(Originally published on LinkedIn, November 28, 2017)
Airbnb rentals are an exciting new real estate strategy…learn the art (& science) of the deal from Adam & Bianca.
SPECIAL #GIVINGTUESDAY EDITION
Hey all, hope your Thanksgivings were filled with relaxing & quality time with loved ones. To help recover from your food coma & Cyber Monday hangover, a special remedy I highly encourage is to participate in #GivingTuesday & help out those with less fortune than us –> Spread the holiday cheer & find causes to donate to today…there will be a TON to choose from on your social feeds today (including mine below)!
Stay awesome all!
TODAY’S ARTICLE: Adam & Bianca gave an AWESOME prez last month on their new Airbnb investment strategy in Big Bear. High powered advice ranged from location scouting & reno strategy to mktg & pricing best practices. Epic stuff. I’ve summarized the highlights of their prez below.
#GIVINGTUESDAY: Today is a global day of giving fueled by the power of social media & collaboration. For the 6th yr in a row, I’m asking for donations to my #Movember campaign to improve men’s mental health & suicide prevention. At a rate of one suicide per minute, & 20 per day for military veterans, this is a dire need. Contribute here to help reduce male suicides by 25% over the next decade….ANY & ALL donations are much appreciated!
ICYMI: Check out my last write-up on learnings from my 12-plex bid here.
THE ART (& SCIENCE) OF THE AIRBNB DEAL
At our October meetup Adam & Bianca gave a presentation on their recent Sheephorn Lodge investment in Big Bear. Highlights are below.
PATH TO PURCHASE
A serendipitous moment kicked off an unexpected yet highly rewarding journey for Adam & Bianca.
- THE BACKSTORY: Adam & Bianca had been looking to buy their first home but were dismayed by coastal LA home prices ($1000+ / sq ft!). In the midst of their search, they visited a friend in Big Bear on a holiday weekend…& were shocked at the rate…a whopping $600 / night! They were even more shocked upon looking up Zillow’s est value…only $130k.
- THE SEARCH: Interest piqued, Bianca started researching Big Bear neighborhoods. As an RE agent, she was able to browse MLS listings. She made faux Airbnb bookings to contact owners & discuss their Airbnb strategies. She called neighbors of places she was interested in. Bianca was ON IT.
- TARGET FILTERS / HAVE A VISION: Adam & Bianca knew exactly what they wanted: $300-500k price range, close to slopes to optimize rental-heavy winter months, flat driveway (incline + ice don’t mix well), hot tub, ~10k sq fot lot, a reno budget under $40k, etc. They also knew they wanted a property within a 3 hr drive of their Santa Monica home (Palm Springs & Joshua Tree were also in the initial running). Their narrow focus allowed them to quickly become experts on their target market.
- NEIGHBORHOOD NUANCE: Big Bear Lake has different taxes & local ordinances than Big Bear City. Nearby Lake Arrowhead is a more insular community & has less winter rental appeal due its farther proximity from the ski resorts. Some neighborhoods have an HOA. Moonridge is having a moment (where Sheephorn Lodge is). Overall, local dynamics like these materially drive short-term rental models, so be informed!
- CLOSING THE DEAL: Sheephorn Lodge listed for $399,900 on April 14, 2017, & was bought for $395,000 on May 25, 2017. Bianca acted as buyer’s agent, allowing her to offset the $405k final price via $10k of buy-side commissions. Yet another advantage of having your RE license.
- RENTAL ASSUMPTIONS & ESTIMATING ROI: Adam & Bianca assumed 80 peak & 30 non-peak rentable days (each at different pricing), & are not expecting much appreciation due to low price volatility in the Big Bear area. Targeting a 6-8% overall CoC return. To date, they have just over $28k in bookings for Aug 2017 – Feb 2018, the majority of which are in the Oct, Dec & Jan months. (CE NOTE: I think they’ll do much better than 6-8% 😉
- OPERATING COSTS: Short-term rentals have a different opex structure than primary residences. In addition to higher turnover, Adam & Bianca had to factor in snow removal, wood delivery, & other costs unique to their Big Bear rental. What costs are unique to your area? Pest control? Roots in the water lines? Every locale has them, know what yours are.
- DOWNTURN PROTECTION: In the case of an economic downturn (less rentals) or personal cash crunch, Adam & Bianca can always use the place for cheaper staycations since it’s only a 2 hr drive away. One of the many advantages of having a vacation rental within driving distance from your primary residence.
Before & after photos below, plus some “eccentricities” of doing a reno in Big Bear.
(Downstairs nook before reno)
(Downstairs nook after reno)
(Outdoor patio before reno)
(Outdoor patio after reno)
- 2X OVER BUDGET: $25k was the original budget, but like 99% of renovations, it ended up costing more…$40k all-in. Next time they’ll incorporate contractor incentive bonuses for early completion. At first glance these bonuses may seem like an added cost, but when factoring in holdings costs like interest, insurance & unusable rental inventory, these bonuses actually equate to a financial win.
- DETAILED TRACKING: Adam & Bianca tracked their furnishing & design detail plus associated costs in extreme detail (schedule here). Having this detailed list allowed them to make big single trips to the store with a moving truck & more easily plan the move timeline. This organization was key to accomplishing a BIG project in short order.
- TIMELINE: Closed on the property in May, renovated for 3 months, & then listed on Airbnb mid August. The warm summer months & quieter rental period provided optimal timing for construction work…a double win. Note that some RE markets have low contractor avails & steep pricing in the busy summer months, particularly in very cold climates (Omaha has a bit of this), but Adam & Bianca did not encounter any major challenges here beyond “Big Bear time” (see below).
- “BIG BEAR TIME”: Big Bear is (in)famous for its lax pace. Early on Adam & Bianca were advised to not fight it & go with the flow. Overall, their planned timeline was delayed, but not drastically so. Nevertheless, they will employ incentive bonuses in an attempt to accelerate completion on their next project.
- SMART HOME: Adam & Bianca went all out with smart home features – an upfront investment with a long-term payoff, both on the economic and “peace-of-mind” fronts. Added features include auto door locks, outdoor camera (inside is illegal), water heater sensor, & mobile hot tub activation. These investments help to reduce opex through improved energy & mgmt efficiency, as well as an improved tenant experience which helps with reviews & marketability.
- FLOORING: Wood can wear quickly because of the sun & weather, so Adam & Bianca chose an industrial carpet to manage the higher volume usage from renter turnover. Further, they found a style that worked well with their overall decor & was still a step above the standard bright green “turf” found in many other Big Bear cabins! Also, they were able to purchase brand new carpet padding from a nearby property sale…win!
- FOOSBALL! The classic cabin game came with the home. In Big Bear, homes often come furnished, which means extra pickings for home accents native to the area. It also means owners need to be prepared for a junk removal pickup for everything they don’t want, which can cost in the hundreds of dollars (or more).
- ACCENTS: Adam & Bianca had their mom paint a mountain-scape mural on one of the bedroom walls. A great accent to any mountain home, & very easy to do (though as a professional artist, I’m sure Mrs. Mitchell’s is world class 😉
- IKEA HASSLE: Adam spent tens of hours building Ikea furniture. For future projects, Adam will hire a Taskrabbit to lighten his workload and / or buy more furniture that is pre-built.
- 400+ HOURS: Adam & Bianca estimate 400+ hrs of personal work time managing the reno & making Sheephorn Lodge renter ready. Fortunately, both have flexible jobs that allowed them to work remotely during the many day trips from LA. While they enjoyed it & learned a TON, it was definitely a huge commitment. For their next investment they’ve agreed to hire additional help, & are confident they can keep the budget in check since they know exactly the level of work & commitment required to get the job done to their standards.
- NO AMAZON PRIME: There are no mailboxes in Big Bear Lake, just PO Boxes. That means no boxes delivered to home address, no Amazon Prime, etc. A small but important detail to be wary of.
RENTAL & MANAGEMENT STRATEGY
“We got this”
- TO MANAGE OR NOT TO MANAGE: Adam & Bianca discovered that local property mgrs charged ~30% of gross rental income, which materially impacted their return models. The cost / benefit just didn’t add up, & they were confident they could setup the systems to ensure tenant (& landlord success). At the least, they were going to learn, which is worth wayyy more than 30% 😉
- STAGING IS KEY: For premium Airbnb getaways, you’re selling an experience. Therefore, mktg that experience in photos is critical, & it’s worth the $$ to hire a professional photographer (or ask a friend with a DSLR & a knack for photo-taking). A beautiful decor only goes so far in mediocre lighting & low resolution. High quality images support higher nightly rates & improved conversion.
- MARKETING: Bianca focuses her mktg efforts on Instagram, which has strong ad targeting capabilities & leverages a rich visual medium. Bianca retargets users who have visited Big Bear tourist sites, local ski shops, etc. Her avg spend is $20 / day & her campaigns avg 2k views / month. 75 users have saved Sheephorn Lodge as one of their Airbnb favorites.
- CONTENT CADENCE: As all you new media marketers are acutely aware, great content is key to creating compelling mktg campaigns. Therefore, Bianca regularly photographs Big Bear “moments” during her trips to Sheephorn Lodge (e.g. lake sunsets, mountain-scapes, etc) to be used for Instagram ads, the Sheephorn website, Airbnb updates, etc. Lesson = constantly be feeding your content funnel!
- SUPERHOST: Achieved when a host has 10 reviews that are 5 stars. Adam & Bianca made a big push immediately upon listing on Airbnb to ensure their superhost status, as it improves booking conversion & listings visibility. More info on the airbnb website here.
- TENANT SCREENING: Adam & Bianca require ID photos upfront to finalize a booking. The practice is rarely questioned, and if it is, they remind visitors that ALL hotels require the same 😉
- CONTRACTS: Adam & Bianca received counsel from many other owners & took the time upfront to create a fair yet ironclad contract. Protections include no to limited liability for (1) the case of the property is unavail due to forest fires or closed roads (2) normal existence of bugs (not infestations) (3) hot tub use (4) transfer of tenant contracts upon sale, etc. Overall, they were told to think about “how could someone die in my house?” & draft appropriate protections. A bit morbid, but a good preparatory question. Of course, protections focus on renter actions that could lead to personal injury…Adam & Bianca assume all appropriate liability for things in their control (house construction & safety, etc).
- CLEANING GUIDE: Have a cleaning guide for the cleaning staff. Include photos of each room & how it should look when made up. Since Adam & Bianca are selling an “experience” & not just a place to crash, the visual aesthetic & micro details like the welcome basket w/ smores ingredients, artisanal chocolates & hand-written greeting note are critical in turnover prep. This is their template.
- SMART PRICING: Airbnb’s pricing algorithm doesn’t work well in all mkts, including Big Bear, so Adam & Bianca set their pricing manually. Interesting learnings include not pricing too low, as that can attract undesireable tenants (college kids looking to party) that are more likely to cause premature wear & tear.
- POSITIVE PRICE ELASTICITY & VEBLEN GOODS: Adam & Bianca noticed that their Airbnb rental has characteristics of a Veblen good, such that when price rises, demand increases (think luxury watches, perfumes, high-fashion denim, etc). Specifically, they wondered why New Years Eve weekend was slow to book compared to other similar properties nearby. They got a tip from another host recommending they increase their nightly price by $100…& then it rented immediately! More nerding out on luxury good economics can be found here.
- FRIEND & FAMILY DISCOUNTS / LACK THEREOF: To incent the first set of visitors, Adam & Bianca wished they could have offered one-time discounts to friends & family, but Airbnb has no supporting functionality. It’s a good idea, so I tweeted at Airbnb about it. This is their response.
LINKS & A CLOSING NOTE
Bianca “realllyyyyyy enjoyed” (her words) her Airbnb project & is excited to bring her passionate expertise to those in need of some consulting services for their own Airbnb projects. This spring Bianca is providing a “turnkey” Airbnb solution for a friend (realtor referral, design & reno advice, & much more). If anyone has questions or needs help on an upcoming project, Bianca encourages you to reach out! Her email is firstname.lastname@example.org & she’s eager to help!!
#realestate #realestateinvesting #leadership #positivity #givingtuesday #airbnb #airbnbinvesting #airbnbrentals #bigbear #bigbearlake #b2b #b2c
Thanks for reading!
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