I made $740,000 on Airbnb this year. Here are my top tips for newbie hosts to maximize success and avoid common mistakes.
- Michael Elefante and his wife have built a portfolio of six vacation rentals in Tennessee and Florida.
- They bought their first short-term rental property in 2019 and have moved on while working full time.
This narrated essay is based on a conversation with Michael Elefante, a real estate investor and Airbnb Superhost. It has been edited for length and clarity.
My wife, Jill, and I purchased our first short-term rental property in November 2019 after moving to Nashville. I thought it would be a lucrative investment now that we live in a tourist hotspot.
In March 2020, just three months after listing our property on Airbnb, we were on the verge of making a profit of $7,000. Although COVID-19 cancellations hampered this goal, the income potential of investing in STR properties was clear.
We continued to work full-time while growing our short-term rental portfolio. In May 2020, we liquidated our retirement funds to purchase our second property in Nashville. Three months later, we used the savings from our salaries and cash flow from our properties to put down a deposit on a cabin in Gatlinburg, Tennessee.
We now own and manage six Airbnb properties that generate up to $118,000 per month, and I run a successful online STR coaching business. This year so far, our bookings have totaled $740,000.
I think we’ve been so successful because we’re focused on selling an experience, not just a place to sleep, but it’s been a learning curve. These are my top tips for beginners to avoid common pitfalls when investing in short-term rental properties.
1. Do a basic market research analysis of the area you are looking to buy or rent in
The first thing potential investors should do is examine the travel trends in the region in which they are considering investing. Next, research the local laws and regulations in the area regarding short-term rentals – local government sites usually have these details.
If I’m unsure of a property, I call the city or county zoning office to ask if the address can legally be a short-term rental.
2. Leverage as much local knowledge as possible by reaching out to people already in the industry
Finding a profitable short-term rental is different from traditional real estate hunting.
To avoid investing in an area that won’t be lucrative, find a realtor who works with investors or has experience with short-term vacation rentals in the area you’re looking to buy. They will know which locations are best for STRs and why people are willing to pay more to stay in a specific postcode.
3. Do a thorough investment analysis before investing in a property
If you are considering investing in an STR, always do a full investment analysis first. I use an Excel spreadsheet to help me visualize where my money will go and the potential results of a new short-term rental investment.
When I first considered investing in real estate, I researched online and used investment calculators on sites like Bigger Pockets to calculate purchase costs, building costs, and investment calculators. operation, potential revenue and costs of additions such as furniture or decorations.
I then conducted market research on other short term rental properties in the area that were similar to the property I wanted to pursue and compared their prices and features. I would also look at AirDNA to see what I could expect for daily rates and occupancy in a given market or zip code.
With all of this information, I designed my investment analysis template on Google Sheets, which I use to analyze properties to this day.
4. Always plan for the worst-case scenario
I always use conservative numbers when evaluating potential properties in my Google Sheet template. I entered daily rates and occupancy slightly lower than expected and operating expenses slightly higher than expected.
Once I have a subject property that meets my ROI criteria, I then “test” the investment. I run the numbers to see what the breakeven point is and what the best potential profit might be. Running these numbers gives me a lot of confidence when buying a property.
I only had one major unplanned cost overrun. One of our homes in Florida has a pool heater, and electricity and general maintenance costs have been higher than expected for most months. Our monthly cash flow is lower, but that hasn’t hurt the overall investment.
5. Invest in property management software
I currently use Guesty and pay $31 per month for it. Property management software lets you manage multiple properties on sites like Airbnb, VRBO, and Booking.com. You can have a synchronized calendar and centralized correspondence for incoming and outgoing messages.
This software can prevent you from making rookie mistakes that can hurt your grades, such as double bookings.
6. Use dynamic smart pricing software
Everyone should take advantage of smart pricing software like Price Labs or Wheelhouse. These applications automatically adjust the overnight rates for your rental based on market conditions. Using software can help you increase occupancy and find the best rate for a property faster when you’re unfamiliar with a market.
7. Automate and outsource cleaning and maintenance
One of the biggest mistakes people make is cleaning their properties themselves. It may pay off in the short term, but it’s not scalable.
If you want to grow your portfolio, you need to learn how to outsource. Consider hiring cleaners to increase the efficiency of your business. Tools like TurnoverBnB and ResortCleaning help automate calendar synchronization.
8. Find out what your competitors are offering and beat them
Use AirDNA to find the best performing properties in your area and think about what drives people to book these places. What are their design features? Do they have pools, game rooms or hot tubs? Do they have accent walls? Use this knowledge to choose and build your vision for your property.
Our first property was in Nashville, where you can find murals across town. We commissioned an artist to create a mural at our property, which brought guests to our house and separated us from the pack.
9. Don’t underestimate the profitability of good design
Many people don’t focus on design because they don’t understand ROI when it comes to design and STR.
If you don’t have a big budget for furniture and design, my advice is to look for a smaller property that costs less to furnish. You can bargain hunt for furniture and decor. It may take longer than shopping online, but will save you money and make your property stand out.
Once you start making a profit, you can spend more to update the design or hire an interior designer, which will ultimately increase your income and future cash flow.
10. Hire a professional photographer
Pictures are everything. Even the best property can be overlooked by thousands of potential customers if the first photo in your listing is of poor quality.