Airbnb/Vacation Rentals: History, Growth & Core Real Estate Investment Strategy
Hey Hoasty fans, why would you go through the upfront cost of furnishing, consumables, and all the work that goes along with turning your property into a Airbnb / Vacation Rental?
One word: Cashflow
Let’s start from the beginning CFRI: Hi there I’m Ken Barton, CEO & Founder of Hoasty.co. Hoasty manages Vacation Rentals in 10 states (as of August 2019) and has grown about 100% month over month since inception.
Before we get deep into the weeds of considering whether you should traditionally rent or vacation rent your property, let’s talk about what it means to ‘vacation rent’ or ‘short term rent’ a property.
Vacation Rentals have been going on for hundreds of years, and were made mainstream by a little company called Vacation Rental By Owner which quickly branded as VRBO; founded in 1995. You may know vacation renting as a short term stay at a property, usually owned by a private owner and not by a company.
A little over a decade later, a young upstart from San Francisco decided to start an online marketplace for these short term stays which had previously been known for paper catalogs sent to folks with the penny saver newspaper. Believe it or not, Airbnb itself was wildly unsuccessful for quite some time. Here’s a link to the amazing journey the founder of Airbnb went through to build their billion with a B dollar revenue company.
Today there are a number of different booking platforms such as HomeAway, VRBO, Airbnb, MisterBnb and even the massive company Booking.com is getting into the vacation rental business. In the USA, as of 2019, nearly 33% of the total traveling population has stayed at a private residence or accommodation to date, and that number is expected to be over 50% by 2025 (source Vacasa).
At Hoasty, we consider each of our clients Real Estate Investors. Our average client has 3 to 5 properties with Hoasty, and are looking to leverage a few aspects of freedom and cashflow that vacation rentals provide. Here are some examples:
Your property is constantly professionally cleaned, therefore always in showable condition
You maintain personal use of property any time
You make more money on holidays
Create exponentially larger proven rent rolls
But most importantly, make more monthly cashflow than traditional rentals
But ya’ll, listen up, this is a classic example of the risk return reward. The first thing I tell prospective clients of Hoasty is we do not guarantee more rent, and any anyone that does is lying to you or misleading you. Investors who leverage Vacation Rentals realize the opportunity at hand to make more money from shorter term stays, which are a trade off to the stable traditional rent the market is accustomed to.
As an Investor I am sure you are excited about the numbers. So I am going to share some details of a recent conversation that I had with a CFRI member.
Case A: 190 Unit Apartment Complex
Recently at a CFRI meeting, I was discussing with one of your prominent apartment syndicators the concept of leveraging some of their units as Vacation Rentals. They explained that the building has about 190 units, and it has about an 88% current occupancy. That lead me to think that there were at least 19 vacant units not making this investor any money.
As we discussed I learned that the building make up had a variety of units:
This building happens to be in Tallahassee, and is right in the center of the action as it comes to Florida State University. So before sitting down with this investor to dig into the opportunity, I wanted to go run some RentOMeter numbers on average rents in the area. Here’s what I found from RentOMeter.com:
So as an average for these units, they are looking at:
These assessments are pretty understandable when it comes to the amount of housing sprouting up in college towns like Tallahassee. Massive supply influx that may be outpacing demand; pretty logical.
After understanding these numbers, Hoasty leveraged it’s subscription to Airdna.co (one of the leading data resources for vacation rentals) to understand what those vacant units could earn.
So as it turns out, these units are in a prime location for Vacation Rentals, as they are less than a ½ mile walk to the Florida State University Stadium, and less than a single mile from FSU’s campus.
Comparatively, the investor realized that he could make substantially more by Vacation Renting / Airbnbing his vacant units than he would have traditionally renting them. This investor was interested in hiring outside management of his vacation rental units, so here is the breakdown of exactly how much the investor would net net with Hoasty as his hospitality management company:
Looking at the opportunity side by side, with the net net earning in mind, it is easy for an investor to see how attractive it is to leverage Vacation Rentals as a unique and profitable revenue stream for their units.
After we compared these numbers side by side it was easy to understand that this may be a more attractive option than finding ways to fill the investor’s current vacancies.
To be clear ya’ll, these are two very different investment premises. Here are some things to consider when looking to achieve that 100%+ more cashflow monthly:
Pricing algorithms for your vacation rentals
Management services for vacation rentals
Cleaning services for vacation rentals
Lodging and City Taxes
Additional Insurance Cost
Furnishing investment (one of the largest upfront costs)
Lawn & property care
If you are looking for a unique way to leverage your real estate investments, and drive more cashflow month over month, you may indeed want to consider Vacation Rentals.
Ken G. Barton