Am I mad?

Hi all,

Newbie here thinking of buying a short term rental property management business. I have no experience in the industry but it appeals to me for various reasons, lifestyle (work from home mostly), interests (property/style), likes to help people, skills (handyman, tech savvy) etc.

If you had your time again would you still be involved in the short term rental industry if you had the choice? Or is it all too hard, frustrating and eventually wears you down?

What would be the top 5 issues affecting this sector or things to look out for if buying one of these businesses from someone? I am looking at one that uses Guesty (with 24/7 guest communication) and manages around 40 properties, mainly in the city but has about 5 remote sites in another state. Does a Gross Profit of 35% sound OK?

Are there big insurance issues for Airbnb managers? Are there big changes in store for Airbnb etc? Are councils going to kill the short term industry if not managed onsite? Will Labor's negative gearing and CGT policies kill the investors (my future clients) dreams?

I feel I'm about to find out how much I don't know

Thanks in advance for all advice.

 

Hi there

It can be quite labour intensive if you don't have good processes in place.

There's a regulation risk - local councils could put an end to short term holiday letting in the area and/or make the costs of doing so expensive via permits, etc. You'll need to suss out if that's a possibility in the area you're buying.

If you don't have staff - you'll need to be available 24/7 for when guests have issues.

You might have to obtain a real estate licence - which takes time/money.

Good cleaners are an essential part of your team. You don't want to have to check properties all the time - so ensure that the company you're buying has a relationship with excellent cleaners.

Benefits are flexibility (like you said - you can work remotely) but you will be driving around a fair bit and it's a growing market (from what I can see).

If you don't mind me asking - what sort of gross/nett revenue are the 45 properties bringing in - and what's the anticipated purchase price?

Cheers

Jamie

 

Good that you're asking the questions before you buy.
And great responses from Jamie.
I think the regulatory uncertainty is the big thing. There are changes coming in NSW and perhaps other states will follow suit. The regulators are trying to get their heads around the explosion in short term rentals.

 

Hi Jamie,

Thanks for your reply. Agreed, good processes are a must. The use of the PMS seems to take care of much of the process of daily cleaning arrangements, check in process, pricing etc etc etc. I would only need to manage the downstream issues like arranging tradies etc. These are in general handled by casual staff so I would only be required when they aren't.

Regulation risk is an issue. I believe Sydney council(s) have deemed that you can only let for 180 days pa if you are not a live in host. That becomes a major problem if it becomes widespread. Mornington Pen. in Melbourne going to make owners register with $100 pa fee and restrict guests use of balconies and pools to prior 11pm. Gold Coast $8000 permit. Perth, planning approval required. New customers - Permits would be obtained by the client before engaging PM services I imagine. Current customers - owner would need to apply or pay me a fee to arrange on their behalf (lose customer if not successful though).

Real Estate license? My understanding is that it is not required if not holding bonds in a trust account? Can anyone help here?

Good cleaners are essential. I'm pretty sure I could work them out quickly and get new ones if required. I assume the ones he's been dealing with are good as property numbers are growing.

Driving around, meeting people, fixing issues and helping customers is all good imo.

Doing around 750k/120k (can't divulge too much as i've signed a CA)

 

From memory, in NSW in addition to the 180 day limit for properties where the owner is not in residence, owners corps will be allowed to stop short term rental in apartment buildings if they are not keen on it - and most will take up that opportunity.

As for the business, I guess it's not too different from buying a PM business.
RE agents have contracts with landlords that while not hard to get out of do give buyers of rent rolls some comfort. Having said that, there would always be some attrition when a new PM announces to landlords they have 'bought' them.
Do the owners of the Airbnbs have any sort of contract with the person selling the management business you are looking at?

 

I only have 1 airbnb property and it's slowly wearing me down. If the profits weren't so good I would have stopped it ages ago. If I were doing it for a business (for others) I don't think there'd be enough money in it for me to make it worth my while because of the stress and pressure that comes with it.

Some of it is guest related and some of it is due to me being me.

 

There is a FB page for hosts that I have a look at every now and then. The consensus seems to be that as AirBNB has grown, guests have become more picky and some are gaming the system - inventing spurious grievances and making claims for compensation etc.

 

I am concerned about owners corps being able to just shut down the apartment airbnb industry. Makes it hard to work out how much to pay for this type of business. Thinking around 2 times profit.

There are contracts for the majority of properties but the owner can get out of any time AFTER the last booking. I would hope to be able to provide a level of comfort to the owners that I will follow the same processes and procedures as the previous owner and that I will go above and beyond to keep their business. I feel they would want to have a good reason to leave rather than just because of a new owner. Wishful thinking perhaps.

 

Would love to know the biggest pain issues from guests (check ins?) and you issues if you feel like exposing me to the real world I would hope that having more properties provides the economy of scale for me to outsource most of the guest chit chat and dealing with check in and cleaners. Well that's my plan anyway.

 

We loved AirBNB in Paris and Rome!

We had a keybox drop for both and we just used Whatsapp to stay in touch for codes and checkouts.

The two older ladies with the Rome apartment even stocked the fridge for us with cake and wine and milk and bread and butter for 30 E. We even changed accommodation in Paris because the place we rented first was NOT as described and AirBNB had the refund to us immediately as we found another to check into.

 

As Kinnon says, it’s quite hard work, I think we earn maybe 25-30% above normal market rental, I shamefacedly say I haven’t crunched those numbers. We just changed our Airbnb settings due to a lunatic guest who badly damaged the property. Since we’ve removed instant book and applied a bond bookings have dried up. We are fortunate to be not completely reliant on bookings to pay the mortgage. The biggest advantage for us has been the tax benefits of short term rental. And, I quite enjoy it! We do the cleaning ourselves and occasionally pay family to help.
We installed a lock box from Bunnings and apart from the recent really terrible experience have had very few problems. Although Airbnb are a nightmare to deal with if things go wrong.

 

Airbnb is slowly going the same way as stayz was many years ago.
Much of the recent growth from airbnb is come from reselling properties from another website that do the full service for holiday home owners , their fee is just added on to the final charge.
But back to the OP, maybe try and get some industry experience from an agency that does full service holiday bookings.
Most big tourist towns have them , just part of property management, but specialist short term bookings.
They look after the properties on behalf of owners that dont want to get involved into the day to day running of their property.
There is a lot more emphasis on customer service , and a couple of bad reviews will hurt.
If something breaks down it gets fixed immediately.
A new oven should be fitted by the next day,same for fridge etc or the same day.
The HWS breaks get it fixed immediately or just put in a new one .
People dont pay good money to go on holiday to find out the HWS is not working and wont be fixed untill Monday, you got there on Friday .

 

Sure, I'll put together a better response on the weekend when I'm not so brain-dead!

 

From an owner/operator. It was a good profit initially, then in the same building, more and more competition came online.

The sweet spot I found was people staying from 2 weeks - 4 months, which I understand is moving away from the Airbnb model. This was a great profit and less work - so I would discount to pivot towards this space.

I did the check-in, cleaned (as the hired help were not much chop), re-stock the coffee and linen and towels. It was a great insight into what worked and what people didn't care for.

I met some great guests, but ultimately it turned me away. Do not be fooled, there are some horrible people out there and when you are handing keys to your property, it's hard not to take things personally.

What I encountered. Young couples doing drugs and leaving the apartment in a filthy state, adult workers using the place as a launching pad, booking under a false name as a mother and daughter immigrate to Australia, my phone buzzing at 3am as the wifi is not working, guests checking out early due to neighbours cigarette smells and finally (the straw that broker the back) was dealing with the AFP as an international crime syndicate used my place as a halfway house.

Assume the worst with Airbnb, people do lie on that platform and their checks are very flimsy - at the end of the day, it is just an online profile you are handing your keys to. Airbnb tends to side with the traveler.

For me not worth the headaches. As a traveler would only look at an Airbnb for unique properties (beach/countryside) otherwise a hotel/motel any day of the week.

 

Once people move away from the original AirBNB model and host off site, they open themselves up to all the problems that have always accompanied short stay accommodation. (Of course, AirBNB themselves long ago moved away from the original model.)
I have had my place on Airbnb for over 7 years and never had a problem and met some great people, but it is right next door. An advantage for me renting it short term vs long term is that when there are times I want to use the space for friends to come and stay, I just block out the dates.
I had a couple of local flats on AirBNB for a few years but found it wasn't worth the effort so they are now permanent rentals.
Scott

 

I've been airbnbing for 4 and a half years. It's been good with great guests but after my June guests i'm planning to go long term. Reason being, no fuss, no need to worry about laundry plus the 180 night cap on airbnbing in the Sydney City council area. I doubt they'll be able to enforce it effectively, but hey.

As to drugs, adult workers, wifi issues in the middle of the night, I didn't that encounter that while hosting in Sydney. But my one in the Redcliffe area of Brisbane had issues, (people fleeing domestic violence, people running from the law) but I think the problem was from Booking.com guests.

 

Oh I think for that type of granny flat set up/adjoining property it makes sense.

I remember staying in a granny flat arrangement in Sarasota, FL. The guy was lovely (but could tell he was also a no BS type - he offered us great rates if we returned) and would have been great additional income for him.

 

Gockie I think both you and I have always been huge proponents of Airbnb so it's very interesting that after 4.5 years you are moving to long term! I have to say, after 2.5 years, we are enjoying it less and less as guests continue to get pickier, and occupancy rates decrease (we used to average around 90% for our Melbourne one, now I think we are probably closer to 70%). We will stick with it for now but our Airbnb love affair has definitely passed the honeymoon phase.

 

Us too. You can’t please some people and it is difficult not to take some things personally, as mentioned! Notwithstanding our recent terrible experience we had an enquiry from a family of seven for Christmas I responded promptly and they said maybe they’ll book in July. I thought stuff it, 7 people at that price? And put the prices up! We will rent it out from later in the year.