Tony J. Robinson
Have you been dreaming of buying your own short-term rental investment property… but feel a little stuck on how to get started? If so, then this is the PERFECT blog post for you!
We’re going to share 10 easy steps you can follow, right now, to start investing in short-term rentals.
People often approach us with a common concern:
"I want to invest in Airbnbs, but where do I begin?"
Luckily for you, we have the solution! In this post, we're going to lay out the 10 essential steps you need to follow to launch your first Airbnb!
These steps have proven successful for us, as we're on track to earn at least $1.5M in revenue on Airbnb this year. So, without further ado, let's dive into the 10 steps!
Your success as a short-term rental investor starts with your ability to pick a good market.When choosing your market, we encourage you all to follow what we call the “3 Ps”. Each P stands for a different principle you need to follow when choosing a market. So let’s go through them!
This means you need to have a solid understanding of the policies, laws, and ordinances involving short-term rentals for your target market.
First, you need to make sure that the market you’re interested in allows you to rent a property out on a short-term basis. If they do, you need to understand what the permitting process looks like. For example, in some cities, even if they allow for short-term rentals, they may place a cap on the number of permits they’ll issue or limit short-term rentals to a specific part of town.
Either way, you’ll want to understand what you’ll need to do to get a permit in that city. If the city has clearly banned short-term rentals, I personally wouldn’t invest there. I’m not comfortable with that level of risk.
It’d be hard for me to sleep at night, knowing I just spent half a million dollars, or $800,000, or more, on a property that could potentially become useless because the city shuts me down for operating illegally.
When I say Popularity, what we’re trying to understand here is, how popular is this specific market for short-term rentals. Because, contrary to popular belief, you actually do want a market that is somewhat popular.
Because when a market is popular, you get two things.
You can find a market that allows for short-term rentals, but if you can’t find anyone to clean it, or there aren’t enough people coming into the town to book your place on a regular basis, then it’s not a market worth investing in. I know a lot of people shy away from competitive markets, and we do believe that there’s a certain point where a market becomes too competitive…
But a healthy level of competition is a good thing. So don’t run away from a market just because you see a lot of other listings there!
What you’re looking for here is how expensive the properties are, relative to the potential revenue they’ll generate.
Now, as a basic Rule of Thumb, if a property can generate 20% of its purchase price as its annual revenue, then it’s worth a deeper look. For example, if a property costs $500,000, then you should expect that property to generate about $100,000 in top-line revenue, including cleaning fees.
We have some properties that are doing 30+% and others that are doing closer to 20%. But 20% is a good starting point.
If you want to learn more about how we analyze markets, check out this video where we deep dive into how we look for new markets!
Once you’ve chosen your market, the next step is to figure out how you’re going to finance your short-term rental. We’ll highlight some of the most common ways!
There are some restrictions with this loan, mostly being that you have to use the property personally for at least two weeks out of the year. But the benefit is that it’s only 10% down, and it’s a 30-year fixed term.
You can expect to put between 15% and 30% down, depending on the lender you’re working with. Another option to finance your short-term rental is to use what’s called a “Debt Service Coverage Ratio” loan, or DSCR loan for short.
This loan option is cool because instead of focusing all of their attention on YOU as the borrower, when you use a DSCR loan, the bank is looking at you AND the property.
Basically, they’re asking, "Will this property generate enough income as a short-term rental to cover the mortgage payments?" and if the answer is yes, then you have a good chance of getting approved!
This is a type of loan that is best for properties that are a bit run down and need some renovations to bring it back to life. Hard Money is helpful because these types of lenders can close quickly, they’ll help fund your rehab, and they also look at the property to help determine loan approval.
The downside with hard money is that it’s expensive. You can pay as little as 6% but as high as 10 or 15% depending on the lender that you use.
We’ve got another video where we interviewed our lender about all the details of getting approved for a 10% down second home loan!
Once you’ve figured out your market and you’ve mastered your analyzing skills, the next step is to start finding some deals to actually analyze! Here are some of the ways that we’ve gone about finding deals.
This is the easiest way to find deals because it’s as simple as opening up Zillow and seeing what’s available. However, because this is the easiest path, it’s also the most competitive. But of our 13 active listings, almost half of them came from the MLS.
This means you’re driving around your target market, looking for houses that need a little love, knocking on doors, and talking to homeowners. You can also send postcards and letters to owners, or you can look up their phone numbers and give them a call. We’ve found two deals by going directly to the seller. It’s definitely more work, but this is the way to get the best deals.
A wholesaler does all the work of finding off-market deals, and then they sell those properties to investors like me and you. The vast majority of the time, when you buy a property from a wholesaler, it’s going to be a property that needs a decent amount of work before it's ready to be listed on Airbnb. But, oftentimes, this is an easier way to get a great deal, without actually having to talk to sellers yourself.
This is the exact tool we've used to analyze hundreds of properties, and it's the tool that gave us the confidence to buy each property that's in our Airbnb portfolio.
Now that you have deals coming across your desk, it’s time for you to start analyzing those properties, which brings us to step four, which is to master your analyzing skills!
There are three main categories you’ll need to understand when analyzing a property as a potential short-term rental.
1st category is the property’s projected income.
2nd category is the property’s projected expenses.
3rd category is the amount of money you’ll need to invest into the property to actually purchase it, we call this your acquisition cost.
Now, once you have your average daily rate, occupancy, and cleaning fees, you can figure out what that property's projected income is. So, for example, let’s say a property has an average daily rate of $250 and an occupancy of 75%. The property also brings in another $1,500 per month, or $18,000 a year in cleaning fee income. If we do some math here, we can see that $250 per day, times 365 days in a year, times 75% occupancy, plus $18,000 in cleaning fees gives you a total income of about $86,400.
That’s how you’d project your income for the property. Sites like PriceLabs or AirDNA can give the info you need to find your average daily rate and occupancy numbers.
Your big expenses will be your mortgage payment, insurance and taxes, utilities, cleaning fees, and repairs and maintenance.
Your mortgage payment is pretty easy to figure out, you can just use any mortgage calculator. You can find the insurance costs by looking it up on the city or county website for the property.
To figure out the projected insurance cost, just hit up an insurance agent or two for a quote. To figure out what your cleaning fee is, I’d recommend talking to a few cleaners in your market and asking for quotes on a property that size.
For repairs and maintenance, I usually recommend setting aside about 10% of your income. And last, you have to figure out your utility costs.
Your Acquisition Costs typically include the down payment, closing costs, and expenses for furnishing and setting up the property post-closing.
It’s important to understand what your acquisition costs are because you need this number to calculate your Cash on Cash return for the property… For example, if we profited $25,000 on a property that had an acquisition cost of $100,000, then our cash-on-cash return is 25%.
We just want to point out that we have a 23-minute video on our channel that breaks this down in way more detail!
Your team is absolutely critical to achieving success as a short-term rental investor, and they’re even more important if you plan to scale beyond just one property!
Cleaners are super important because they’re the ones who get the property ready for each guest.
If they do a poor job, it has a direct impact on your property’s performance. If guests come into a dirty house, they’re going to ask for a refund, and they’re going to leave a bad review. If that happens often enough, your short-term rental’s profitability will get hurt. So take the time to find a good cleaner, and hold them to a high standard when it comes to cleaning your property.
Here are four quick ways you can find a cleaner.
After you lock in your cleaner, the next person on your team is your handyman!
Things are 100% going to break at your property.
You’ll have a broken toilet handle with one guest, then a broken faucet with another guest, or a light fixture that stops working, or a staircase railing that gets loose… The list goes on and on… The point is, you don’t want to have to call a plumber, an electrician, or any other kind of specialized tradesperson whenever something goes wrong. First, because it’ll get expensive. Second, because they usually take longer to fix things.
Our handymen have a good working knowledge of most trades and can handle the vast majority of the issues at our property the same day they happen. They’re cheaper than calling a plumber or electrician. You’ll 100% need to find a reliable handyman. If you’re wondering how to find that handyman, you can literally just follow the same steps we outline for finding a good cleaner!
That’s step five! Assembling a rock star team for your short-term rental.
This is the exact tool we've used to analyze hundreds of properties, and it's the tool that gave us the confidence to buy each property that's in our Airbnb portfolio.
Now again, we have a full video on designing your short-term rental, and we’ll drop the link to that in the description. But we’ll still give you a quick rundown here!
Figure out an overall vibe for your property. You can grab inspiration from Pinterest, or other popular Airbnbs in your market. Once you have your inspiration, start shopping for pieces that match your inspiration. You definitely don’t want to copy other listings in your market exactly… You want your listing to stand out, and that won’t happen if you’re picking the exact same furniture as the property down the road. But, looking at popular listings can at least give you a sense of what guests like in your market. Our go-to places for furniture are Wayfair and Article. We actually get a lot of the smaller decorative items from places like Home Goods, TJ Maxx, and Ross.
Some of our favorite Airbnb's we've designed!
Now if you don’t have an eye for design, we HIGHLY recommend working with a professional.
Getting this step right is CRUCIAL to the success of your Airbnb. If you need help designing, we actually have a design service, where we can design your Airbnb for you.
This is one of our tiny homes called the 70's House.
Isn't it fun and groovy?!
This is where you make or break the potential profitability of your property. So let me give you a few tips on pricing!
You 100% need to use a dynamic pricing tool, which allows you to dynamically change the price of your listing based on demand and trends in your market. I’ve seen so many listings that have one price for the weekday, and a second price for the weekend, and that’s all they do, for the entire year. I can’t imagine how much money they’re leaving on the table. Our listings have a different price for pretty much every single day of the year. That’s because we use a dynamic pricing tool!
The second tip is to create what’s called a “Comp Set”, which is basically a collection of properties that are in your market, and similar to your property. It’s helpful to create a comp set because it allows you to track how other comparable properties are being priced. Having that data can help you make better decisions about how to price your property so you can remain competitive.
Experiment on a regular basis. Try raising your prices for the weekend, and lowering them during the week. Or try out a longer minimum night stay, or maybe a shorter minimum stay. Play with your cancellation strategy and see how that impacts your pricing. The point here is, that there are a lot of factors that impact your pricing. So experiment until you find the right mix for your listing!
An EPIC twilight photo of one of our properties!
Part of what we love about investing in short-term rentals is that there are several really helpful automation tools that decrease the amount of time that’s needed from you as the owner to actually manage the property.
We highly encourage every new short-term rental investor to get property management software, even if you only have one property.
Some of the big property management software companies are OwnerRez, Hospitable, and YourPorter. They all pretty much do the same thing, so you’ll just want to choose the one that you connect with the best.
Property Management Software, or PMS for short, allows you to do things like automating messages to guests when they book your property—or creating unique door codes for each guest. Or Notify your cleaners whenever there’s a new booking.
Basically, a LOT of the communication that you would have to manually complete, gets taken care of automatically by the PMS. So, we won’t spend too much here, because the value is pretty self-explanatory. We just encourage you to check out one of the PMS companies we mentioned and choose the one that fits your unique style the best.
If you want more info here's a link to our Favorite Tools for Airbnb hosts!
One of our favorite Airbnb murals and a cool hang-out spot in the backyard!
Step number 9 is the culmination of all your hard work! This is the step where you finally take your listing live!
Part of what we love about investing in short-term rentals is that there are several really helpful automation tools that decrease the amount of time that’s needed from you as the owner to actually manage the property.
We recommend listing your property on more than one platform. We always list on both Airbnb and VRBO, and our goal is to get set up on Booking.com this year as well. The more platforms you’re on, the higher the chance you have of getting a booking. It can seem scary to hit “publish” and take your listing live, but this is the point where you start making money!
One of our Airbnb's chill gaming rooms!
The last and final step is to manage your guests. Once you actually create your listing, the hard work has only just begun. The REAL work comes on the day-to-day basis of managing your property and managing your guests. So, we’ll give you a few quick tips on how to do this, without driving yourself crazy.
Set super clear expectations for your guests before they check-in. Part of what drives guests crazy is when they expect one experience and then receive a totally different experience when they actually get to your property. What do we mean by this? It’s things like making sure your photos are an accurate representation of what your property looks like today.
It means letting guests know upfront whether or not you provide coffee, or if they need to bring their own. It means giving them little details like, “Hey, there’s a dog next door that barks every morning at 7:30 a.m., so please be prepared for that”... Hopefully you get the gist. But the fewer surprises your guest has when they get to your property, the better.
Be quick to offer a refund. In our mind, a small refund is better than a bad review. We’d rather give up $25, or $50, or even $100 as opposed to getting a 4-star review because something went wrong.
If a guest reaches out to you with a legitimate issue, do your best to give them a refund that’s equivalent to the problem that they faced. So a small problem gets a small refund, and a big issue gets a big refund… Respond quickly!!!
We try to get back to our guests as fast as possible whenever they have a question. Our guests truly appreciate that! We get reviews all the time that compliment us on how communicative we are. A big part of that is just responding in a timely fashion.
Even if you don’t have an answer at that moment, just respond and say “Let me get back to you on that within the next hour or two hours, or however much time you need to figure out an answer”. But n one likes being left on read, especially the guest that just paid a couple of hundred bucks, or maybe a couple of thousand bucks, to stay at your property.
Our first-ever tiny home!!
We hope you guys understand that we didn’t share these numbers to brag or be boastful, but really just to show you all what’s possible when you invest in a short-term rental, and run it the right way!
Check out our YouTube video that highlights these same 10 easy steps to get started in Airbnb investing!
This is the exact tool we've used to analyze hundreds of properties, and it's the tool that gave us the confidence to buy each property that's in our Airbnb portfolio.
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