Airbnb Experiences an NHG tale

Hey team,

I didn't want to hog the current thread (Airbnb Tips) so thought I'd add my points here.

I have done airbnb over two time periods.
The first (2017) was a financial disaster, the second (2022) is occurring as of the time of this post.

Quick Lessons - to avoid a long read
1. One and two bedroom properties have the best ROI.
2. Location, location, location + parking.
3. The airbnb recommended prices are horrible.
4. Kmart is your friend for bedding.
5. Change prices daily to obtain max returns.
6. 3-5 day minimum rent period to avoid weekend party goers.

2017 - Dee Why JV deal

Methodology

Location
1. Lease-to-lease model. We did not own the apartment. However plan was to secure rights to sub-lease.
2. I can't recall why Dee Why specifically. However we undertook a lot of data analysis to identify reasonably high daily rates vs cost of procuring a property.
3. Identified 2 other air-bnbs on the Narraweena side of Pittwater Road. We would be the only property on the beach side of Pittwater Road. Assumption was it was a superior location.
4. Secured a lease with rights to sub-lease.

Setup
1. Purchased furniture from gum-tree / facebook market-place. Split-king in bedrooms. Fold-out couch in living room. Procured the worlds heaviest glass table. My back still cries thinking about it.
2. Styling was, I forget the name, not LA coastal, the tacky one where everything pops. It worked, just the opposite of my personal taste.
3. Bed-sheets are a killer. Purchase from Kmart. Most people can't tell the difference. You need 2* of every bedding. 2 bedrooms + fold-out couch, king-to single conversion. It was a lot of bedding. So expensive.
4. Lock-box on chain on the street for key-storage. Not kept on premises.
5. Created a booklet of local cafes, buses, and things to do/see.
6. Total setup cost from memory was $13k.

Operations
1. Hired a professional operator. Management fee 15% of turnover. It is a lot higher these days.
2. Booked first few nights for our friends and had them write our first few reviews.
3. Hired local cleaner, and made a deal with local laundry to wash our sheets.
4. Where we could, we asked the cleaners to do the conversions of split king to king, or fold-out couch etc.
5. Advertise across multiple platforms, block-outs from bookings were managed using a third party software which would block out airbnb dates if there was a booking on bookings.com from memory.

Results
1. Starting, 2 other operators opened next door within the first 2 weeks. They were renting their places below our base cost. It was madness. Would have been more profitable for them to rent it on the long-term rental market.
2. Strata sent us a cease-and-desist. We knew the laws pretty well and had a lawyer draft a response which had them back right off.
3. Bookings for the first month were slow, however built up over time.
4. More airbnbs popped up nearby, we no longer had any advantage in the market.
5. We didn't follow the recommended price listing and created our own pricing. The recommended is always way too low.
6. Average rent was $250 per night, yet obtained $800 per night around Christmas / NY. Made BANK.
7. Until we didn't. Net results after 12 months was break-even on turnover. Did not recover my initial setup, therefore $13k loss.

Interim
1. 3 month leasing laws introduced.
2. Stronger strata rulings to prevent air-bnb in apartment blocks.
3. STRA registration required.
4. Cost of living / wages increased drastically end of 2022.

2022 - Bondi Junction / Surry Hills

Methodology

Location
1. December 2022. A mate rented his place for a great price. I had just come from New Caledonia and wanted to go back. Listed our personal apartment for 30 days from 20 Dec 2022 - 20 Jan 2023.
2. One of our team asked if she could trial air-bnb. We had a tenant give notice Christmas day. I figured may as well let her give it a crack. Listing for 30 days and will increase time as bookings come in.
3. An industry colleague confirmed he was obtaining ridiculous prices this summer.

Setup
1. Registered for STRA as a tenant. I have sub-leasing rights in my leases.
2. Personal apartment. We cleared out ALL our personal items. Wife insisted. 2 people, 3 days, cleaning, swapping mattresses, placing our things off-site in storage, the works.
3. It's a luxury apartment so went up-market with bedding. Cost a few thousand more than I was budgeting.
4. Our photographer and stylist was out of town so we did it ourselves.
5. No split kings, just double / queen beds + fold-out couch for the trial property.

Operations
1. Hourly rate to a team-member for managing our apartment
2. 20% management fee for managing the trial air-bnb next to Central Station.
3. We have in-house cleaners so paying reasonable rates for cleaning. Change of bed-sheets etc done by them.
4. Undecided on using professional laundry for our bedding, vs having our cleaners do the work.
5. One property has a lock box on-site. The other will be a key drop-off by one of our team.

Results
1. Prices crashed. There is an operator with 200+ properties that has it set to drop prices drastically to keep their properties full. As we were last minute listings, we had a quiet period where we were like. Ah crap.
2. Fortunately great location, great views. Available period leased in full. We will clear 3x our outgoing rent over the leased period.
3. Trial unit was listed. We forgot to turn off the availability. Several dates booked within 2 hrs. Panicked and turned off the listing. Property is a 2 minute walk to Central Station. Hard to beat the location. 1 bedroom, can be leased to 4 people with a fold-out couch.
4. Fortunately all places leased for 3x our outgoing expenses to date.
5. We extended our personal listing for an additional week to travel a little more.
5. Will continue trialling out the other apartment on a 30-day rolling availability. If all goes well, will list more units in the same complex on air-bnb.

Closing Remarks
1. Still trialling it out. I'm significantly more cautious these days.
2. General census from operators I've spoken to, is it's harder than it use to be. Legislation is getting stricter.
3. They are currently making worth-while returns. 70-90% tenancy, break even at 50%.
4. Management of tenant expectations is a lot higher than it use to be. They are very demanding vs normal rentals. Have a good think if it's for you. The 20% management fee is killer. Without it, you now have a second job.
5. I'll update as I learn more based on my new experiences.

 

Don't you find Kmart fitted sheets too small to fit over the mattresses?

Tenant expectations: I think guests got worse at the start of covid around mid 2020 until the end of the first lot of holidays post lock down. Expectations seemed higher and anxiety levels were heightened about their bookings and cancellations.

Since then things seem to have returned to normal. Prices are lower and guests are better. I'm not in Sydney though so I may have a different type of guest to you.

Expensive properties come with higher expectations and cheap properties seem to attract guests that want a bargain but expect mid-market quality. I've had least hassle with a unit in a good location that is 10% below market rate but is still more expensive than units in less tourist friendly areas.

Management fees: managers aren't thinking of of ways to give your listing a leg up over the rest of their properties. The more properties they have in your market segment, the more that matters. So, management fees may be 20% but their is lost revenue in top of that.

Also, if you have a minimum 5 day booking you really aren't adding a second job. I spend an average of 3-4 hours a week. That's overestimating it because I have quite a few multiple week guests.

 

Great write up and curious as to see how it progresses.

I offered my PPOR which is just off Clovelly village on airbnb last xmas whilst I was away - had one booking for 14 nights and it went smoothly.

If you found a reliable cleaner and a laundry company (there's one just near mine) do you think it'd be feasible to manage bookings yourself whilst overseas?

 

so how's the trial going?

 

Bookings come in at all hours.
You’d just have to communicate with your cleaner and guests as needed…. I’d say have someone local available to assist. You don’t want a new guest not knowing how to access the place for hours.

 

I stayed in an Abnb on the Gold Coast recently mainly because I wanted to check out the area and the building.
Can't say the experience was better or cheaper than staying in a hotel.
Add to to that a lot of small optional extras that most hotels are happy to provide free.

And then all the silly rules and onwer idiosyncrasies including sharing a place with pets which excluded many places for me...

Only exception if 2 or more bedrooms are needed, otherwise hotels still win for solo traveling imo.

 

@Piston_Broke, 2nd property next to Central Station is returning approximately $350 above market rent.
$100 above our agents 20% cut she asked for.
Took about 3 months to see consistent better than market results.
It's running at a consistent 98% tenancy.
We still haven't hit 'super host' status which i'm told will allow us to achieve even higher $ results.

I have given her an additional apartment in the building, and another in Darlinghurst.
If she hits KPIs, a friend of mine has offered her 20 additional units to run as STR (short-term-rental).

In addition, I have JV'd with a friend to take over 2 hotels which will commence in June/July.
Looking over the financials, there is potential to double current profits.

This is still a small % of our overall portfolio. So it's still very much in the trial and error phase.

 

Seems a market value of around $1000, + $100 for short term.
Is it worth it for an extra $100 or extra ROI per week?
I would've though a 98% short term would be 30-40% above market value ROI.

Many years ago when I onwed a hotel unit 80% occupancy was almost double long term rent.

Plenty hotels motels and resorts now on ABnb. Makes sense, though often I can just look them up and book directly for cheaper. Still makes it cheap advertising for them.

 

Ah, yeah. Like with a lot of these posts, there's a lot not said.
Also correction, more like 94-97% tenancy. 1-2 days a month vacancy.

I make my money from LTR uplift sub-leasing. So there is already a couple of hundred $ profit uplift from the current standard rental price. Let alone from what I actually locked the unit rent in for during covid.

I was talking $100 more on-top of that number. From base rent, revenue would be over 100% higher than current standard rent. Will probably more like 300% standard rental revenue once we hit Super Host status.

Remember, base standard rent right now is super high with the crazy rental market at the moment. So it's multiples of an already high number.

If I was to automate it the way I have with the LTR business, I believe I would replace this team members 20% ($250-ish pw) charge down to $50 pw or less. However I'm not trying to cut her out, I want her to succeed in her business, and just learn from observation.

I'm taking these lessons and applying them to the hotels we've taken on. Would be better to ask me how it's all going in say 12-months. Sample group would be well over 100 rooms on STR.

 

Gotta be a secret quirrel to get the info...

Thanks, that makes more sense and closer to what I thought would be the case.

 

Especially when you get welcome bottle of wine , free breakfast, free afternoon tea , free wine & spirits , free Canapé, hotel points (to free stays) and access to the executive lounge at many Hotels !

 

Air bnbs are great when you have kids and want a 2-3 bedroom place. Cramming a family in a hotel room is not fun and getting two separate rooms is often very expensive and doesn’t work with younger kids. When staying somewhere as a couple then I much prefer a hotel, a nice luxury one

 

Another quick update:

We converted my personal airbnb's back to long term rental as demand dropped after easter.

To give a broader sense of the market, post easter, there was a huge market crash for our long term rental portfolio, talking 30% drops in rent.

Doesn't sound so sexy in the news, which was still pushing old data from March when we were surges upwards in rent.

Vacancies skyrocketed, as we were caught off-guard. Double digit drop in vacancy. I had to step back in and take over from the GM as it was mis-managed.

Multiple competitors called me to touch base. I would read between the lines and say a lot of us were caught off-guard.

So winter was quite a shock.

The person managing the Airbnb's asked me to convert to long-term as it was doing even worse in that market. This was about 4-6 weeks ago. She has since stated she has pre-booked several STR clients for end of the year.

As we have a sizeable portfolio, the plan is to take bookings and convert a half dozen units in our city units back to airbnb as they become vacant anytime after Q4 2023.

So will give it another crack. Still have another half dozen going around Darlinghurst / Paddington / Surry Hills in Sydney being managed for a mentor of mine. They are fairly new so only coming in at 60-70% tenancy at the moment. He wants to keep tracking the market.

There is no super-host status etc for these properties as yet.

Others I know in the airbnb market have also leased a majority if not all on the airbnb market.

I hear there's a player that is head-leasing hundreds if not a thousand+ units a year for the airbnb market. I don't know them personally. However the name is coming up more often as we expand.

So yeah. Winter sucks for airbnb, who knew.

 

@NHG I've been keeping up with your news as time goes, we have gone into a decent property in Metro Melbourne and have turned it into an Air Bnb after about 70k personal cash injected. We have a 10 year lease and the property is under management with a group (who are doing a good job). Where do you see the Air Bnb market going? Do you think things will pickup?

We break (Just at the moment sitting around 50-60% occ) Do you think the high demand areas, Bondi, Byron, St Kilda etc will see the previous 90+ Occupancy again?

 

@NHG im just starting my arbitrage journey. Im having trouble with the type of lease or agreement to use. Insurance also seems impossiable at the moment. The landlord is looking for landlords insurance but cant find a company that allows subletting.

Would love some further advise if you have time, thank you

 

Terri Scheer will give you insurance for sub letting Airbnb properties

 

they will if its your own property and you list it yourself, they will not if you lease it out to a company for subleasing purposes. Thats where im stuck

 

EBM have a specific short stay LL policy. with option of buildings & contents (eg furnishings and landlord fixtures) cover too
https://www.rentcover.com.au/insurance/short-term

 

Thats normal. The way each policy is worded doesnt include cover. The occupant is NOT under a lease. Your lease is with a management company who is not the tenant and occupant. Its a big hole in the plans of the leasing company.