Airbnb is probably one of the misunderstood ways to make money in real estate. However, people must realize that it is not only profitable, there is monthly cash flow as well. Robert and Jason had an insightful conversation as Robert, being an Airbnb owner for two years, shares his tips, tricks, secrets, and best practices to reduce risk and increase income from Airbnb properties. Airbnb is a business decision and a perfect semi-retirement business where you can figure out how those numbers work for you. Discover as Robert and Jason unravel more what opportunities are ahead doing Airbnb business.
Listen to the podcast here:
The Airbnb Show with Guest Co-Host Robert Orfino
Let’s talk about Airbnb. This is the Airbnb show. It’s probably one of the most misunderstood ways to make money in real estate. Airbnb is when you hear someone say, “The hedge funds are here and they’re buying all the real estate.” You’re like, “They’re here. The hedge funds are here. They’re buying everything.” Airbnb is that same thing. We made some claims in the previous episode about how much revenue per bed, how much more money you can make, and then we had some people show up at the event. The said, “I can’t believe how profitable Airbnb is.” I said, “One of the things you got to realize is it’s not more profitable. There’s the monthly cashflow.” There’s the monthly profit from it. There’s how well your property is maintained during your ownership when it’s an Airbnb. We bake into our numbers a handyman going into that property once a month.
When you’re ready to list that property for sale, it’s ready then. It’s like, “The last person is out, it’s on the market.” Although it is a little bit more management, there are some real reasons to do Airbnb from a general business standpoint. It’s not like, “My tenant’s renewed for a few years. The lease is up in December.” You go, “What do I want to do when I have to sell this property?” I’ve got a list during Christmas, it’s going to sit. As opposed to Airbnb where the property’s ready, it’s beautiful and you can list it at the drop of a hat. It gives you more choices. There’s higher level liquidity there than there would be if it were a long-term rental.
I have a property. A single mom rents the property and she’s got two daughters. When I drive by that property, she’s maintaining it spectacularly. I’m not messing with that. She’s going to be there for another few years, right until her kids move on through high school and get to college. She’ll make a decision what she wants to do, but until then, let her keep that property looking beautiful. I don’t need to worry about Airbnb there. The one I started up in New Jersey, one of the markets we’re in, they had some med school students. Four of them were renting my place. They got into a little bit of a tiff. One of them decided not to pay and we had to evict. Everyone understood what was going to happen. They left and I immediately turned it into an Airbnb.
It was for sure on the right place, it’s doing well for us. He updated the numbers. We’re at 69% occupancy. We’re happy with that. That’s the decision we make. This one’s going to be a great location. We think we do pretty good. We’re not going to get a family. We’re in a college town. It’s going to be college students. We were lucky enough to get the med students and we thought there was a little higher caliber there and they were there for a few years. We were happy with that. Once they left out I was like, “We’re doing Airbnb on this.” We were able to fit out that house for an extra $12,000. We have a huge checklist of all the things you need to buy. We stayed at an Airbnb in LA and there was no coffee maker. I was like, “How could this be?”
When Rob and I travel, we stay at Airbnbs and we’re checking them out the whole time. We’re like, “What’s going on here?” It’s a double write-off at that point. We’re there for a real estate conference and we’re here to check out Airbnbs.
It wasn’t nice. It had a little VOC odor. The couch was off-gassing. We go through our checklist and we say, “Here are the things we need to do.” Don’t buy vinyl couches. They’re going to off-gas because that will smell up the house. Get a nice cloth and put your Scotchgard on it and all those little things we get into. The business decision is if I keep it as a rental, how much am I going to make? More so I look at it, how long is my tenant going to stay in there? What’s the real upside to this? I’ve got a couple of good tenants. They’re not going anywhere and I never hear a call. It’s like, “Let’s keep going.” I don’t want to mess with that, but you get another one in a location that might be prime for Airbnb and you’re like, “Let’s move it over.”
My entire portfolio is not Airbnb, nor will it ever be all Airbnb. I diversify a little bit. I’m still looking to buy five duplexes here in Houston. As far as Airbnb goes, it is a business decision. You’re going to have to figure out how those numbers work for you. You’re going to have to put a little pro forma together. Don’t live in that spreadsheet. Get your basic numbers down. Understand what it’s going to cost. An easy rule of thumb for us is without management, $1,200 a month to cover everything. With management, $1,700. We have a management company that charges $495 a month and then they take another 10% or 15% off the top. If you run your number, “Here’s my mortgage,” that’s $1,200. My management company that’s managing this is going to be at $1,200. I’m at $2,300. I can get $200 a night. $200 times fifteen because that’s 50% occupancy is $3,000 over $2,300.
You’re making $700 a month. Most of the time, we’re somewhere between 65% and 80%.
Our goal is to run 65% because February we’re going to suck wind. March is going to be a little rough. November’s going to be a little rough too. You got to be aware of that, “You’re going to have some downtimes.” July, August, September is going to be booming. April’s going to be booming. What I explained to the people was we are in the hotel business. You’re in the hospitality business. You better start checking out their trends and figure out how that whole industry works because Hilton knows the numbers well. You’ve got to start digging into that data and figuring out, “What are the slow months? When are the least travel months in the United States? When are the least travel months in Houston?” When are the least amounts of people booking hotels in Houston? You can tell by the price when you go online and look at that stuff, but that’s the data you’ve got to start collecting.
One of the advantages of Airbnb in Houston, as opposed to a market like New Jersey is that the cost of the structure of the piece of real estate is so much less expensive. Even though that could be commensurate with short-term rates, it’s going to be more expensive to rent a house in New Jersey as opposed to it is here. We also have to qualify for jumbo loans and all this other stuff. Airbnb is fun in the south because the input that fixed cost is so much less than it is anywhere else.
You’ve got some Airbnb stats for us. What do you get?
I’ll give you some highlights. First, it was found in 2008. It’s been around for more than a decade. 400 million guests have been hosted since its launch. Since 2017, there’s been a 120% increase in the number of the senior hosts over 60. This is what we talk about is this is a perfect semiretirement business. If you get three or four of these properties, you can handle that in about twenty hours a week. Once you set up your systems, you’re good to go. The average Airbnb price per night is $80. We’re conservative when I do my numbers.
Our numbers are low.
Senior women over 60 are rated as the best host on Airbnb. They’re in 191 countries. There are 150 million users worldwide, and you’re still thinking, “What’s this new thing going on here?”
One of the reasons I got interested in it is because real estate is getting expensive here in Houston. Taxes and insurance are getting to the point where some of these neighborhoods that are great to hold onto, you can’t hold on the properties any longer. They appreciate rapidly. It’s a means to take that single-family rental property as you had mentioned, four med students were great until they weren’t. You read the tea leaves of the neighborhood and you go, “We can make a little bit more money if we were to Airbnb this thing and I’d be able to hold onto it for a couple of more years as it continues to appreciate.” It was insanely controversial.
Somebody told me, “This is the first I’ve ever heard this.” I said, “The only real way you make money in single-family real estate is through appreciation.” All that other stuff, five, six, 100 ways that you make money in single-family are rounding errors when you get down to appreciation. They don’t cashflow when you add 30% to 50% expense ratio, most of them don’t. The depreciation is a loan from the government and you pay that back at some point in the future. Cashflow does cover maintenance-related items.
$3,600 a year, it’s one condenser.
Single-family, when you get down to it, where you make money is on appreciation or Airbnb. It does produce enough cash where it does kick out some real income as opposed to $300 to $500 a month. Let’s be honest, most of the people reading this, you don’t need $3,000 a month to retire. You need way more than that. Most of the people probably $5,000 plus. It wouldn’t surprise me if $10,000, $15,000, $20,000, $25,000.Once you set up your systems, you are good to go. Click To Tweet
Yes, $12,842. When I look at it, it’s a numbers game for me where I say, “I need $10,000 a month and $300 a door.” It means I need 34 of these things and pray that nothing happens, or $1,700 a month and six Airbnbs. With exception to something crazy, most of the stuff that happens in an Airbnb is covered by insurance.
Most of those horror stories are people who let them stay outside of Airbnb, the guest had never left. They weren’t an Airbnb guest. They did an end around Airbnb and decided to let this person stay without going through the process, but there’s a 12% rise in scans reported. There are ways to avoid that. We talked about that. We want every little bit of identification that Airbnb allows us to ask for. We are not open for business for everyone. We want the driver’s license, the picture. We want at least five reviews on the guest. There’s no automatic booking on our site. For the most part, we’re not letting anyone stay. We don’t price it to let anyone stay. There was a guy there who’s got four or five going and he has some horror stories because he’s pricing low.
He’s at $29, $39 a night and he’s in areas west of you, which is great, but it’s a competitive market down there. He’s racing at the bottom and adding more fees on certain parts, cleaning and management fees, and he’s doing one-night stays, which is the worst. We’re doing a minimum of two. We switched over. We get to the peak months. We’ll do a minimum of three-night stays. There are ways to vet that stuff and to be careful about it, but most of the times the horror stories you hear are you’ll hear that one little line, “Their stay at Airbnb had ended and they wanted to extend so they did it off Airbnb.” That’s what happens on that stuff.
At one point, I got up and started chatting with the guys because I’m like, “They’re going to ask Rob a million questions.”
They ask about bed bugs. I’m like, “I guess that’s a real concern. I haven’t heard it.” We had one bug, we immediately got the exterminator out there to take care of the house. He stops by every other month. If you’re running at that $29 number, you’re going to get $29 customers. Who stays at the $29 hotel? No one does.
I was in the Green World and I’m trying to convince people to put solar. There’s craziness about it’s going to catch fire, it’s going to fall through my roof. There’s a real study out there that shows you how it takes about a decade for a product to be in the market for it to move past the early adopter. There’s the tech guy who’s going to use it for sure. That’s 4% of the market. There are early adopters and you’re hitting another 15% to 17%. You got the first 20% of the market covered in the first few years and it doesn’t hit the mainstream until grandma starts using it.
Gary Vaynerchuk has an interesting quote when he talks about this. He’s like, “The internet didn’t get started until Windows 95. It was already twenty years old.” I heard this before where somebody had said that the magic number for a new technology, a new marketplace, a new industry is about twenty years. If you look at Apple, you can see that right at the twenty-year mark. Here we’ve got Airbnb, eleven years in. I still think there are those early mainstream adopters that start now. You could build a sweet little Airbnb business and Airbnb may be all that a lot of people use. It’s a good technology to start utilizing now.
Let me give you a secret number. There were guys who were like, “I do four or five.” He’s like, “I’m going to do ten.” I’m like, “What are you here for?” I’m dropping nuggets and right away the phones come out and they’re texting themselves and making notes. Here’s the secret to all this stuff. We’re getting the beach houses, but for the most part our Airbnb is geared towards business travelers. The Government Service Administration, the per diem rate for Harris County is $119 a night. Which means if you work for the government and you’re traveling to Harris County, the government will reimburse you up to $119 of your overnight stay. That’s standard and typically they need receipts to do all that. There are a lot of big corporations that are a little bit lazy and say, “We’re going to use the GSA rate.”
Whatever it is per mile, I think it’s $0.53 or $0.54 a mile, whatever the meals are, $70 a day. Whatever the overnight rate, $119 here in Harris County, we’ll use that. Except a lot of those companies don’t want receipts. We’re going to write into your check. Here are your expenses. You stayed in Harris County. We know you’re there. You went there on business, here’s your number, and you give us a receipt. Most people are getting paid a per diem. Go to the oil world and a lot of these guys are assigned to, “You got to go live in Bay Town for a few months. You got to go live in Texas City or Freeport.” They’re working on a per diem.
Your job if you want to attract those people is to come in about 10% to 20% less than their per diem. If an oil worker has a $600 a week per diem, you charge $500 a week. You provide washers and dryers because they all need washers and dryers, good showers, lots of hot water, TV, microwave. We do short-term rentals, which are not in Airbnb for the oil industry because we know there are people coming to stay for six weeks to twelve weeks at a time. We know what their per diem number is. We price it below their per diem so there’s nothing out of pocket. We give them all the amenities as if they are staying at a place where they would have to pay an extra $50 a night. That’s the trick. What people don’t understand is that there’s a whole bunch of people who are looking to save $100 a week because it’s going to go right into their pocket and they’re getting $70 a day for meals. I always provide oatmeal.
You can always have breakfast at my place. There’s oatmeal, coffee, tea laid out right there. We even provide Hot Pockets. We buy a big fifteen-pack of Hot Pockets, throw it in there and it says, “For everyone,” on it. Come back at 10:00, a long day of work. You’re tired. You didn’t stop to get something to eat. Go to my freezer, take out three Hot Pockets. Go ahead and nuke them, they’re yours. No problem. In that world, that hospitality that we provide to that worker is phenomenal. At some of our locations, it’s up to 60% return clients. They’re coming back because there are Hot Pockets in the freezer, there’s oatmeal on the cabinet and there’s always coffee, creamer and sugar.
People are asking themselves, “Is it that simple?” Yes. Ask yourself of all the places you’ve stayed where it’s like, “That’d be nice if a little snack in here, a little something for breakfast, a snack in the evening or lunch.”
The hotel industry knows what per diem rate is for sure. You’re looking at a hotel in League City and you’re like, “Who would spend $129 for this little three-star hotel?” There’s a lot of government and a lot of industries that come in and out and they’re on per diem. They’re charging an extra $10 and including breakfast. We charge $20 less and include breakfast.
Another big advantage for a lot of people that are traveling when they take an Airbnb is that a lot of times don’t have to worry about your truck getting broken into. Hotel parking lots are magnets for that stuff. You park in the garage, you park around the back, especially guys that got a lot of tools on their rigs and all that stuff.
You always put the motion sensors in the driveway and around the garage.
This whole thing with Joe Biden, what if we did a Joe Biden School of Real Estate Networking? They teach that. You go to these seminars and they go, “We’re going to teach you how to network.” I’m like, “How hard is this? My name is Bob. You’re Joe. You shake your hands. What do you do?” What’s the big deal? I was thinking, “We could do a sketch on the Joe Biden School of Real Estate Networking.” First, you got to sneak up behind me.
There are already creepy guys in our industry and they touch my shoulder all the time. I don’t want to be touched.The only real way you make money in single-family real estate is through appreciation. Click To Tweet
There are creepy ladies too.
It’s a little too touchy.
We’ve all been to break out sessions where everybody needs a hug. This is a weird industry. The Joe Biden School of Networking, how to real estate at a networking event. I got the checklist at the back of my mind. You got to sneak up on them, grab him on both shoulders, “How are you doing?”
I got a house for you as you lick their neck. Let me smell your hair, only to find out what neighborhood you’re investing in. “You’re in the heights.”
The Joe Biden School of Real Estate Networking, “Come here. How old Uncle Joe has done it for years.” We’re totally going to do a sketch comedy show. I’ve got so much other stuff going on, but in the back of my mind I’m like, “We’re going to do real estate music videos and we’re going to do relevant topics like this, the Joe Biden School of Real Estate Networking.”
You and Curtis can go do that.
We could totally do that. We’re going to need some volunteers at some point. We need another A Rock. Poor A Rock’s doing so much video and audio for us. Let’s get back to Airbnb.
I was going to give my phone number to text. I’m not doing it because we’re in a blue city here. There are two little blue dots in Texas. Houston’s one of them. When I give out my number, everybody’s going to be like, “Why do you make fun of Joe. Joe is a great guy. Joe is the greatest vice president.” I’m not giving it out. I don’t want the cranks. I was ready for Curtis to blow it up. I’m like, “I’m going to have to deal Curtis. He’s a smart guy,” but I’m not doing it. We trashed Biden and I’m not giving out my number.
I didn’t trash him. It’s a great way to know him.
Go find us on the internet. We’re on Facebook. I was going to give out the number. I’m not doing it. I got creepy Rudy, Curtis and I’ve got every single Joe Biden lover going to call me up and crank me. No, thank you.
They probably don’t pay attention to business. It’s probably pretty small.
There are a lot of business guys on the blue side.
I’m not giving my number out.
You do at every event.
Go to every event. I will never forget the first time I gave my number out. I got drug up on stage. I’m rarely and I’m like, “I don’t want to go on stage.” I got drug up there for an alternate reason. It was shady how the whole thing went down. In the back of my mind I’m like, “How am I going to turn this thing around?” There were 800 people there. I said, “Here’s my cell phone number. If you have a deal, give me a call.” You saw all these phones come out of their pockets. They weren’t even listening to what was going on stage and there was like, “Mr. Texas Real Estate’s going to give you his number.” Everyone was like, “What?” By the end, I looked at three or four deals. We almost bought one. I don’t even go on stage. They have a slide for me and it’s got my phone number on there. I don’t mind going on that stage. It was how that whole thing happened. I’m like, “What am I doing on stage?” Nobody cares. Everybody’s got my phone number. Do you want to give out the number?
If you’re interested in learning more about Airbnb, we do have a class. It’s $97. It’s as cheap as we can make it. It’s online. Six hours. You can get the recording and then we give away all our checklists with it. The number is (281) 401-9008.
You’ll get a text back with the registration link.
It doesn’t mean any commentary is going back. I’m not defending my political stance.A lot of people use Airbnb. It’s a good technology to start utilizing now. Click To Tweet
We’re not talking about Joe Biden.
Even if you do crank me, I’m still going to text you back the link for the event.
What’s going to be funny is what happens during the show. You’re going to get all kinds of crazy stuff. The magic number and Airbnb are looking at that GSA rate and provide a little bit higher level of service that they’re going to get.
Provide the amenities. We have bikes. There’s a program out there called Turo. We’re buying Toyota Corollas, putting them in the garage and saying, “If you’re here and you want to rent the car, the access code to the garage is such, the key is here, you can open it up and take the car.”
I like Turo and I like Silvercar. Silver Audis, we used to get those. We’d fly from the airport. They have them sitting there and get in.
They have Silvercar in LAX but it’s so long to get in the car. It’s popular there.
I have a big problem. When you have enough free time to start doing sketches for fifteen people, there’s a soup kitchen you can go work out.
You would be surprised how many people do walk their stuff.
I’m not sure they want to see bad sketch comedy.
I’ll make a deal with you. For every hour we spend on that, we’ve got to go work at a soup kitchen for an hour.
It’s going to take more than an hour.
It’s going to take many hours and we’re going to be sitting there on three Sundays in a row serving slop. You got to balance the karma and your life.
I’m spending the whole weekend doing the MS 150.
You do a lot of charitable stuff. You host a lot of kids doing a lot of stuff and give up a lot of your time.
It would be entertaining as I’ll get up because sometimes real estate is boring.
Helping out a local soup kitchen is amazing. We should do that. You can go sort clothes at Goodwill or whatever we need to do. We’ll balance that out.
They call it Cycle, but it’s used to be called Elves & More. It’s where you make bikes and they give the bikes away. It’s a merit-based literacy program. This is what happens in Houston. There’s a group out there that goes out into some of these schools and they set reading goals for elementary school kids. If they hit those targets, they get a bike for Christmas. I don’t know how many hundreds of thousands of bikes they built, but they set up at Reliant. We’ve gone down there and built bikes. I’ve always wanted to put a real estate group together for all of us to go down there as real estate investors. One of the problems is as real estate investors. We’re all disconnected from each other. Keller Williams has RED Day. We don’t have our own RED Day as real estate investors.Your job, if you want to attract those people, is to come in about 10% to 20% less than their per diem. Click To Tweet
I would be happy to start coordinating that for our audience. I’m a big no-kill shelter fan. I found one up in Cypress.
Give out your number for the Airbnb class.
It’s (281) 401-9008 and that’s text only. No one is answering the phone.
He’ll text back with the link to sign up for the class.
9:00 to 3:00, Saturday.
It’s online. I know a lot of you guys outside of the Houston market. I found out from one of our audience, if you’re having problems with the Facebook feed at work, we have it on YouTube. You can check it out on YouTube and we’re on iHeartRadio. Search for 1110 AM and you can get iHeartRadio anywhere in the world. For those of you people who are reading this, go back and I promise you iTunes will be up and running. We’re going to have two accounts with them. I’ll give you more detail when all that happens. We’ll get it all sorted out. I want to thank all you for reading the Airbnb show.
Have a great day.