STR House Hacking: Renting Out Unused Rooms In Your Home on Airbnb

Buying an entire home to use as a strictly-rental investment is not the only way to scratch your itch for hospitality. I mentioned rental arbitrage in an earlier post and it can be an option for those trying to get into the game without owning the home. But, what if you own your primary residence and find yourself with a bedroom or two sitting vacant? Maybe you had a long-term tenant move out or you bought the house in anticipation of growing your family down the road. Whatever the reason, an empty bedroom or basement can easily be converted into a cozy home for short-term rental guests. When done right, you may be surprised at how well your business could do with a room-within-a-home strategy. On top of the booking payouts you’ll accumulate, you’ll also be pleased with the tax benefits associated with operating the business out of a portion of the home, but I’ll save that topic for another post. In this one I’ll talk about the specifics of renting out part of your home and how to make the most of it.

Potential guests looking for a short-term stay need a bed, a bathroom, and an area to make meals. Those are pretty much the only necessities for providing accommodations on sites like Airbnb. Many are even fine with sharing these things (well, maybe not the bedroom) with other people, whether it’s the owner of the home or another short-term guest visiting. This, of course, means that spare bedroom or basement in your home could be put to good use with a little bit of set up.

The Basics

You could definitely go as far as installing a micro kitchen (I like Summit Appliances for small-size kitchen appliances) and walling off sections of the house to allow for a private bathroom and private entrance. These are things that would all add to your space’s desirability and allow you to demand a higher nightly rate. However, you can certainly do without the private amenities. As long as you disclose the living situation in your listing, explaining what’s shared and what’s not with your potential guests, you can set up your short-term rental in any arrangement that makes sense to you, your home, and your budget.

Things to Keep in Mind

First, shared living space means shared filth. This goes for you and for your guests. Cleanliness of a space is the first thing a guest will notice when they step inside and it’s arguably the most important thing to your business. If you’re operating your STR with the intention of having guests share areas like the kitchen and a bathroom, you need to be extra sure that anyone else sharing the areas (yourself, your spouse, kids, etc.), are extra diligent with their cleanups. This could become a problem if the residents of the home begin to feel like they have to walk on eggshells to preserve your business’s reputation, which they may or may not be benefitting from. Be transparent with your housemates to level-set expectations and avoid arguments (especially in front of guests!). This concern goes the other way too…be prepared to share a space with new people, and new levels of messiness, regularly.

Second, remember you’ll be sharing your home with strangers. As opposed to a dedicated rental property, this model will have you sharing walls with new people very often (that’s the goal, right?). Your guests will be in your home even when you aren’t. This means that your valuables, collectables, and family heirlooms should either be hidden away or accounted for after each stay. This way, if anything does come up missing, you’ll know the primary suspect right away.

Third, when estimating your rental income, be sure to compare apples-to-apples. A 1-bedroom unit in your neighborhood with a private entrance, kitchen, and bathroom, will earn more than a unit sharing each of those amenities. You can likely imagine all of the variations of private-and-shared features a rental room could have. So, if you’re looking for a solid idea of your yearly takeaway, be sure to find a unit as similar to yours as possible for comparison.

Fourth, just because you’re only renting out part of your home, it doesn’t mean you should skip out on professional photos. Your listing will be competing with lots of others and, as with any type of listing, better photos will draw in potential guests as the first thing they notice while browsing Airbnb. Be sure to capture all areas that will be available to the guest.

Lastly, unlike Airbnb, VRBO does not allow hosts to rent out a room within their home. They only allow private, full-home stays.

Wrapping Up

Short-term rental hosting, and hospitality itself, is not just for individuals who can afford second homes dedicated to renting. Your basement, spare bedroom, and even garage can be utilized to provide guests a fantastic short stay. Just remember, to your guests, that garage is not a garage. It’s home, at least for their short-stay.

Happy hosting!

Favor Frugality? Know How To Pick Your Battles In Your Short-Term Rental Business

I consider myself a top-tier money-saver. I HATE spending. I find great joy in knowing that I’m able to forgo select creature comforts in exchange for a little extra money in my bank account. When it comes to my short-term rental properties, however, I’m smart enough to understand the areas that are NOT skimp-worthy. I have identified items on which I refuse to penny-pinch, for their benefit to my business is well worth the extra expense. So, if you’re frugal like I am, I hope you’ll read this article and highly consider following suit. I will explain the areas worth more attention and money, and the areas where you CAN happily save!

Spend It

When thinking about the items to shell out on, consider three themes: comfort, safety, and longevity. The first two should be thought of in the lens of the guest. Comfort is key to short-term rentals. You want to give your customers a cozy feeling during their stay. I mean, the personal home-touches of a rental are what sets stays booked through sites like Airbnb apart from stays at cookie-cutter hotels. Safety is pretty self-explanatory. You want your guests to feel protected in your home and on your property (plus avoiding lawsuits is cool). Longevity has to do with making investments in your property, rather than cheap expenses. Certain items in the home, when done right, can last a lot longer than their cheaper alternatives. This being said, here are some items I consider worth-the-wallet.

Mattresses and Mattress Toppers – Don’t go cheap on the mattress. You don’t need to go TOP of the line here, but you definitely want to impress the guests when they get into bed. Certainly don’t go used! Your mattresses are investments that will last for years and be a serious driver of reviews for your rental. Once you find a mattress and topper that works for you, as with all of your staple items, be sure to track them in a spreadsheet so you can easily find them when it’s time to add a new home to your business. The Sleep Foundation has a list of some top picks for STR mattresses.

Mattress and Pillow Protectors – These ones aren’t necessarily going to break by any means, but it can be tempting to skip them to save a few bucks. This is a longevity play. These plastic covers can protect your investments in mattresses and pillows. A spill or a heavy sweater may stain your sheets, but the extra layer of protection can keep the pricier parts of the bedding safe. There are many options that don’t feel plastic-y at all. In fact, guests won’t even know they are there.

Smart Lock – Buying smart locks for my front doors was one of the best decisions I made when outfitting my rentals. Instead of hiding a key in a manual lockbox, for which every guest has the same code, investing in a digital smart lock to replace your old door handle is a much more luxurious – and safe – way of allowing access. Not only does a touchscreen number pad give your home a futuristic and hospitable feel; it also allows you to change the code, from wherever you are, for each guest. Even if you choose not to change the code between guests, the smart lock at least gives the feeling that their code is unique and that they are the only ones who will be coming and going during their stay. The Sifely Latch Lock is what I use and it is on sale now for $129.99.

Security Cameras – While you cannot put cameras inside your short-term rental, outdoor cameras watching the entrances provide safety to your guests, yourself, and your property. Get cameras that can alert you when people are coming and going from your home. This could help you stop an unwanted party before it even starts.

Cleaning service – My cleaning partner deserves her own post (or a few). She is fantastic and worth every penny. I wanted to make sure I included this item in the list of spend-worthy because the cleanliness of the home is going to be the FIRST thing each guest notices. They want to feel confident that every surface has been sanitized, every linen washed, and every utensil scrubbed. Going with a cheap cleaning service, who doesn’t specialize in short-term rental turnaround, may save you a few dollars but you’ll likely start to regret your decision when your guests complain about cleanliness or your trust for quick between-guest turnarounds dwindles.

Save It

Okay, now for the fun part! Let’s talk about areas of the home that are perfect options for Walmart, resale shops, or Facebook Marketplace.

Dishes and Silverware – As long as they match and there isn’t any damage, there is nothing wrong with a used set of dishes. You’d be surprised at the quality of set you can find at a garage sale. A discount store is a good option too, if you want to go new, just make sure the dishes don’t have a lightweight, “cheap” feel. When it comes to coffee mugs, many people like the eclectic mix of mugs collected from different places and times. If this is a feel you want to go for in your home, check out your local thrift store for mugs as cheap as 25 cents.

Decor – Now, this one may vary based on location and the ~vibe~ you are shooting for in your home, but I have had great luck finding colorful vases, funky paintings, and vintage vinyl albums for my home decor-on-the-cheap at yard and estate sales. Expensive artwork and statues are just begging to be stolen or knocked over and busted anyway!

Functional Furniture – Things like dining tables and chairs, dressers, end tables, and TV stands don’t need to be expensive…they just need to work and fit the style of your home. These are also hot items at thrift stores. If you can find an older piece at your local Salvation Army, there’s a good chance it was built to last. Save lots of money here.

—– Controversial Pick!! —–

THE COUCH – I have heard both sides of the argument for couches. Some say you need to provide an extremely comfortable and luxurious experience for guests coming “home” at the end of a day of business or play, and that the only way to do that is by bringing out the big bucks. Some say that new, high-end couches are some of the biggest rip-offs out there… I am in the middle.

I would never argue against the fact that the living room sofa needs to be cozy and home-like for the guest. As with the mattress selection, you need to cater to the relaxation of your guests. That being said, there are great deals at retailers like Wayfair, Big Lots, and even Facebook Marketplace.. That’s right, used couches. See, when people need to get rid of a couch, they NEED it gone. It’s not an easy item to shove in storage or toss out at the curb. You can find great deals on used couches for a fraction of what they are really worth. Often the owner is moving and just doesn’t want to deal with transporting the damn thing. Of course, go and inspect it for yourself first.

So, I say feel confident in your choice of saving money on a couch, if that’s the direction you want to go. (Plus, if a guest ever spills and ruins your budget couch, you’ll be glad you made this choice!)

In Conclusion

Furnishing your home for short-term rental is an exciting time. The space is a blank canvas on which you get to decide the kind of comfort you will be providing your guests. Certainly your decisions are not set in stone, but it makes it easier if you can nail it off-the-bat. The choices I’ve made regarding where to “spend” and where to “save” are just my own opinions. Your mindset shouldn’t be focused on penny pinching if it doesn’t have to be. You should be prioritizing your guests and the quality of experience you will be providing them. All I’m saying is…if you can save a little money here and there… why not do it?

Courteous Contact: How I Communicate With My STR Guests

If you’re looking to get into the hospitality business without having to talk to (and be pleasant with) people, this may not be the business for you. There are countless communication strategies you could adopt for staying in touch with your guests, but in this post I will talk about mine.

End-to-End Hospitality

If you think of the traditional “sales cycle” of business trying to nurture a relationship with a customer, you’ll likely remind yourself that the communication starts before the potential guest even finalizes their reservation. Rather, the relationship begins when the person is just looking at the offerings and trying to choose how they will fill their need. This is how you should think of your short-term rental operation as well. You will communicate with your guests before they even become guests and you should continue the conversation after they have left.

I will walk through each of my touchpoints with my guests – First giving a high-level label of the interaction and then listing the main intentions and topics of the message.

My Communication Touchpoints, In Order

Keep in mind that all of these messages are sent via the booking sites’ messaging systems. With contactless check-in, I never actually meet my guests in person.

Note: The following list is NOT extensive. There are always other communication points that happen between myself and guests. There are payment issues, cancelations, and unique questions that arise. You need to be available to respond to all of these possibilities. The following is just a high-level timeline of communication that occurs between myself and my guests. Your roadmap may look completely different! Don’t take this as a prescription for guest communication. Rather, use it as a mental exercise to make sure you are ready to nurture your customer and provide them all of the information they need.

Contact Point #1: New Booking Inquiry

Timing: When a potential guest sends an inquiry for a stay (but has not booked)

Purpose:

  • To confirm the potential guest’s intended dates and the total price of the booking, so we’re all on the same page
  • To let them know that the dates are available
  • To place urgency on the request, letting the potential guest know that the dates may get booked very soon

Contact Point #2: New Pre-Approval

Timing: When a potential guest has been preapproved to book my home for a stay

Purpose:

  • To give the guest the all-clear to book their stay for the given dates
  • To let them know they have 24 hours from that point (pre-approval) to book, or else the pre-approval will expire

Contact Point #3: New Reservation

Timing: When a reservation is confirmed!

Purpose:

  • To thank the guest for choosing my home
  • To confirm the dates of the stay
  • To confirm the number of guests, which was stated when the guest made the booking
  • To let the guest know I will be in contact with more details on the home closer to the check-in date

Contact Point #4: Check-In Instructions

Timing: 1-3 days before check-in

Purpose:

  • To give the guest the full address of the home and any special instructions on how to find it
  • To give instructions on how to get into the house (lockbox, smart lock code, etc.)
  • To state/reiterate the house rules
  • To let the guests know about any accommodations provided (WiFi, coffee, soaps, etc.)
  • To give recommendations for things to do in the city/town
  • To give check-out time and instructions (which will be reiterated in a later message)

Contact Point #5: First Morning

Timing: 18 hours after check-in

Purpose:

  • To let the guest know I hope they had a great first night
  • To remind them that I am available for anything they need during their stay

Contact Point #6: Check-Out Instructions

Timing: 18 hours before checkout

Purpose:

  • To remind the guest of the date and time of their checkout
  • To reiterate checkout instructions

Contact Point #7: Requesting a Review

Timing: 24 hours after checkout

Purpose:

  • To thank the guest, again, for choosing my home for their stay and ask them to keep me in mind for future visits
  • To let them know I will be leaving a review of them as a guest
  • To ask for a review as well as any suggestions on how to improve the experience

Summing It All Up

As stated, the list of touchpoints you just read are things that I decided to implement in my operations. Yours may look completely different and that is great. Tailor your communication strategy to your style and your guests’ needs. Regardless, I hope this gave you some ideas and made you think about the type of relationship you are trying to build between yourself and your guests.

Happy hosting!

Winterizing Weekend: Steps to Get Your Short-Term Rentals Ready for the Cold

Midwest Winters are no joke, and neither is making sure your STR guests are comfortable, safe, and respectful of your home in the cold months. In this post we’ll walk through the steps I took to get my places ready.

Thinking Ahead

The colors on the trees have changed here in Michigan and temperatures are hovering between 50 and 70 degrees for the most part. I’m certainly not worried about this week’s guests shivering in my rentals or tracking in ice and snow onto the hardwood floors. Still, I chose this weekend to do my Winter prep so that there’d be no chance I’d be caught off guard by the season’s first surprise snowfall and find myself racing to the homes to get the job done. While my first Winterizing went pretty smoothly (took about 3.5 hours), I have identified ways to be faster and more efficient with the process next time.

The Steps for Success

I would be surprised if, over the next few weeks, I don’t realize a few things I forgot to do to prep the homes (please let me know any obvious ones in the comments!). Luckily, I don’t live too far away from the area to take a weekend trip whenever I need to. If you live too far for regular visits to your all-seasons locale, make sure you take all of these steps into consideration.

1. Prevent Pipe Freezing

My main concern here is turning off the water to the garden hose. A burst pipe can be disastrous for a home, rental or not. To protect yourself, you first need to find the shut off valve inside the house, closest to where the outdoor faucet (or “sillcock”…yes, that’s really what it’s called) protrudes on the exterior wall. In my homes, these are in the basement. Once you find that, turn it off completely. Then, head outside and open the hose valve to drain water that remains in the hose bib. Leave this open, but take note and action on any water that keeps leaking out after a minute or so.

2. Remove Window/Room AC Units

This one might be obvious but can be tricky to time just right if your home relies on window and room AC rather than central air. Here in Michigan we are known for our unpredictable weather. One day you can be sure it’s time to take the warm sweaters out of storage for good and the next you’re going out on the lake for another sunny boat ride. If you remove the units too soon in the year and then the next guest ends up feeling the heat to the point of discomfort, you may be in for a bad review or even another trip to put the units back in.

Though I was pretty sure it was the right time for me to remove the AC units, I left a fan in each room just in case the guests needed a little extra cool air. I made sure to remove the units from the livable space completely, storing them in the locked basement area where I keep all housekeeping supplies.

NOTE: Before I put the units away, I made sure to take a few steps to make it simple to reassemble the setup come next Spring.

First, I took pictures to show exactly how and where the window units were installed. For me, this included insulation foam placement, wood shims for sizing, and screw placement.

Then, with all of the units laying on the living room floor, I taped little baggies to each machine and put the necessary hardware inside. Mine were slightly different screw placements, so I made sure to label the bags to indicate which room each unit goes into. My goal was to make it as easy as possible for me to reinstall these units when it gets warm out again.

3. Change Air Filters

This one is another self-explanatory step, but one worth jotting down in the ol’ blog. Replacing HVAC air filters every 6 months is a good way to keep the guests’ air clean and keep your furnace working well for them. Doing this during my Winterizing and De-Winterizing (Summerizing?) weekends makes it easy to remember.

4. Prepare For Snowy Shoes and Boots

If you live in a home you own, you likely take extra care to ensure you don’t bring in water and snow from your shoes and track it all over the house. Renters, unsurprisingly, don’t always have the same conscientiousness about the floors. Short-term renters especially. To protect my floors, I added heavy duty door mats, one on the outside and one on the inside of the front door.

Though already specified in the house rules, I also added hand-written notes to “Please take your shoes off at the door!” and taped them to the walls in my rentals. This reminded me of a couple other necessary notes I wanted to add, including messages along the lines of “the sink doesn’t have a disposal so put your food scraps in the trash” and “don’t flush things you aren’t supposed to down the toilet”…totally unrelated to Winterizing but I’m glad the ideas came to mind while I was there.

5. Provide Shovels and Salt

If you’re operating your business like I am, in that you count on a third party to handle your lawn/outdoor care, it’s important to remember to give them what they need to keep your walkways clear and safe for your guests. A strong shovel and a few big bags of ice-melter or sidewalk salt should be enough to serve your STR for the Winter. I’ll be honest, these necessities completely slipped my mind during my recent trip to the homes. If it weren’t for writing this blog post, I’d likely be remembering these items when I looked outside and saw the first blizzard coming down… while sitting in my home, a 1.5 hour drive away even without slick road conditions. Needless to say, I’ll be making another trip soon.

All Set for a Michigan Winter

It was very pleasant heading “up north” in Michigan during the Fall, even if it was to get work done. If you’re in a place with Winters worth Winterizing for, you likely experience nice falls with crisp air and beautiful colors as well. You might as well enjoy your Winterizing trip and see what the town has to offer in the Fall season. It may inspire some new recommendations for your guests!

If you would add anything to the Winterizing steps I mentioned in this post, please let me know in the comments. I’m learning new things everyday and love hearing from others running short-term rental businesses. So, bundle up and enjoy earning money on cozy Winter getaways!

As always, happy hosting.

Elite Hospitality: Earning the Top Titles on Short-Term Rental Platforms

If you’re going to do it, why not try to be the best?

How and Why Major Hosting Platforms Distinguish Their Best Hosts

When consumers shop for items on Amazon, one of the first things most do is look at reviews and star-ratings. The marketplace is full of countless independent sellers, most of which offer items very similar to those of other sellers. So, in order to make sure you are choosing a reputable seller known for good quality, feedback from past customers can be extremely valuable in the purchasing decision. This peer-to-peer review system can instill peace of mind when the shopper adds the item into their digital shopping cart, and can prevent disappointment when the item shows up on their doorstep.

Short-term rental hosting sites like Airbnb and VRBO use similar feedback mechanisms to let others in the market know what to expect – both with buyers (renters) and with sellers (hosts). Post-stay reviews and star ratings can tell others on the platforms volumes about a person’s communication, cleanliness, and overall pleasantness in prior transactions. Taking it one step further, these platforms have quantified a number of key data points associated with hosts’ accounts, and award special “badges” to their listings to let potential guests know that they are the best of the best. Airbnb calls these hosts “Superhosts” and VRBO calls them “Premier Hosts”. I know there are more STR hosting platforms out there but, for this post, I’m going to focus on what I know.

The Metrics

Not surprisingly, Airbnb and VRBO use similar metrics to define their top hosts. There are slight differences, however, in the specific data used in their calculations for awarding the top-titles.

Airbnb

Airbnb uses 4 criteria to evaluate hosts for Superhost status, and they do so on the first day of each quarter of the year. To get the Superhost badge, each of the following criteria must have been met during the 12 months leading up to the review date:

  • Average overall rating of 4.8 or higher (Average guest review of home on a 1-5 star scale)
  • Response rate of 90% or higher (Responding to customer messages and booking inquiries)
  • 10+ completed stays or 100 nights over 3+ stays (Shows that you have remained active in the past year)
  • Cancellation rate less than 1% (Don’t cancel bookings already on the calendar)

VRBO

Similarly, VRBO does host reviews every quarter, looking at each host’s performance over the previous 12 months. However, unlike Airbnb, you may earn the Premier Host status as soon as you achieve the following 5 criteria, even if it’s before the review period ends:

  • Booking acceptance rate of 90% or higher (Declining a booking request lowers your acceptance rate. I have mixed feelings about this metric)
  • Cancellation rate of 5% or less
  • Average overall rating of 4.3 or higher
  • 3 or more reviews on the platform
  • 5 completed bookings or 60 booked nights

The Benefits

Sure, having the title of “Superhost” and/or “Premier Host” is cool and may help you sleep better at night, but what do you really get in return for your hard work?

Airbnb

  • Yearly $100 Airbnb coupon (For maintaining the status for a full year)
  • Promoted to guests (Through marketing emails and ads)
  • Potential guests can filter on Superhost listings (And why wouldn’t they want the best?)

VRBO

  • Potential guests can filter on Premier Host listings
  • Improved search result position
  • Priority support for issues (24/7 access)

PLUS, elite hosts have the ability to demand higher prices for their listings than hosts without the special badge on their account. How much higher is something you’ll need to research in your particular market but, the idea is simple – A higher quality product can ask for a higher price.

Wrap Up

There are plenty of reasons to shoot for obtaining the various platforms’ “top host” designations. The requirements discussed in this post aren’t abstract or nonsensical. They all come down to being a courteous and responsive host to your guests and providing an attractive product to the marketplace. These are principles to build your business on, with or without the “badges” that these platforms provide for instilling them. Receiving the email from Airbnb telling me that I had reached Superhost status was so fulfilling for me. It solidified for me that hospitality may truly be my fit. I had quickly become obsessed with my STR business and now I had obtained reinforcement that I was doing a good job with it. I still have plenty to learn and will continue doing so. As always, I will keep sharing those learnings here with you.

Thank you for taking the time to read what I have to say on the subject.

Happy Hosting!

Depth or Breadth? Deciding Whether to Expand to a New Market

At the time of writing this post, I find myself with a hunger for another property and a bank account that might even be able to satisfy that hunger. My routine this year, since starting my short-term rental journey, has been somewhat of a copy-paste technique within the same city. I have two houses in the same small town and, with it, a rhythm and pocket of comfort. I understand the market and have resources in place that make replicating my investments a relatively easy thing to do. So, when I started fantasizing about the idea of investing in a whole different state, I became torn in two directions. Do I keep going with the area I understand or venture out into the unknown and try my hand at an interstate venture? I hope this post serves both as an informative article for you in your own STR investment career and as a way for me to think-out-loud through the decision, looking at the pros and cons of each path. Let’s get started.

The Niche I Know

The adorable, small town I chose for my first two investment properties has served me well. I have enjoyed getting to know the area and building a trustworthy team of resources around me to help run the show. Here’s a pros-and-cons list of adding my third home to this market:

Pros

  • My fantastic cleaning professional has the bandwidth to take on another home.
  • My agent has my back and has become a good friend I can trust.
  • The proximity (1.5 hour drive) to my home gives me peace of mind, in case I ever need to make the trip.
  • I know there’s a market for short stays here.
  • I am building a reputation in the community for doing what I do well. Strengthening this with another home could be beneficial.
  • Real estate prices are lower (~15%) than in the alternative city.

Cons

  • I risk potential market saturation. What if I’ve tapped out the market?
  • All of my eggs in one basket could mean trouble if the city ever makes rules against STRs or the area becomes undesirable.

Venturing Into The Unknown

The new city/state that caught my attention isn’t completely foreign to me. My brother lives in town, which is what gave me the idea to consider it. Here’s what I like and dislike about investing here:

Pros

  • Interstate experience. This move would force me to practice more truly remote management. It’s further away, but not too far for the occasional weekend trip. Getting confidence with investing in a new state will open me up for endless new markets.
  • I will have a new place to stay. A big draw for me to the STR world is the fact that I can use the homes for my own vacations if I desire.
  • This city brings more revenue potential. Looking at the Airbnb trends in the area, the home I’m considering would likely earn double what my current market does. It is a big city with multiple major events every year.
  • The property taxes are lower in this city.

Cons

  • This is an unknown market for me. I will need to do a lot more market research to understand how to price the home throughout the year.
  • I will need to start from scratch assembling a team of professionals I can trust; including a cleaning crew, maintenance professionals, and a lawn-care service.
  • It is not as easy to get to in the case of an emergency.
  • This particular city is more prone to parties and events, requiring greater due diligence to protect my home.

So, What To Do?

Obviously, some of these items pulling me toward either market are specific to the areas in question. The home values, property taxes, big-city party potential, and revenue expectations in the two markets are all things that are relevant particulars in my scenario, but may vary in your own decision-making process. Nevertheless, it is important to take these things into consideration. Other features in my lists are universal pros and cons to venturing into any new market.

Ultimately, I could justify going either direction. Based on my own vision for my business, I have decided to move into the new market for my next investment. I want to challenge myself with the experience of hosting a short-term rental home in a new city and in a new state. The revenue increase and new vacation location for myself will be worth the uncertainties of the market, extra setup work, and occasional long drive. The pros outweigh the cons for me, though they may not have for you while reading. That’s okay – We are all crafting our own journey here. If you feel I missed any key considerations for either avenue, please leave a comment!

As always, thank you for reading and happy hosting.

Starting a Short-Term Rental Business…Without Owning Any Real Estate

Get cozy! We’re talking about making money.

If you ask people who want to get into real estate investing, but haven’t, for the biggest hurdles stopping them from getting in the game, most will probably mention the capital investment. A house is expensive, no doubt, and exploring loan options can be extremely complicated to even experienced investors. While there are financing options that allow for 3% or less as a down payment for a property, these options may not work for you. You may not qualify for loans like these, for a number of reasons we won’t discuss here. Or, you may not have the savings required to provide the calculated down payment plus the closing costs for the loan, not to mention any updates or repairs needed once you get the keys. Oh, and since you want guests to stay in the house, you need enough money leftover to furnish the place. Whatever your situation may be, you don’t need to let the financial burden of real estate ownership deter you from getting into the hospitality business. With a model called rental arbitrage, you can run your short-term rental business without owning the home at all.

What is Rental Arbitrage?

Arbitrage, simply put, is the economic practice of taking a resource from one market, where it has a certain value, and offering it into another market that values it higher. That difference in value is translated into profit for the person orchestrating the deal. In real estate for rental purposes, let’s consider 2 markets: long-term rental and short-term rental.

The Long-Term Rental Market

This is your classic rental home – whether it be a house, apartment, or condo, the leases are signed for an extended period of time. The agreements are usually for a 12-month period but landlords may offer 6-month or even month-to-month lease agreements to tenants.

The Short-Term Rental Market

This is why you’re here on my blog. The short-term rental market is that of a hotel; people looking for a place to stay for a period of time as short as one night. This isn’t a home, it’s a short stay to get the tenant close to whatever it is that brings them away from home and into the area. For a comparison of the financial implications of renting in the short-term rental market versus the long-term rental market, check out this article.

Now that we have an understanding of the difference in cashflow of an LTR versus an STR, this is where the arbitrage comes in. By taking a resource from one market (a long-term lease contract) and plugging it into another market (renting the home on sites like Airbnb) you can take advantage of this profit potential without having to own the home! You rent it…and then you rent it out. By paying the monthly rent to a landlord and then hosting the home as a short-term stay, you’re able to pocket the difference.

Why Wouldn’t the Owner List the Home on Airbnb Themselves?

  1. The work. Managing guest communication, coordinating cleaning schedules, furnishing the home… It takes more work to manage a short-term rental!
  2. The uncertainty. Many old-school landlords have been doing things the same way for a long time and it’s working.. Why would they change their strategy? They may not even understand the way the technology works.
  3. The risk. Many landlords see the venture into short-term rentals as risky. The potential for more damage and uncertain occupancy rates are scary ideas to many homeowners considering this strategy. Plus, depending on the type of property, the landlord may be looking out for the best interests of other tenants living in close proximity, protecting them from a continuous flow of strangers and parties in the building. As I’ll explain, it’s your job to make it clear to the owner that you are the one taking on, and mitigating, these risks.

How to Land a Rental Arbitrage Deal

What to look for

You can’t just sign any year-long rental agreement for an apartment and assume you can start listing it on Airbnb. Most traditional rental agreements don’t allow this type of sublease. You definitely don’t want to get caught renting the place out illegally and then find yourself stuck with multiple months left in a rental agreement. So, here are some key factors to look for to start your search prepared.

  1. Talk to the owner. A property manager or real estate agent you message through Zillow is likely to shut your request down right away or is not going to portray the opportunity in the most positive light to the owner. If you can find an owner renting out their home via listings on Facebook or Craigslist, you’ll have the best chance of making a personal connection with them and sealing the deal.
  2. Houses over apartments.
    1. Apartment units are going to be the toughest to get into the rental arbitrage game. These are often owned by corporations who don’t have time or interest in hearing about your “win-win opportunity”, and they also will be extra weary of the potential for rambunctious vacation renters throwing parties and disturbing the peace of the nearby residents. This goes for apartment complexes of all sizes, as well as homes that have been converted to multifamily structures.
    2. Condominiums are easier than apartments for this endeavor because they are individually owned, giving you a chance to get in contact with the owner directly. However, the owner may still have the issue of shared walls and friendships with neighbors to protect. Plus, HOAs may have lines in their bylaws that prohibit short-term renting of the units. Be sure to check the bylaws if you get to that point with a condo.
    3. Stand-alone houses are your best bet. If you can speak with the owner of a house, they will likely have less worry of disturbing neighbors. And, by promising to rent out the entire home, you may be taking a large financial burden off of them and their mortgage payment.

Selling it

So…you’ve got the owner of a home on the phone. Now, what do you say?? Because we know the apprehensions that may keep a homeowner on-edge when they think about the STR world, we can prepare for their concerns and ease their minds with a few important selling points. Whether it’s over the phone or in an email, mention the following positives about letting you rent their home out on a short-term basis:

  1. Represent your business and your customers the right way. Instead of saying “I want to rent your house on Airbnb”, say something like “My company offers short-term housing for individuals visiting the area for work and for play”. Mention the different attractions and events that may be bringing someone to the area for a weekend. Get creative but be sure to sell yourself as a professional who provides a service.
  2. Move-in ready at all times. Because you will be bringing in new guests repeatedly, you will always have the house first-impression ready. You can check out this article on the benefits of short-term rental practices in terms of wear-and-tear on a rental property.
  3. Professional cleanings regularly. Similar to point number 2, homeowners can take comfort knowing that their house will be cleaned thoroughly between each guest. That means no year-long manifestations of filth, like they may have encountered after a long-term tenant moved out at the end of a lease.
  4. You make money, so they make money. Stress the fact that, because this is a business, you plan on always having money for rent. You don’t need to hide the fact that you will be making money on this transaction – It may give them comfort in knowing that they will be paid each month.
  5. Maintenance and lawn care. This can be a huge selling point, depending on the homeowner’s original intentions in the long-term agreement. By promising to handle all lawn care and minor maintenance issues inside the home, you may take a big burden off of their shoulders in terms of both effort and finances. You ultimately become the property manager for the home.
  6. Potential to grow. If all goes well, the relationship between yourself and the homeowner may bear fruit in the form of more homes to rent. They may own several homes already, or they may decide to invest in more homes now that they have such a reliable partner. This one comes with time but can really lead to scalability in your business.

In Conclusion

Getting into the short-term rental business without owning real estate is not simple, but it sure is possible. Be prepared to hear “No”…a lot… in the beginning. With the right research, presentation, and reputation, you may find it getting easier and easier to land rental arbitrage deals as time goes on.

Why STR? Comparing Financials (and Work) of Long-Term and Short-Term Rental Strategies

You’ve got a living space you want to rent out..now what? The long-term rental option sounds like a simple way to go; find a tenant, sign a year-long agreement, and let the cash roll in every month. But now you’re considering this whole STR thing…and I’m glad you are. In this post we’ll break down the difference in return possible from a short-term rental vs. a long-term one, and the work required to get it.

The Profit Potential

It should be no surprise that the nightly rate in a short-term rental is higher than the nightly price of a long-term lease agreement for the same property. People pay a premium for the convenience of being able to reside in a place for a few days, whether it’s for vacation, business, or personal reasons. Plus, the homeowner is taking a risk by having more renters coming in and out of their home and expects to be paid for this risk. Many STR owners say that they expect 2-to-3 times the income of a traditional rental strategy.

Example

One of my rental homes is in an area where the monthly rent I could charge is probably $825 at the time of writing this post. In this model, I would leave the tenant in charge of all utilities; gas, electricity, water, and internet service.

Now, using the home for short-stays, my nightly rate averages out to $120. I expect an occupancy rate of 65% of the year (there are sites like Airdna that can help you estimate your occupancy rate and average nightly billing rate). This brings the average monthly revenue of the home to $2,372.50. Subtracting Airbnb’s 3% fee brings us to $2,301.33. Of course, keep in mind that we pay utilities for the homes in this model. My monthly utilities are averaging somewhere around $350 per month, bringing my takeaway to $1,951.33 per month, on average.

“But what about the cost of regular cleanings between guests?” I knew you were going to ask that. If you’ve stayed at an Airbnb an paid attention at the time of booking, you likely noticed a “cleaning fee” line item. This fee is used for, you guessed it, paying for the home to be cleaned after your guests check out. Now depending on the price your cleaning service charges you (all the cheaper if you’re doing the cleaning yourself) and the acceptable cleaning fee rate for the area, you may even be able to make profit from the fee you charge your guests. I have heard stories of people doing just that. Some break even. Some have to shell out a little extra to cover the difference for each stay. For this example, let’s assume we break even with cleaning fees.

This same home, which would have brought in $825 per month as a long-term rental, is bringing in an average of $1,951 per month as a short-term rental property. That is 2.4 times the monthly income, or $1,126 extra per month. Now, of course, a long-term tenant offers a little more comfort to the owner – You know you have heads-in-beds every night, generating you money. The 65% percent occupancy that I used in my example is just an estimate – It may be higher some years and it may be lower in other years. The STR business has a higher risk and, as we’ve learned, a chance for higher reward.

Note: I didn’t mention lawn care in my service calculations for the STR because the owner likely would pay for this service in either model. So, in comparing the 2 options, I decided to ignore it.

What Effort to Expect

You can see how the short-stay strategy can make for a lucrative investment. But, with all of those people coming and going, how much extra work should you plan to put in on maintaining your business?

Furnishing

In another post, I explain how I get this done quickly.

Guest Communication

You’ll want to thank your guests for choosing your place for their trip. Then, you’ll need to tell them how to check in, share recommendations for the area, instruct them on how to check out, and then remind them to leave you a review…and repeat these every time somebody books your home. Several guest touchpoints should be part of your hospitality gameplan. In a future post I’ll add more detail on my communication strategy and even share tools that you can use to automate the touchpoints.

Cleaning

A thorough cleaning of virtually every surface in the home is necessary, especially in today’s fixation on germ safety. Right now, people want to be assured that their retreat is one to a sanitized environment with no trace of contamination from other living beings…I definitely recommend hiring a professional for this but you’re certainly welcome to take on the cleaning process yourself. Finding a cleaning company or person in your area that specializes in quick turnaround for a short-stay business, is a task in itself.

Paying the Bills

Autopay, autopay, autopay. Right off the bat, I put all utilities on autopay. I don’t want to have to think about logging into different websites every month just to pay the bills. Do yourself a favor and automate these payments right away. Check in every now and then to make sure you aren’t being charged any unusual amounts – You may find a mistake or an opportunity for energy efficiency upgrades to the home.

The Takeaway

Is the extra return on a short-stay investment worth the extra work? For me, the answer is a very clear YES. This may not be the case for everyone. You need to consider the following:

  • Long-term rent rates vs. short-term nightly rates in your area
  • How much time you have to dedicate to an STR strategy
  • The resources available to you (cleaning professionals you can trust, property management companies in the area, etc.) that may make one strategy more convenient for you

I hope you found this post useful. As always, feel free to contact me with questions or suggestions for future posts.

Happy hosting!

Rethinking Real Estate: Remember Who You’re Shopping For

In the home buying process, it’s easy to let traditional values dominate your intentions. I remember my parents’ advice during the purchase of my first (primary) home. The typical mindset in a real estate transaction revolves around maximizing the resale value of the home; specifically how valuable the property is to a family unit. It’s important to remember, however, that your goal is not to move a family into their forever-home. While many of the attractive features of a family home remain attractive for a short-term rental, there are certainly differences. Knowing what to focus on – and what to ignore – can help you make the best use of your time and money. In this post I’ll talk about how, by keeping your customer in mind, you may find you’re able to find excellent investments in homes that others may pass right by.

Property Particulars – What we’ve been taught to look for in a home purchase

Here are several classic “must-haves” that were drilled into my head during my search for my primary residence. When I later switched my sights toward attracting guests to my short-term rental properties, I realized that these important features I had been taught really weren’t so important.

Number of Bedrooms

I was always told that houses with 3 or more bedrooms were best for resale. In fact, I was advised to completely ignore 2-bedroom houses. Even though I was a single guy with no intentions of having a family in my first home, I was supposed to plan ahead and accommodate a traditional family of 2 parents with 2.5 kids. 2 bedroom homes would perform poorly in the market when it was time to sell.

I identified 2 main issues with the bedroom count argument when looking for my first short-stay home. First, being a cash-flow investment property, I didn’t really care about how desirable the house would be for the next buyer. Second, given that the average Airbnb party is 2-4 guests, it makes sense that a 2-bedroom home actually makes the most sense. A queen bed is usually enough for 2 guests to stay comfortably, and most renters are happy to save money by doubling up. A third bedroom may actually turn this average-sized group off, due to the feeling of spending money on a room they don’t need. I actively search out houses with 2 bedrooms for my STRs and I’m surprised at the deals I’m able to find with these overlooked homes.

A Garage

If I were buying for myself, there’s no doubt I would prioritize a garage in my search. Even when unattached, a garage gives a cozy feel – A safe place for your car to rest while you settle in after a day of work. Or, maybe a workshop for handy projects, a “mancave”, or a home gym – Not to mention all of the storage space a garage offers.

Of course, guests staying for a couple of days aren’t going to set up a gym or a home theater while they reside in an Airbnb. They aren’t going to bring with them a lifetime of clutter and seasonal clothing that needs to be stored away. And, they don’t need a garage for their car. They need a place to park. They need a safe place to park their car that is close to the home so that they can easily get their bags inside and get to and from their car for the days’ adventures. A driveway would be just fine in most areas. Even street parking would please most guests, if the neighborhood is perceived as safe and the street not excessively busy. According to Airbnb, free parking is one of the best amenities a host can promise guests. So, if your house doesn’t have a driveway, be wary of promising availability of street parking. You may want to mention the uncertainty in your listing description.

A Good School District

I don’t need to spend much time on this one.. It is well known that a school district can make-or-break a home purchase decision. A house’s location is pretty much the only thing that can’t be changed about it. Lucky for you, your short-term guests won’t be staying long enough to need to enroll their kids in class. So, they don’t care about the schools.

Peace and Quiet

When searching for my primary, it was always a big no-no when I’d arrive to a house showing appointment and could hear even the softest rumbling of traffic on the nearby highways. Of course, anybody looking for a place to come home to after a long day of work, repeatedly for the next 10+ years, wants to find solace and serenity in their abode. They come home to get away from the noise.

While peace and quiet is a valuable selling point for some short-term rental locales boasting remote exclusivity or beautiful views of nature, most guests staying for a couple of days in your rental home won’t mind – or likely even notice – the buzz of traffic or nightlife. In fact, if you read my earlier post about choosing a location, close proximity to major roads can actually be an attractive feature for potential guests. People traveling for work, events, or family in a nearby busy city will want quick access to the action.

To Wrap-Up

If you’ve been paying attention, you may have had a lightbulb go off in your head or dollar signs in your eyes… I hope you did. The main takeaway here is that many of the features (or lack thereof) that make a home undesirable to the traditional buyer, and therefore cheaper in the market, may provide you the perfect opportunity to swoop in and get a great value on your short-term rental property investment.

Compare the Wear-and-Tear: Are Short-Term Renters Rougher On Your Property?

I can still hear my mom’s response when I told her my intentions of hosting guests on a short-term basis rather than a typical 1-year lease term.

“Vacation rental? All those people coming and going? They’ll wreck the place!”

My mom’s argument was the same one many people have when comparing these two rental strategies. She saw the rapid rotation of short-stay guests as a recipe for faster property depreciation. Rather than see the place as “home”, short-termers (rapid renters, as I call them) may not treat the house with respect, but with a “not my house, not my problem” attitude that will lead to carelessness and damages. While her logic made sense on the surface, I have actually found the opposite to be true. In fact, because of the nature of the short-term stay and the platforms that make it possible, I trust my assets in the hands of short-term renters much more than those of long-term tenants. In this post I will explain what I mean.

The Tenant-Landlord Relationship

The Typical Lease Term

In my experience renting 1-year apartments, I saw the landlord/staff on three occasions per lease in my unit; at the beginning of the lease, the end of the lease, and on the few-and-far-between instances of mishaps that were severe enough to warrant a maintenance call. “Severe enough” is important to note – I wasn’t calling maintenance to patch a small hole or inspect a spot of mold in the shower. The “it’s just a rental” mindset was in full effect and I only blew a whistle when I felt that my standard of living was hindered or that my rent money was being squandered by negligent upkeep.

When damage was my own fault, I certainly avoided telling the property manager, and the risk of losing my security deposit was usually so far off in the distance that it dampened the urgency for action on my part. At this point, it’s likely easy to imagine how year-to-year renters can lead to deprecation of a property at a noticeable rate.

Renting in The Short-Term

At the other end of the spectrum, the interaction between the rapid renter and the home owner (or property manager or cleaning professional) is just as regular as the guest turnaround. When a guest checks out after their weekend stay, my cleaning partner is in the door within the hour to get the house ready for the next guest. Part of her process, of course, is to be my eyes – Inspect the condition of the property and its furnishings and ensure nothing is out of the ordinary. This both makes sure the place is ready for the next guest and, by doing this thorough inspection between each guest, it allows me to pinpoint the culprit of any guest-caused damages. Then, I can file the appropriate claims with the listing platform, if necessary.

The Nature of The Short Stay

When going on a quick trip – whether for work, play, or personal reasons – staying in and making yourself at home is not usually the main item on the agenda. There are things to do, people to see, and foods to eat. Though the front door may get a workout, many of the amenities of the home will likely see less use. Most of my guests don’t touch the oven, open the windows, or spend much time sitting on the couch watching TV, for example.

Social Feedback and The Digital Reputation

A huge motivator in all aspects of life is how we are perceived by others. Social media and the internet have, of course, amplified the extent to which others can judge us..

Airbnb and VRBO, like many other marketplace platforms, encourage the rating of the people with whom you have recently done business. Following a checkout, both the host and the guest are asked to review their experience throughout the transaction, letting others on the platform know what to expect when interacting with this individual (each not being able to see the other’s review until theirs is complete, to avoid retaliation). Fear of a bad review can make even the rudest homeowner a pleasant host and, similarly, the slobbiest vacationer a fantastically clean guest. If a guest causes damage to my house, and my cleaning lady reports it to me, it has just put a blemish on their online reputation, hurting their chances of being accepted as a guest by a future short-term host.

But What About Parties?

It’s true – Many people search out Airbnb properties with the intention of throwing parties – drinking, playing loud music, and cramming many more people into the home than are allowed in the listing. While this is certainly more likely to happen in some areas than in others, it’s important to be aware of the risk and the things you can do to prevent it.

Of course, you should say “No” when the platform asks if events are allowed in the home when setting up your listing. It should be no surprise that this rule might not be enough to deter a group of college kids on Spring break… Luckily, there are a few other measures you can take to protect your property.

Companies like Noise Aware have created devices that monitor the noise level in a space. These gadgets are small, sleek, and usually plug into an outlet. They alert you if they detect noise elevating to boisterous levels. If the levels stay up long enough (or late enough) to cause you anxiety, you can call the guests to inquire about their activity and ask them to be courteous. Feel free to blame it on a “call from a neighbor” if you don’t want to seem like “big brother” (though I believe you do need to disclose any monitoring devices in the listing). You can buy yours here. This monitoring gives you the additional benefit of staying on the good side of the neighborhood, preventing complaints to the city about the “party house on the block”.

Doorbells with cameras integrated in them can offer a way to see who is coming and going, right from your phone. While you cannot put cameras inside the home to watch your guests, you can find out if a zoo of people is at the door, allowing you to shut down a party before the first keg stand. Ring offers a few options.

Conclusion

Every real estate investment includes some kind of damage risk and it is important to be prepared, both financially and emotionally, to handle the upkeep and unexpected maintenance of your property. However, it is my strong opinion that the argument of many (my mom included) that short-term rentals lead to more damage than long-term rentals is misguided and mitigated via the reasons in this post.