This forum is dedicated to connecting hosts with other hosts. Sign up to get the latest updates and news just for AirBnb hosts! Note that we are not affiliated with Airbnb - we are just passionate hosts!
What you are doing wrong is the same thing that kills many small businesses
Read about a lucrative business, read some books and jump in.
Would you spend $200,000 outfitting a retail mall store, if you had no retail experience, because you read up that it was a great way to make money??
There are a hundred things to know/do to succeed. Your post makes me think you may be oblivious to 80 of them.
What will you do when the number of vac rentals goes up 300% near you in a few years, and you are only getting $30 a night? That is what I paid for two nights near NYC last month.
OK, I kinda guessed it was a Google Docs spreadsheet. Never used Google Docs before, but a bit of Google searching and I figured out how to turn the ādocidā into a URL. Here it is:
Your top 3 expenses are mortgage, cleaning, and property management.
I would expect the P&I on your mortgage to be under $900, but you probably have PMI, and maybe a significantly higher interest rate because itās an investment property? The taxes and insurance are probably rolled into that $1186 payment, too. Not much you can do about this in the short term.
The amount you pay for cleaning is actually less than you collect from Airbnb for ācleaningā, which seems good, but itās also an indication that the pricing is off. A very significant portion of your revenue is the cleaning fees you collect from Airbnb, and stays of more than 4 days have a much lower revenue/night. Looks like you need to raise your nightly rate and lower your cleaning fee.
It also looks like you have a variable pricing scheme thatās really hurting you sometimes. I would suggest that you raise your minimum nightly rate to a value that lets you break even with an occupancy rate thatās at least 10% lower than your current occupancy rate and see where that leads. Youāve got enough data after 6 months to figure that out.
You may want to try to renegotiate your property management rates, too. Find out how much work it is and how much heās making per hour, etc.
Well instead of reading about buying houses and how to make the best STR, you should have read about doing business and making profit.
You do not borrow money to make money.
I know it is a popular concept that American banks have been pushing for years, selling it all over the world, and teaching it I Universities, but it does not work. It even even resulted in some huge economic crisis.
You can borrow some money, but at least 30% should be owned by you.
Your business is 95% owned by the bank, and you spend 20% on personell, and prices are set by a 3rd party that does not know anything about your cost. Recipe for disaster
There are 2 solutions:
reduce cost and increase income (both difficult)
stop, sell the place, take the lessons learned, save up some more and start over.
Turning to long term rental is not a solution, you will save on the cost, but the monthly revenue will be lower too.
I just did a quick check to see what homes under $100 are available for a party of 4 in 2 bedrooms and there are way too many HOMES available in Pittsburgh this week for prices ranging from $50 to $90. Way too many Air rentals from what I see.
@Liface, did you even check AirBnB listings for your area over a period of time before you made this plunge? If you had, you would have seen what the full house rental rates were in your area and been able to plug them into your pro forma business plan to see if your investment would be profitable. It appears that you didnāt?
First off, this may not be as dire as you think. You started in the slow season. You might make that up in summer bookings. Calculate your minimum break-even rate at 75% occupancy and set Wheelhouse to not price below that. If the market is so saturated that you are not able to get bookings above your break-even rate, you need to consider your other options.
(Iām calculating your break even rate at $144/night. If you book 75% of days at that rate youāll just meet expenses of $3,228. Most of your nights need to book higher than that to earn profit.)
Is there any way you can take over the management? It looks like youāre paying both a management fee AND a cleaning fee. Combined, this is 40% of your expenses. Far too high.
The going rate Iāve heard is 20% INCLUDING cleaning. For reference, cleaning is about 7% of my expenses. Cleaning and direct expenses (like k-cups, linens, replacement furnishings) run about 24% of my revenue.
Itās concerning that your spreadsheet doesnāt consider taxes. You should talk to a tax accountant to see how much you need to reserve. I hold back 30% of revenue for taxes.
Most businesses donāt make money their first year. I had a far more modest investment in my place and I still didnāt have much profit the first year. Also consider that many entrepreneurs do ALL the work until they get their fledgling business off the ground. You may need to put in some quality time with a toilet brush until your expenses are under control.
seems like any reasonable profit is going to your friend. Heās earning, the cleaners earning, and hopefully, even if youāre not earning, the value of the prop will go up.
My friend started a window cleaning business, employed a window cleaner, give him a decent wage, then sat in the office wondering where his wage was.
I think you answered your own question here. Given these things it will take you much longer to turn a profit than you thought. Are you willing/able to renegotiate any terms? Increased prices might be the first choice. Also, Iām not sure why 20% of gross. Perhaps some terms along net or actual time and effort? But given your high expenses your friend might say no to netā¦
As @Allison_H notes, you are going into the red-hot summer season, which ought to pick things up.
The easy-money days of AirBNB ā that wave has left the beach. You have a good plan but five to seven years too late.
Possibly switching to mid-term rentals would help. The STR market is choked to the asphyxiation point, and in some markets, long-term as well. You can try for two to four months depending on whether anyone in Pittsburgh is doing that yet, i.e., hopefully that is less saturated.
Also these are a couple of small observations, as I was in Pittsburgh three weeks ago for the first time and that brings up three points ā
Seeing that you are near (yes?) Frick Park, I would really hype that up as a stupendous urban park with good trails and a lovely dog park full of friendly dog owners.
The selection of places to stay on AirBNB in terms of private rooms was ai yi yi. Very little mid-value (I wanted around $50 a night for a total of 2 nights to use up a SuperHost coupon). The lack of decor and comfort in the budget and mid-value listings was mind-boggling. You might want to have a whole-house listing and a room-by-room listing, and if you end up with a long-term tenant in one of the rooms, they could manage the place for you. By which I mean, a quality individual room (rooms) in Squirrel Hill at a good price point would be $$$ in the bank.
There was also a lack of dog-friendly places. Another option you might consider offering (sorry maybe you already offer this).
Postscript: I ended up staying 1 hour east of Pittsburgh in Stoystown at a honey farm in the feed room of the chicken barn (!). It met my budget! (Although the chickens went NUTS at 4:45 each morning.) Also was near the Flight 93 Memorial + Fallingwater, two sites I visited.
My feeling is, if youāre not cleaning or hosting this house, you need to hire a new host who can fix this problem for you. Give that host the freedom to actually host it. Donāt dictate the prices, terms, policies, rules etc if you arenāt hosting it yourself. Let the host host. If youāre paying 20% to your host, thats a full hosting fee and he should be the one managing the listing. If you only have a cohost and pay them a flat rate per reservation, then its your responsibility to make and manage the listing. It would be their responsibility to make sure the guests have a good experience once they get there. Youāve given your host enough time to make it or break it on this listing. So if youāre her asking this question now, you either need to fire him and get a new one or just do long term rentals.
As for who would do small tasks like you mentioned, hire a handyman. It isnāt hard to get someone you can trust to tighten a door knob or unclog a sink. Youāre not mentioning anything to me thats really skilled labor that you need to keep someone on contract taking 20% of your listing income.
20% is quite high to manage a property if he is not doing the cleaning.
What sort of support is your friend offering for that? @Liface2
Can I ask when you bought your property what sort of research did you do around your operating costs and what sort of income did you estimate you would make in year 1, 2, 3 etc?
For any business it takes time to build up your customer base, so you are always going to need to allow for this in your budget planning.
For the life of me I canāt see how you managed to bleed -1800 in a month with 85% occupancy. How much is your mortgage per month?
To me, even if I get enough money to offset the mortgage is still a good deal because in time I gain equity in the house. Iāve been bleeding money too last year for example because I put a lot of work into my house too plus furnishings plus a brand new HVAC. However thatās it. I expect that from now on Iāll turn a profit because thereās nothing else, no big item to buy or pay for.
So for you:
you have a beautiful home
manage the property yourself and avoid paying someone else
-have patience
YOU would! Making a B&B work is NOT a passive investment, as you are finding out. Your income is draining away by paying other people! DO LITTLE THINGS YOURSELF and save money. And as others have said, the āaverageā 20% fee for management by others almost always includes cleaning, but you are paying $80 per cleaning! Itās no wonder you are losing money. You need to EARN some money by doing most of the work yourself, like all those other low priced AirBnBs in your oversaturated market. Since you donāt seem to be committed to actually working to make money, IMHO you should sell it now, nicely furnished.
