Airbnb: An Investment to Consider
Airbnb’s rise in popularity has fostered a widespread conversation about investing in property. Buying a home is a large investment, but buying a second property is an even larger investment. Making this commitment is a process that involves time, money and a lot of patience to make the right move. Not to mention, making a choice that will be financially beneficial to you in the long run. This type of investment can turn cash flow into a net loss if guests aren’t purchasing.
Short-term rental housing through Airbnb has made vacationing (and perhaps staycationing) more affordable for those who would rather not be stuck in a cramped hotel room. The convenience of the service is what has attracted hosts to list their own homes and even nose-dive into purchasing new property to create an experience for guests. Airbnb creates a sense of pride in knowing and showing your city off to outsiders and builds a community between hosts and guests who trust one another. Investing in this “sharing economy” is a slippery slope, but if you’re in it for the long haul, this is what you should know! Our local Cincinnati agent, Carly Young, gave us her input into how she turned her investment into a steady stream of income.
What to Consider…
Each city has (or does not have) their own regulations for short-term rental housing. The Homeowner’s Association of each community also has guidelines in place for properties that can and cannot be used as short-term rental housing. Along with these regulations are varying property taxes. Make sure to check neighborhood rules as well during your search because not all neighborhoods allow short-term rental.
Cincinnati currently does not have approved regulations, but they are in the proposal stage of the process. The proposal includes annual inspections and registration of non-owner occupied short-term rentals, adding a 7% excise tax to rents and limiting the number of units per owner to three.
Columbus has already passed regulations that were proposed this year. Any short-term rental is taxed the same as hotels and tax money goes toward affordable housing in Columbus. Hosts are required to register through a system, but there is no cap on the number of days hosts can rent out their property.
In 2016, Cleveland passed similar regulations. The 3% hotel tax throughout the city is put on all short-term rentals. However, a hotel is zoned as a property with five buildings so individual room rentals can sneak around this. Since the passing of these regulations, a city councilman has called to temporarily ban short-term rentals in the city of Cleveland until the end of the year. There has been no word (to our knowledge) whether his proposed ban has been passed.
Demand & Pricing
As with any new business venture, the customer is at the center of all operations. Without the demand to rent out a property, that property becomes useless. Even worse is what your bank account will look like. Yikes. Building demand means finding the right location and creating an experience your guests will tell their friends about.
Cincinnati agent Carly Young has been open for business on Airbnb since June. Carly suggests fluctuating prices based on demand. This means paying attention to external factors that could affect the demand for a short-term rental in your area. Her Airbnb condo in Cincinnati’s Over the Rhine is priced higher when there are big events nearby in response to demand. She typically will break even each month booking 4-8 nights. This is dependent on the prices set by demand. Airbnb’s feature called ‘Smart Pricing’ will automatically adjust the list price base on demand. Carly’s experience has proven to find that the price is very low compared with others in her trendy neighborhood, but do your research before counting it out completely.
To state the obvious: make sure that your overhead expenses are low enough to cover your costs. These overhead expenses include mortgage, utilities, any HOA, property taxes, insurance, parking, etc.
Carly’s firsthand experience with property ownership began right from the start when she had to have the shower replaced. This pushed her list date back about a month, but the cost ended up being covered by the warranty. Expenses like this have nothing to do with Airbnb, but they come along with owning property.
Other expenses to consider are related directly to property management and guest experience. Creating the atmosphere your guest desires comes at a small cost, but it is not to be ignored. Fix up the place and manage the property well so guests won’t have any negative feedback in their reviews. This can range anywhere from hiring a cleaning service after each guest to renovating a specific area in the home. All expenses are expenses to consider when making this investment.
Property management is the ongoing job you will be tasked with post-purchase of the home. Carly’s suggestion is to make sure you have a concrete plan for turning the property between guests. Your listing thrives on reviews so it’s very important to clean it meticulously or hire a cleaner that you trust. If a guest checked in to find musty towels or unchanged sheets, they would probably demand a refund, leave and write a 1-star review. Find someone you trust to manage the property while you’re out of town so you don’t have to pass up any bookings. Another thing to consider is adding a co-host. A co-host is essentially a property manager who will help manage bookings & cleanings. They can communicate with guests on your behalf and handle any last minute issues. If you’re an out of town host this is almost necessary.
As we stated before, the guest is what turns your cash flow into a net profit. They are the engine of your business endeavor and without them, your investment would be a waste. So, treat them accordingly! Here are Carly’s tips about handling guests and keeping them happy:
If you haven’t already, stay in an Airbnb as a guest. Go through the process yourself and pay attention to amenities that your host does (or doesn’t) provide. After staying at several without full-length mirrors and WiFi, I knew I had to have those 2 things.
I also require my guests to have a certain amount of reviews, ID verification & answer a few questions before booking to screen them. Make sure to pay attention to your booking & cancellation settings when setting up your listing.
Consider who your ideal guest is - are they groups/families, couples, business travelers? Buy a property that will accommodate your ideal guest and set up the place accordingly.
Just like real estate listings, photos & descriptions are key. Location, location, location. Make sure you describe what’s nearby since Airbnb guests don’t have your exact address until booking. Bright professional photography works wonders. Also similar to real estate, having a list of raving reviews is very attractive to guests.
Adding personal touches to the place is the perfect way to make your guest’s stay unique. There are several ways to add these touches. Decorate the place to fit the guest you are aiming to attract. Adding in fun decor from local stores is the best way to make someone from out of town feel at home.
Go above and beyond for your first few guests to ensure they rave about you and your place. For example, I have had a few guests celebrate birthdays or anniversary’s so we’ve lightly decorated the condo for them.
Make sure to communicate quickly and do your best to accommodate as many early check-ins and late checkouts as much as you can. I leave a list of my favorite places to go in the condo and encourage my guests to ask me for suggestions.
A Note from Carly
Hosting quickly became one of my favorite ‘jobs’. It’s opened my eyes to how many people are traveling to Cincy for work, weddings, events and surprisingly, just to check it out! When they’re in town they’re supporting local business and helping the Cincy economy grow. I love that I’m able to connect with travelers and help them enjoy their time in my favorite city while supporting local business.
Jeremy (my fiancé) and I always enjoy our time trying new restaurants and going to local events in the neighborhood. Buying the condo was a way for us to spend more time there and I hoped listing it on Airbnb would offset the cost of ownership. Little did I know that it would turn into a pretty steady source of income. Woohoo!