized to do a kick butt job. I have yet to pay less than $87 for a 2.5 hour cleaning. Not a bad pay rate for this market.
Me being Captain Obvious, finally realized this past week that I should raise the cleaning fee from $79 to $89. Otherwise, I’m effectively losing $8 for every cleaning.
Assuming five bookings per month, that’s 60 bookings per year, or $480 in sunk cost. Now that I’ve wisely raised the cleaning fee, in alignment with raising the base rate, I’ve swung that $480 loss into a marginal $120 gain.
Airbnb Return on Investment: More to come!
Keep an eye on the “Airbnb Experiment: Year 1” on the Right Nav of this blog, to see how the return on investment changes over the next several weeks. We should have a pretty good idea by the end of the summer if this first full year will reach some pretty lofty goals.
Save $40 on your first trip when you sign up on Airbnb via this link