Airbnb Investing has come a long way since its launch with air mattresses on floors in 2007. Brian Chesky and Joe Gebbia were roommates with a loft apartment in San Francisco. There was a designer conference coming to town, and they had the idea to inflate an air mattress in their living room and set up a website to rent it out to folks coming to town.
It’s morphed into a multi-billion dollar company since going public in 2020 (I have been a long-time host and missed out on the option to buy shares at $68 because I thought my cutoff time was 1 pm, but it was 1 am, so that’s another story!)
There are millions of worldwide listings, and it’s the hotel industry’s number one competitor.
The pandemic during 2020 saw them make considerable cuts to their staff in a matter of months; they were at risk of losing a business that took years to build. Then, bookings rebounded as people began to travel in a new way.
In this article, I’ll tell you about my experience of being an Airbnb host for more than seven years and what I’ve learned over time through my investing process.
My Airbnb Investing Story
I began Airbnb investing by renting out a room in my home back in 2010.
Definitely learned a lot through the process.
I got feedback from my guests, and I kept improving our service.
After I got married in 2013, we began booking out the entire house.
But it was still our primary home.
So if someone requested to book, we would decide if we wanted to use that time to get out of town for the weekend and have the trip paid for by the guest.
We only rented the home this way for six months before becoming exhausted and choosing to turn the entire home into an Airbnb property.
We became super hosts and decided to look for additional Airbnb opportunities.
One was a rental arbitrage opportunity, which we’ll discuss shortly.
The other was a home renovation project that we decided to Airbnb for a while before putting on the market for sale.
If you’d like to hear a bit more about our Airbnb investment strategy, you can check it out in this episode we did on our strategy running Airbnbs (pre-pandemic).
Let’s discuss some of the different investment models and what you should look for.
Airbnb Investing Models
People get excited because they see the opportunity to generate 2-3x what a long-term tenant would provide. But there’s always more to the story.
In addition to the insurance, taxes, and property maintenance, you are also responsible for all of the utilities and furnishing the entire property.
Furnishing isn’t just a couch and a bed — it’s a coffee pot, lamps, and towels.
The costs to furnish will vary on location, but our properties cost approximately $10,000 to furnish a 2 BR / 2 BA unit.
You’ll also need to restock items like soap, coffee, and toilet paper.
Just be sure that factor in all of this when analyzing the potential for your Airbnb property.
With that said, you can still generate a higher net profit than a standard rental if you make the right investment.
I now have strict guidelines for properties.
They’re tough, and you may not like to hear this.
But I will only invest in a property as an Airbnb if it can also be renovated/flipped or also work as a long-term rental.
It’s very tempting to use it as an Airbnb because of the higher revenue figures, but you can also get into financial trouble this way.
However you choose to invest, there are three ways to get involved.
Buy and Hold Property
These are properties that you own, furnish, and rent on the platform. The exciting thing is that while you have many short bookings, sometimes you’ll have guests stay for extended periods.
I’ve rented for 30 days, 90 days, six months, and now have a 12-month guest staying with us. When you rent to a guest for 12 months, you’re going to make less money because you discount the rate.
But you also get to take a breath and lessen the load of logistics. You won’t have to manage questions, bookings, and cleanings continually. It’s a nice break, and we welcome them.
Airbnb Rental Arbitrage
Airbnb Arbitrage is when you sign a lease to rent a property and then allow Airbnb guests to book with you. You’re subletting your lease.
Word of caution: I have seen some investors not be honest with a landlord about their intentions. I would highly advise against this. Be sure that you let the landlord know that you will have corporate folks and other guests come and stay. If they ask questions, answer with honesty. If they’re not comfortable with your strategy, hunt for a new location and landlord to work with.
This method is enticing due to lower cash outlay upfront (deposit, month’s rent, and furnishing). It also comes with risks. You are on a lease and are legally obligated to the terms that you sign.
With that said, we wanted to try it ourselves to see what we thought. It has been a profitable experience for us, but we’re still undecided if we will continue.
Managing Airbnb Listings
If you would like the least risk, this is an excellent opportunity for you. You can approach an owner of a rental and say, “Hey, I have intimate knowledge of Airbnb. If you book on their platform, you can make X. I will manage the listing and guest communication and cleaning for Y amount of the profits.”
I leave the amounts open because I’ve seen fees from 10-30%, depending on the different variables involved.
Will you clean?
Will you be obligated for any expenses?
Who will furnish?
These affect the management fee that you charge the owner.
No matter what method you choose, you are going to have to provide excellent customer service.
Customer Service Tips
Let’s begin by understanding that you are no longer in only the rental business once you decide to run and operate an Airbnb. You have chosen to enter the hospitality industry, and customer service is vital for any successful hotel or resort.
A guest (I no longer call a renter) may have questions about the area, property access, or restaurant suggestions. The more you can plan to provide this information to them without them asking, the better experience they will have with your hospitality.
And the better experience you can give them (mints on pillows? Extra pillows and blankets?), the better their rating will be and the more bookings you will receive.
Airbnb is a technology company, so you better believe that properties with the best rankings show up higher in the search results than others.
We stay at other Airbnbs for ideas, and I’m always keeping notes on what I like or don’t like about properties. There’s a good chance that many people are similar to you, and if you appreciate something you find at a property, they will too.
There’s a communication tool called Smartbnb (rebranded as Hospitable) that has been helpful in our communication. It allows us to have pre-written messages to guests. This lowers the number of questions from a guest because we’re getting the info to them before they even ask.
We can offer food and entertainment suggestions.
We can send them a message with check-in instructions.
A day after check-in, we send another message to make sure they’re comfortable and ask if they need anything.
The day before check-out, we send a message hoping that they had a wonderful stay and reminding them of the check-out time.
Then we send a message asking them kindly for a review.
Smartbnb has helped decrease the amount of time that we spend communicating and increased our ratings due to our better customer service and just because we remember to ask for a review!
What’s the Future for Airbnb?
Airbnb Investing in 2020 was an interesting ride. In April, we lost significant money. 100% of our bookings were canceled, but we still had bills to pay. May 2020 was painful, but a bit better.
But later in the summer, we had returned to normal but differently.
We cleaned more extensively than ever before.
The types of bookings also began to be a bit different.
For the first time ever, many workers were sent home to work.
This was new, and many began to wonder why they stayed at home when they could head to a different part of the country for a visit and get their work done simultaneously.
We began to see bookings lengthen.
More bookings for two weeks plus began happening.
We just landed a year-long stay on the platform from 2 pilots that just preferred to rent a completely furnished unit where they didn’t have to worry about bills and buying beds.
I think this is the future of the platform.
Any app or tool that helps reduce friction in the marketplace is a good thing.
If Airbnb can help people move about and live, work, and travel more easily, then I think there is a bright future ahead for them and investors alike.
I think over 5-10 years, the house purchases and sales will be just as seamless. Real Estate will utilize blockchain technology to simplify transactions and remove multiple vendors in the transaction. But that’s a conversation for another day.
If you decide to invest in an Airbnb, let me know, I’d love to hear about it.