I’m happy to report that the inaugural year of our vacation rental investment concluded in December with excellent results. Curious how much money can you make on Airbnb? Let’s dive in…
We made about $12,000 in net revenue for the year (revenue after expenses such as dues, utilities, taxes, maintenance, and supplies). With a mortgage on the property (about $718 goes to the bank each month), our take-home cash for the full year was about $5,500.
From a cash-on-cash perspective, the yield was about 20%. This was the stretch goal and I figured at this time last year, a 15% cash on cash return on investment would’ve been enough to make this a worthwhile idea. How did the stock market do, in comparison?
The reason we were able to come across the finish line with pretty stellar results is owed in large part to one guest in particular. See, we didn’t expect to have a lot of action in months like April and November.
These “shoulder months” are pretty quiet in a summertime resort town like Charlevoix, Michigan. But thanks to a nearby cement plant that needed some seasonal help, an overseas engineer rented out the place for a little over a month in both spring and late fall. Those two bookings alone brought in about $6,000 in revenue in months that otherwise would have yielded maybe $1,000.
I’m anxious to see if my traveling engineer returns in 2019. Those two bookings propelled us from an okay year to an abundant one. It’d be great to have his repeat business!
Our Airbnb Experiment
In late 2017 we closed on a little condo that had been used exclusively as a U.S. Coast Guard boarding unit. Imagine a college apartment rental from the 90s, complete with worn, stained beige carpeting and dinged up punctured drywall. Kids these days… (But I’ll stop short of giving the Coast Guard grief – they’ve performed some amazing rescues on the mighty Great Lakes.)
After taking possession of the unit in late 2017, two long weekends with help from my mom and step-dad (and a highly paid painter) had the place looking great. Of course, yours truly used credit card bonus air miles to fly out and back. By mid-January 2018, we were ready for business, just in time for our first Airbnb guest a few weeks later in February.
The inspiration for all of this? I had read up on the growing trend of folks either opening up their homes, or turning long term rentals into Airbnbs, and making killer returns. With my experience in owning and renting properties, I had the confidence to give this Airbnb thing a shot.
After all, the market for long term rentals in Minneapolis has constricted quite a bit over the last couple of years. Eager to add to our real estate portfolio, this modestly priced out of state condo had serious short-term rental potential. So we snapped it up, using equity from our primary residence for the down payment.
How Much Can You Really Make on Airbnb?
We put in a crazy amount of money to get this cozy little pad up to par. Most of the up-front costs occurred in late 2017 which helped out our 2018 tax return (as we could deduct a healthy amount of business expenses).
A total of $5,472.50 was paid to our cleaning crew this past year, which included a $100 Christmas bonus. The beauty of this is that these dollars (except for the bonus) were all effectively paid for by the guests. We include an $89 cleaning surcharge with each booking. The average hourly pay, assuming a 2.5-hour cleaning job on 1,000 square feet of living space? $35.
Utilities came in about what I had expected. We provide Netflix and PRIME streaming services to our guests, so of course, we use it at home too while deducting this feature as a business expense. Natural gas was cheap and the high-speed Internet had an introductory year special rate. All of the ongoing expenses were fairly contained, with a 1,000 square foot unit that was occupied about half the time.
We hosted 39 total guests from Airbnb. The average payout per booking from this platform was $512. Keep in mind, we had one guest stay twice for a total of 9 weeks. The average booking amount would be drastically lower were it not for our “shoulder season angel” mentioned at the outset of this post.
As for VRBO, we generated 19 guests from this platform. Bookings averaged a solid $525. It would appear that VRBO guests book longer stays than those on Airbnb. The good news for us short-term vacation hosts: these two platforms complement each other quite well. Airbnb serves to fill in two and three-night vacancies between longer, typically week-long VRBO reservations.
I was optimistic about generating a 15% – 20% cash on cash return. Without using both Airbnb and VRBO, we wouldn’t have reached our goals. Here’s a look at the numbers, in detail:
Now, we didn’t win the lottery with our year one cash flow, but we came out SOLIDLY in the black. $5,537 in net profit is nothing to sneeze at, especially when you’ve been paying over $20 grand each of the last five years in childcare expenses.
The lesson here is that with a little bit of informed risk-taking, some hard work upfront, attention to detail, and basic spreadsheet skills, YOU TOO can pull off a winning side business like this. I didn’t have a clue about hosting when we kicked this off over a year ago.
I bought exactly one book, which helped out immensely for a host with very few reviews trying to capture market share: Get Paid for Your Pad. Reading up on the tips and experiences from side-hustle gurus like The Financial Panther, and fellow Northern Michigan carpetbagger Physician on Fire also helped A LOT.
Point is, nothing ventured, nothing gained. Just make sure that the venture is an informed one, and not some lazy-crazy “let’s hope we get rich, cuz…” deal like BitCoin.
What Worked (and What Didn’t)
The SCHLAGE Sense entry lock worked almost flawlessly. With an add-on device plugged into the wall, I can manage entry codes from anywhere on the globe where there’s the Internet. This comes in handy when you live over 500 miles away from your rental property. The NEST thermostat on the other hand? That thing was a little less than reliable. More on why further below…
VRBO took some heat back in May. Some of that rant is still justified. Their clunky non-intuitive interface could be so much better. I have hopes they’ll continue to refine and improve or at least copy as much of Airbnb’s interface without getting into legal trouble. And I’m still irked by their insistence on charging hosts for guest credit card processing fees.
But over time, I started to rethink “the BO”. More and more of my guests were coming through them vs. Airbnb as the summer went on. And even though I had to fork over $499 for my annual VRBO “subscription”, that chunk of dough wound up amounting to just a 5% take on all of our VRBO bookings. That’s only 2 points more than Airbnb’s 3% take. I can live with that.
As far as guest differences between the two platforms? I had no major problems with either. The only observed difference was the guest’s age. VRBO guests tend to be older (families, middle-aged, retirees). Airbnb guests run the spectrum, but many are younger. We had several young couples stay via Airbnb, for their wedding preparations or honeymoons.
The most important win for 2018 was our ratings. We were able to achieve SuperHost status on Airbnb about mid-year. BOO-YAH! This positioned us well for many new bookings for the rest of the year, and on into the future. You can’t beat having a five-star rating with dozens of reviews under your belt. This is the secret to any successful short term rental.
Is Renting on Airbnb Worth It?
Just before the summer season was about to kick-off, my cleaning lady quit. This was a not so happy surprise. Thankfully, she didn’t leave me high and dry. I got referred to her friend, who brought along a seasoned crew of cleaners to help during the busiest weeks of summer.
PRAISE THE LORD. I’ll tell you, there’s nothing more nerve-wracking for an Airbnb host than the prospect of an uncleaned unit with a new guest about to walk in the door. That did not happen in 2018, and hopefully won’t this year or ever. A good cleaning crew is the most vital component of a successful Airbnb operation. Take my word.
As I’ve mentioned, our guests were decent. There were a few head-scratchers though. One guest left all the lights on and the fireplace going last winter swiped an entire bulk container of make-up remover wipes and left without locking the door. So glad I rated her a 5-star guest BEFORE getting a report from my cleaning lady (there’s a tip for you…)
We had a central air conditioner with a clogged condensate drain. This meant a few of our guests had no AC while we tried to figure out what the heck was going on. When we did get to the bottom of it, our neighbor below had discovered a soaked furnace room of their own, thanks to all the water spilling over from our AC drip pan down into their domicile. Whoopsie. And to top off the climate control woes, the NEST lost its battery charge a few times, again, leaving guests without a means to kick in the AC during the heat of late summer.
The Nuisance of Guests Coming and Going
Apart from these headaches, nothing kept us from rolling along with our bookings. Granted, we have permanent neighbors who are a little unnerved about people always coming and going. I’ve found out second hand that weekly summertime rentals don’t get people’s panties in a bunch as much as a year-round Airbnb setup like ours.
Now, if I’m in their shoes, I get it. You like knowing who your neighbors are. All the coming and going with unfamiliar faces would get a little bothersome. Many communities are starting to put up restrictions on short term rentals precisely because of the come-and-go annoyance of Airbnbs. And not just in the U.S. either.
A couple of things I’m going to try this year to mitigate the fury: Buying flowers/planters for the complex commons and limiting the peak season bookings to a minimum 6 six-night stay. We could lose a little return, but I want to ensure goodwill to keep this enterprise sustainable.
Can You Make Good Money with Airbnb?
We don’t expect to spend over $4,500 in maintenance, travel, and setup expenses this year. I’m hoping for something short of $1,000 total in operating costs, going forward.
Time will tell, but if we can generate more bookings (based on our solid ratings and SuperHost merits), our “take-home” cash return could reach $900 per month on average in 2019. That factors in our ability to raise night rates too – based again on the accumulation of strong reviews.
I didn’t touch on it in this post, but the tax treatment for the Airbnb will be interesting. There are some similarities with long term rentals, but this is a hospitality business we’re running, like a true blue bed and breakfast. Sure, we can deduct business expenses, but some tax treatments are not quite as favorable as with our “LTRs”. Glad we have an accountant to help us sort it all out. Our household has two W2s, and now three distinct businesses to process in our novel of a 1040 return. Joy.
Anyhow, we’ll keep an eye on how all of this short-term rental business stuff turns out, as the year progresses. Year 2 could be full of unknowns worth writing about. Stay tuned!