After a pretty successful launch of my first Airbnb, I am going to be working on my second one. I purchased this house 13 years ago for $101,000. I originally purchased it as a house hack and since rented out the whole house primarily a student rental.
As a student rental, this house rented for about $1,600 a month, or $19,200 per year. As an airbnb I am hoping to make $3,500 a month or $42,000 a year. Of course there are more expenses with an airbnb than a long term rental.
I would say there is a lot of potential here. The spaces are pretty open, the bathrooms are in a good layout, there just needs to be some work to update and improve the property to attract the guests we want.
There is a decent amount of deferred maintenance on this property. There is also a discrepancy between the level of finishes of a typical airbnb and the student housing it used to be. Though, the market has definitely changed in the level of finishes expected in student housing since purchase of this house.
We plan on renovating this house pretty extensively. Pretty similar levels of finishes to a typical flip we might do.
The furnace conked off after the tenant moved out. We will be replacing it with a brand new system.
Refinish existing hardwood
Installing Wetprotect Laminate flooring for upstairs
Install new shaker cabinets
New granite countertops
New shower including tile surrounds
New tub and tile surround in first floor
New tile floors
Adding half bath
Plan on putting a half bath in the existing laundry room. This should be a great improvement for the living area of the Airbnb.
Retaining wall repairs: $5,000
New patio: $2,500
New staircase and deck repairs: $1,500
Total renovation: $41,400
Most of the furniture will be purchased on amazon.com. We have had pretty good success with sourcing things from amazon both from a quality perspective and from a simplicity perspective.
I will probably look to a few local stores for the sofas.
Facebook marketplace is also a good place to look. I have heard to search phrases like: "everything must go" to find someone who is moving and trying to liquidate all their furniture.
Bidfta.com fast track auctions is about the perfect place to source some of the furniture. They have auctions where they liquidate a lot of online returns. Mostly with damaged packaging or some product damage. On our first Airbnb, this saved us a lot of money on furniture.
It is a bit of trading time for money though as it takes a lot longer to watch the auctions, bid on items, and pick them up at the warehouses. Though with a bit of planning to pick up multiple items at the same time, there can be hundreds of dollars of savings per hour of effort.
So far, we have cleaned our airbnb between each guest. This is probably not a scalable solution, and this house is a bit further from our house. For this house, we plan on getting a professional cleaner to clean between each guest.
I am hoping that this goes smoothly and will allow for easier scaling.
I am outlining the monthly expenses that are different between renting the house out long term and Airbnb. This is not a comprehensive list of all monthly expenses for the investment. This is because I am converting an asset I already own, it is not a purchase decision.
Gas and Electric: $200
Nest alarm monitoring: $15
Converting this house from a yearly rental to short term rental will cost roughly $55,000. Though probably about $10,000 of the repairs needed to be done anyways.
There is $22,800 difference in revenue between long term rental and short term. With about $335 in additional costs between long term and short term rentals that leaves about $18,780 of additional annual revenue. Leaving the payoff period for this investment to be about 3.5 years.
Since the renovations are going to be adding value to the property, it would make sense to refinance them. Going from the monthly payment on a 4.25% note of $100,000 to a $140,000 note is about a difference of $200 per month.
This leaves the remaining $13,600 for furniture. If we depreciate it over 5 years, that is $225. Airbnb actually compensates for damaged furniture in your property so this is to cover incidental wear and tear. A decent amount of the purchases will last longer than 5 years, and things like linens will last much less.
By amortizing the improvements to 30 years, the payoff of the furniture is under one year. I think this makes the move to Airbnb from a long term rental appealing. The improvements I am making might make sense to depreciate over 15 years rather than 30 though. Things like HVAC, cabinets, flooring, etc. There is not much 30-50 year depreciation schedule work being done with this money.
Quality of math
The math done in this article is about one level above the "cocktail napkin" type of math. It is using best judgements and guesses. It is probably not a full scope of work. It is the starting point for while I get bids and put together a proper budget.
The main reason I am converting my long term rentals to Airbnb is because of the cashflow. I have 4 single family rentals, and they generate between $200-250 cashflow per month after taking into account reserves for maintenance and capital expenditures. We will call it $250 each, for a total of $1,000. It also gives me the ability to self perform maintenance and property management for an additional $1-200 in cash flow.
So if we have $18,780 difference between short term and long term rentals after the monthly expenses. We also have an additional $425 in amortized expenses. The remaining difference is $13,680 or $1,140 per month. This is on top of the $250 per month and $1-200 in self managing it. Bringing the monthly profit up to around $1500.
If each of my 4 rentals were bringing in around $1,500 per month in cashflow as opposed to $350, that is the difference between making $1,400 and $6,000 a month.
The great thing about $6,000 a month is that it looks very similar to a decent salary in the midwest. Sure managing 4 Airbnb's is a lot more work than long term rentals, but if it gets me that much closer to FIRE, then perhaps it is worth it.