132: Update on Indy AirBNB Units

SHOW NOTES FOR EPISODE 132: UPDATE ON INDY AIRBNB UNITS

Buy ‘n hold investors are beginning to see the advantages of utilizing AirBNB to increase cash flow, supplement “traditional” buy ‘n hold properties and a means to capitalize on one of the biggest hospitality growth industries on the planet.  In this episode, Bill shares how his thoughts on AirBNB and a brief recap of his trip to Indianapolis to begin test converting some apartment units to AirBNB rentals.

But first, a few announcements and updates:

Help out the Hurricane Harvey Victims

• We encourage everyone listening to donate to the Red Cross and pray for the people in Houston and other hard hit areas of Texas as a result of Hurricane Harvey
• Here are some direct links where you con help:
• Make a contribution to help those in Texas and other affected areas.

  Red Cross – https://www.redcross.org/donate/hurricane-harvey

  Samaritans Purse – https://www.samaritanspurse.org/article/all-disaster-units-to-texas-hurricane-harvey/

Other Items

• Send in your questions and I will answer them on one of our “Ask Bill” episodes:  http://olddawgsreinetwork.com/contact/
• Join our Facebook Group: https://www.facebook.com/groups/1746127632269829/
• Sign-up for our Investor newsletter: http://www.manasseroproperties.com/investor-newsletter-sign-up.html

Indy Trip Update

As some of our regular listeners know, I recently went to Indianapolis with the sole purpose of fixing up some units for AirBNB and set up systems.  (See photos of the unit I upgraded to an AirBNB unit in last week’s show notes: http://olddawgsreinetwork.com/buying-first-rental-property/)

AirBNB is one on those industry/history-shifting companies that started nine years ago, like so many other industry/history shifting businesses, in a college dorm, with a couple of college roommates who were looking for a way to make a few extra bucks to pay their rent and has rocketed into a global marketplace offering over 3 million listings in 65,000 cities in 191 countries.  Needless to say, I doubt the founders need to worry any longer about paying their rent.  The hotel industry is concerned, like the taxi industry was concerned with Uber and the pay phone industry (and many others) with the smart phone.  AirBNB has and will continue to make a big impact on our economy.  It’s no surprise that AirBNB and Uber made many people into entrepreneurs at a time when many were out of work.  People turned their homes and cars into steady flowing ATM machines.

I first became acquainted with AirBNB when I was in Haiti.  Part of what we did with the orphaned, abandoned and at-risk children we served, was to teach them trades and how to run a small business.  Because in a country that purportedly had 80% unemployment, education was good but it didn’t guarantee a job.  So we set up a vocational training program and business incubator to teach kids skills like baking, sewing, carpentry, silk screening, technology, and the hospitality industry.  Then, we taught them how to market and manage their new found skills into business that they could manage, grow and duplicate.

One of those businesses was a guest house that housed visiting teams, families, supporters, and child sponsors visiting their sponsor kids.  The kids got training as cooks, housekeepers, groundskeepers, gift shop operators and even concierge.

The guesthouse started as bunch of bunkbeds in a couple extra rooms in our house and grew into a full-fledged guesthouse with full kitchen, gift shop, dining room, and more that could accommodate over 50 guests a night.  It also hosted special events like weddings, banquets and other special events.

It was part of our strategy to create a mission that would eventually be self-sustaining and no longer dependent on outside donors.  Each business generated funds that were pumped back into the mission to not only pay salaries of the kids and Haitian staff that worked there (around 75 at one time) but it helped fund our school, community medical clinic and feeding program.

The guest house generated over $10,000 per month at its peak for the mission.  Much of this happened after the great earthquake in 2010.  But as the news stories faded and many people forgot about Haiti it became necessary to reach out and find other guests, other visitors to Haiti and to start competing with area hotels and other guest houses.  It was at that time that we developed a marketing plan and got listed on Trip Advisor and another service called AirBNB.

We started learning how to position ourselves and our service to reach this other audience and it did well for us at the time.

My History with AirBNB

• Started in Haiti 4 years ago
• Guesthouse for visiting families and teams
  • Comprised of dorm style rooms (guys and girls dorms)
  • Could accommodate 35-45 guests in bunks
  • Had special family rooms
  • Also used as training for our kids to build up resumes (concierge, cooks, house claeners, gift shop sales)
• Guesthouse generated $10,000 per month in revenue, helped fund our orphanage
• Most was direct contact bookings
• Later, added TripAdvisor and AirBNB

So, as I’m dealing with significant turn-over in my 22 Unit, especially with our studio units, and I knew when I bought the place that studios or efficiency units are just by nature more transient, even though more than half of the people in our studio units had been there for over four years.

One of the things I was getting ready to do was to refinance the property, which had significantly increased in equity.  Part of the cash out would be used for the 100 unit.  But with vacancy rates fluctuating between 5 and 12%, I needed to stabilize to get the best valuation.  How was I going to keep the cash flow stable with traditionally unstable units.

I had to think outside the box.  A few units out of 22 can significantly impact the vacancy numbers but what if I could boost the cash flow even if the vacancy numbers would fluctuate?  If I could increase cash flow significantly higher than I would normally be generated with traditional renters – even with 100% occupancy, I could demonstrate to the lender that the value numbers are real.  Because valuation is determined not by vacancy or occupancy numbers but with ROI and CAP rates.

It was when I had a guest on my show, Al Williamson on episode #109, who talked about the challenges he was facing in renting out inner-city properties in Sacramento that it clicked.  He shared how he took a little 2bed/1 bath home and quadrupled his cash flow by converting to AirBNB properties.  After the show, I continued my discussions with Al, saw his numbers and started working up my own numbers on my 22-unit.  I saw that if I converted just one studio to an AirBNB unit, I would easily make double the cash flow from what it would pull as a traditional rental.  How about if I had 2 or 3?  Even if I had 2-4 studio vacancies, I would still be making more in overall income.  So I decided to do a little test.

• Researched, using sights like AirDNA to see if there was still a good demand for AirBNB services
• Checked out completion
  • Most in the area are rooms in people’s homes. Most did not have private bath & kitchen.  This gave us a competitive advantage.  The only ones that provide that were entire homes that rented much more.
  • Even the cheapest hotels in the area were more than what we would charge
• I had my property manager pick up some cheap furniture and set up on of our vacant studio apartments as an AirBNB test rental.
• Tested:
  • As soon as I listed on AirBNB
  • Booking from Medical student out of Spain who was coming to do his residency in a Indianapolis hospital
  • Didn’t like the basement
  • Next, got a recent college grad that got first job with stock brokerage firm who needed a temporary place for a month and a half while he was waiting for another apartment to be ready – this rental brought in almost 3 times what the traditional rental would have been
• Because of lack of housekeeping personnel and not to interrupt the regular long-term tenants, I selected to only have 30 day minimum stays

Beyond the Test Stage – Setting it Up

• I wanted to do it right so I booked a flight and had 5 days to convert one of my studio units into a 5-Star AirBNB unit
• I started looked at the pictures of other AirBNB, looked at comparable motels/hotels and used those pictures to help me to really set up the
• Rehab
  • Pulled out the rugs and put in wood laminate floors
  • Put in new kitchen cabinets
  • Two-tone contemporary paint
  • Bought memory foam mattress, couch, dining table/desk with charis, HD TV w/Roku, high speed Wi-Fi and cable
  • Made it look like a nice hotel room (in 350 sq feet)
  • Spent about $2,000
• Professional post
  • Hired a professional real estate photographer
  • Re-did my posting, added the photos and hopped on a plan
• Results
  • 2 days later, I had a 30 day booking at
  • Almost doubled rent but I discounted it

What’s Next?

• Now we will continue to learn and refine as time goes on
• Good reviews are critical!
  • Potential risk areas
    • I’m not there and have to rely on new working with my off-site hostess
    • Current tenants
    • Urban
  • If it is successful, we hope to add maybe 1 or 2 more units
  • My hope is that this new strategy will result in a significant boost to our ROI and ultimately to value of the property

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