Airbnb Vs Traditional Rental, a Case Study

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Which will give you a better return – Airbnb or long term rentals?

We recently met with a client who wanted us to evaluate if a duplex would be a good Airbnb property.  The property was in a great location just off the interstate, off street parking, and you could see the downtown skyline from the backyard.  The kitchen and bathrooms had been recently updated, and although it was only a 1 bed/bath, there was a living room big enough for a roll away bed.  The property itself was an older historic building with some original woodwork, floors, and recently updated kitchen and bath.

Here is what we sent him to convince him to switch from long term rental to an Airbnb. This analysis could apply to a lot of other properties.

In this case, the landlord rents out the property for $700/month.

We can charge at least $70/night for the unit on weeknights, and $90/night on the weekends.  We haven’t had any problems with our any of our units being filled on the weekends, so we can safely predict that the units will be booked every Friday and Saturday night for the higher rate.

Weekend bookings: $180/weekend X 4 = $720

Remaining nights: $60/night times 4 nights a week (assuming a one night a week vacancy) = $280/week, times 4 weeks  = $1,120 for weeknights

$720 + 1,120 = $1,840/monthly gross

 

Expenses:

3% Airbnb commission – $55

Utilities/wifi – $200 (estimation)

30% management fee – $550

 

Which leaves him with a net profit of $1,035/month, which is an additional $4,020 a year above the long term rental rate of $700/month.

Since it will be listed under us, guests will be able to see that we have positive reviews from other properties which will help, but he will probably see a higher vacancy rate in the first couple weeks. We might set the price a bit lower to encourage bookings.

All of the cleaning fees would be charged directly to the guest through Airbnb, so are not included in the calculations.

Currently we are cleaning and doing turnover for all of the units ourselves so we would receive the cleaning fees, but our ultimate plan is to eventually scale our business and outsource the cleaning/turnover.  If that happens, we would coordinate the cleanings and the cleaning company would receive the fees.  Our client’s profit would remain the same, and there would be no additional work required.

Our best months have been May and June.  We estimate we can charge at least $250/night for opening weekend of CWS, $150/night for college graduation weekends, and $200/night for Berkshire Hathaway.  We also can charge more for holidays such as New Year’s Eve.

Our slowest months have been October, November, and February.  Last year we experienced on average an increase of 1 weekend/month and 4 additional weekdays/month of vacancy for these months.  However, by the time the slow months get here you will already have established at least 100 reviews and have repeat customers. Also, if he has more vacancy that means he is paying less in utilities and management fees.

Besides the additional ROI he would get get, there are additional benefits to Airbnb vs long term rentals:

–       Less wear and tear on the property

–       Someone is checking in on your place constantly, so can alert you to any maintenance or issues immediately

–       No evictions or having to chase down rent checks

–       Airbnb has the guests credit card information and million dollar guarantee, so if anything is damaged we make sure it gets fixed/replaced right away at no cost to you

 

What our management includes:

For the 30% management fee, we will make sure that you have as hands-off of an experience as you want.  We will be available 24/7 to handle messages, concerns, questions, and physically go over to the property at a moments notice if needed.

 

This also includes:

–       Photographing and writing of the listing

–       Personalized plan on how to set up the Airbnb, and exactly what items to purchase that will allow us to charge the highest rate possible

–       Messaging with guests and potential guests

–       Recommendations for activities/places to eat/drink individualized to each guest and their situation, and making sure they know ways to save money before the come here (like the beer penny passport or the Omaha Saves App)

–       Providing an extensive, color guidebook for each unit

–       Supplying towels, linens, pillows, and consumables such as coffee, body wash, etc

–       Dealing with whatever issues may arise during the guests’ stay and being available to go over to the property if necessary

–       Adjusting pricing as needed by staying up to date on all concerts/events/graduations so you can get the highest rate possible

–       Dealing with minor maintenance issues such as drain-o down a sink, changing a light bulb, etc

–       Cleaning and turnover for every guest, including laundry and restocking of supplies

–       Checking in between guests for damage.  If there is damage or missing items, we will work on your behalf with Airbnb to get it resolved.

–       Adding extra touches for guests when we feel it will help improve their experience, which may include things like: a personalized thank you note, water bottles in the fridge, generic breakfast items, bottle of wine, etc.  For example, if a couple is on their honeymoon we might have a bottle of champagne waiting for them when they arrive.

–       Nearby take-out/delivery menus, current local magazines (like the Reader), updated maps, booklets and brochures from the Omaha tourism center

–       Inclusion of your listing on our social media advertising and website, including access to exclusive coupons and deals provided by local businesses for our guests.

 

What our management does not include:

–       Outdoor maintenance (lawn care, snow removal, etc)

–       Emergency maintenance issues that require a professional.  For example, if a guest calls us and says that the toilet is broken, we would go over to the unit to asses the situation.

–       General ongoing maintenance (like changing out the furnace filter, pest control, etc)

–       Liability/insurance

 

The fee percentage differently to provide a custom package for the client.  The 30% is all inclusive and totally passive with no extra fees.  We could go down to 20 or 25% if you wanted to be responsible for restocking consumable items, supplying linens/towels, or arranging laundry services. It just depends on what you are looking for and how much time you want to put into it.

 

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