5 Things to Know Before Buying an Airbnb

Have you ever considered running your own Airbnb business? Since it’s birth in 2007, the number of rooms and homes listed on Airbnb has shown amazing growth! It is estimated that 14,000 hosts are joining the platform each month. It’s no wonder that so many new hosts are joining, since the simple act of renting out a bedroom, accessory dwelling unit, apartment, or even an entire home, can make a huge difference in someone’s ability to to pay the mortgage or having to move.

In an economy where wages have been stagnant for decades, it makes perfect sense for people to look for ways to add to their income and reduce their economic insecurity. If your home or properties are located in a place where people want (or need) to travel to, and you don’t mind having strangers on your property, there’s a potential for money to be made through Airbnb. However, the ownership model has changed from regular homeowners to real estate investors, and that has not been without controversy. Cities across the world have responded with legislation that ranges from an outright ban, to limiting the number of rentals, and to licensing them for safety and tracking purposes. The City of Portland, where I have three owner-occupied STR spaces, uses licensing fees to support low income housing programs.

When I first became an Airbnb host in 2012, I lived in a spacious apartment outside of Boston. I was visiting a friend in San Francisco and while on the red-eye flight home, I learned about Airbnb through the in-flight magazine. I had new eyes for my apartment, and saw my extra room as a sweet space that someone might like to stay in while visiting Boston. Maybe I could defray the cost of the rent and meet interesting people! I put away my personal papers and other stuff to neaten up the space and took pictures. By 4pm the next day my listing went live, and by the time I went to bed I had my first reservation. A month later I was able to cover 3/4 of my rent, bought some amenities to improve the guests’ experience, met some cool new people, and my living space had never been so clean! (I recommend dusting, cleaning the bathroom, and wiping all surfaces every day, and perform a weekly deep clean.)

Circumstances a few months later caused me to shut down the operation, but I decided that I never wanted to pay 100% of my rent or mortgage ever again. I would not be satisfied unless I could get guests or tenants to pay for some, or all of it. Fast forward several years and well over a thousand guests later, I and my partner, own properties in three towns in two states that host up to five sets of guests on any given night. The guests not only cover all of our sheltering expenses, they also contribute substantially to our income.

So, should you jump in and start renting your vacant apartment/spare room/house/couch? In my case, the answer is yes, but it isn’t for everyone nor for every location. By the end of this, you should have a good idea of whether you should proceed or not, and how to go about making it happen.

Let’s jump in.

1. Is it legal where you want to locate it (and is it likely to change)? What are the ordinances and regulations about hosting. When we opened our first listings in South Portland there were no regulations, but the writing was on the wall. Residents had been complaining about neighborhoods being disrupted by party houses and irresponsible (and unresponsive) homeowners. Nevertheless, the building we owned was in a commercial area, and since the complaints had all been from people in residential districts, we felt we could take the chance, but we did design our three rooms for the possible coming crackdown. The first year we opened we grossed almost $40,000, but at the end of the year the city passed ordinances that made us shut it down. A year later, the rules changed again, and we were able to re-open the units due to the recognition of its commercial zoning. They also imposed fees. Portland has changed its rules as well. It limits the total of non-owner-occupied units to 400, but doesn’t limit the number of owner-occupied listings. However, each owner can only have five listings in their name (regardless of the number of properties), and fees double with each additional listing. In Scarborough (where we don’t have a listing) there is a very small geographic area where short-term rentals are allowed. (BTW, I do want to note that in neither Portland nor South Portland, are we taking existing rental housing out of the market: we are either renting spaces out in our home, or have created new vacation rental units that are not suitable for long term renters.)

2. Who is going to clean and manage your listing(s)? If it’s you, are you sure you have the time, stomach, and skills to clean so that the unit is spotless for every guest that comes in? If you’re hiring someone or a company to clean for you, are you confident that they are available and reliable? You must have a good answer to these questions. We’ve fired three cleaning services for our unit in New Hampshire when it turned out that the “cleaners” weren’t cleaning satisfactorily. We fired one of them when found that one of the services was remaking the bed with used sheets! Spots of toothpaste left on the chrome in the bathroom was enough to make us fire another service. And that’s not to mention the hair. Nobody wants to come into a clean bathroom and find someone’s hair in the sink.

3. Why would anyone want to stay at your place? Is it a tourist destination? Is it seasonal? Portland is becoming a year-round destination, but we knew full well that we would have a low season, so we installed a hot tub to make it more attractive to winter visitors. It has more than paid for itself—and besides, it’s an amenity that we get to enjoy ourselves! Speaking of amenities, are you yourself an added benefit of staying at your place? What can you offer personally? Do you speak other languages, know the best places to eat/drink/hear live music/hike/climb/explore/fish/hunt/golf?

4. Is it worth it? How much can you make? There are paid services that analyze properties for income potential, but I recommend you start with Airbnb itself. What are the other units out there? Are you offering the same thing, or something different? How much are they charging per night? Maybe there are dozens of listings in your area, so, how is your place going to stand out from the crowd? How much will it cost to adapt your house/apartment/condo/room to a space where you will get five stars (the gold standard)? For my first Airbnb rental, I knew that in order to attract people to my out-of-the-way location in the Boston area, I had to make my listing pop. I bought an air conditioner, an electric teakettle (I didn’t want guests to use my stove), a firepit, patio furniture, window treatments, and high-end linens. As a man hoping to host families, women travelers, and others, I knew it had to feel and be safe, be exceptionally clean, and have great amenities (I served a real breakfast, fresh baked goods, and offered free parking. In Portland, free parking is an important amenity). In our experience, it took two years before we felt like we were maximizing our income. While we did make money the first year of the listing, it wasn’t until we were in our third year that we were able to stabilize expenses and maximize income.

5. Do you have an exit plan? What will you do if it’s not working out, either financially, for your lifestyle, or due to changes in the law? Does it have resale value? You’ve made it nicer than it was before, so that’s worth something. Will having added a new bathroom increased its marketability? Maybe you can sell it to another host.

If you like the lifestyle and haven’t been daunted by the points made in this piece, and are ready to work hard for potentially a great deal of money, then you might be ready to take it on. We have found it to be terrifically rewarding, both financially and personally. We’ve enjoyed meeting people and making friends from all over the world.

I hope that this has been useful information for you. Please let me know if you have further questions. If you’d like to explore properties that might fit into your future hosting plans, I’d be glad to help!

Written by Nicholas Herold, Associate Broker for The Fletcher Group.