196: AirBNB Apartment Test Update

SHOW NOTES FOR EPISODE 196: AIRBNB APARTMENT TEST UPDATE

Bill’s experiment with converting one of his Indy apartment units into a short-term rental unit via AirBNB, VRBO and other furnished housing portals, proved to be a success.  In this episode, Bill shares his results to-date as he prepares for a trip to Indy to convert two more units.

Introduction

As real estate investors, we should be looking at ways to improve what we do and to maximize our return-on-investment for our properties.  There are lots of things we can do but we have to weigh out what makes most sense for us, our resources and our strategic goals.

In July 2017, Bill set up an AirBNB unit in his 22-unit apartment in Indianapolis to test out and see if was a viable means of increasing revenue from the apartment building.  Since then, he has experimented with various approaches, staffing models and niche positioning and saw what works and what doesn’t work for his stuation.  The bottom line: operating a short-term rental unit, within his mix of long-term rentals has proved to be both feasible and profitable.  The income generated was not only double the monthly lease rental income of a comparable unit, but it is consistent, scaleable, attracts a higher level of tenant and, further, is capable of generating even more income by targeting specific guest audience niches.

The reason we’re sharing this podcast is to not only update you on our AirBNB experiment but to also inspire you to think “outside the box” in your real estate investing

22-Unit Challenges

• Purchase in May 2016 (under market value)
• In the path of progress (near Irvington not far from downtown)
• An area “in transition”
• Growth was slow
• With 17 studios, it is difficult to secure longer-term tenants
• We sought out to attract potential longer-term tenants
• Aggressive rehab
  • Electrical
  • Got rid of boiler – replaced with electric baseboard heating (tenants pay electric)
  • Upgraded units
  • Switched from gas to electric stoves/ovens
  • Curb appeal – new signage, flowers, landscaping
  • Tried to bring 1920 period look to common areas
• Established relationships with local
  • Businesses
  • Churches
  • Cops
  • Other landlords
  • Increase rents
  • With increased rents and decreased expenses
• Low local market rental rates 0 can’t really increase beyond market
• High turn-over
• Lower quality Tenants
• Felt like we are maxed out

Al Williamson

• 109: Creative Strategies to Increase Your Rental Property Net Income
• Shared how California cap rates compressed
• Didn’t make sense to buy
• Converted conventional rental to
  • Furnished
  • Dormitory
  • Short-tern rentals
  • Corporate housing/business travelers
• Tripled his passive income
• 2bed/1ba-Went from $200 cash flow to $1,068 by converting it to AirBNB
• Also doing rental arbitrage – renting other people’s properties and subletting as AirBNB

Small Apartment AirBNB Challenges

• I considered this as an option as a means to address out stalmate
• Instead of looking at other AirBNBs in the area, we looked at hotels and extended-stay facilities that would serve our community
  • There are few
  • Their daily rate is considerably higher than a profitable rate for us
  • We saw how a studio apartment is a lot like a typical inexpensive motel/hotel, except we have a complete kitchen and are in a more quiet, community environment
  • It we could furnish it nicely and add all the amenities, we could compete
• For each unit I convert, it is the minimum income equivalent of adding a new unit to my apartment
• We had to deal with having no onsite host, therefore we decided to establish a 30-minimum stay
  • No one to do turn-arounds every couple days, but I could have someone to do turn-around once a month
  • Role of host/hostess
• Early on people were not comfortable with the area. Repositioned as “Urban Oasis”

Setting up the AirBNB Unit

• Relatively low cost to convert a unit ($1,500 -3,000)
  • Furniture
  • HD-TV
  • Cable
  • We upgraded to laminate floors, new kitchen cabinets
• We listed our unit on AirBNB to see the response
  • Within one week, we had our first booking
• I can increase daily rate with the season and with more good reviews
• With 30-day minimum, nothing needed for 30-days
  • Tenants do own laundry
  • Relatively no activity

Repositioning

• Our first residents were a bit of a challenge
  • Not used to our urban inter-cultural location
  • Also, had a bug problem and had to apply special treatment for this unit
  • Tweaked our listing description
• Able to find a local host/hostess to work with our guests
• Expanded listing to VRBO (Vacation rental listing service)
• Decided to tap into traveling nurse market which are minimum 90-day stays
  • Found a strong demand for this group

Summary

This may not make sense for everyone but it has worked for me, at my apartment, and in the Indy market.  By converting one AirBNB unit, revenue wise, it generates the equivalent of two units.

There are many variations on how you can introduce short term rentals, if you so choose (rental arbitrage).  If you are considering this, I would highly recommend that you first get educated on how to do this and, secondly, test it with a minimum investment to see if there is a demand in your area and for your property.

I’m flying to Indy this weekend to add 2 more “short term” rental units to have these available this month.

Here are some episodes where I have discussed what I have done in this area: