Starting an Airbnb portfolio

some friends and I have started to look into building some houses and renting them through Airbnb/other short term rental avenues. I'm a banker and don't know much beyond the basics of real estate. Keep in mind we are still in the brainstorming phase so please freely voice your opinion/advice when it come to this. Does anyone have experience doing this? What challenges have you faced? What are common things that people new to real estate over look?

Edit: I think it's important to include some parts of our strategy. My friends are not in finance, they started a media company a few years back that has taken off. They bring a lot to the table when it comes to marketing (both traditional and on social media) and producing advertising materials. I don't want to go into the location very much but it's situated in a place that has a number of main attractions that amass a huge tourist population. It is not a city and there is a huge shortage of short-term rentals in the area (this may align with one of the comments below about the town having stringent rules around the topic). Further, the land is dirt cheap and our initial thoughts are to put one of those modern pre-fabricated modular homes. All in, we are looking at about 100k max for the land and house before associated costs of buying land and finding a team to put the house together. The idea here is to leverage their company's reach on social media and marketing experience to turn the property into a 'destination' of sorts - so there would be a lot more effort to market the rental beyond just posting it in Airbnb's site. Again, we just started discussing this week so it's more of a pipe dream as of now, but what I've added in this edit may help clarify some of the strategy behind it.

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Comments (12)

Sep 8, 2021 - 9:46am

I would just say that you're biting off a lot and trying to learn two businesses at once, development and hospitality. Maybe better to start of with rehab instead of development or yearly rental instead of short term until you get your chops up

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Sep 8, 2021 - 10:54am

What market? That's the critical part. I ran at this really hard in my market, but once you dig into regulations you realize that many cities/towns restrict your ability to Airbnb homes unless it is your primary residence. There are games you can absolutely play to get around this on a one-off basis, but that would be one, maybe two locations and not eight. And even then, it is in the grey area of how legal it is. Another thing to think about is Airbnb's are a ton of work. It would be really challenging to do more than one or two on the side. At that scale, you probably can't afford professional cleaning without seriously cutting into your profit.

I have a friend who did it and was making good money. But he was also spending 1-2 hours each week on bookings, 1-2 hours on guest interaction, and 2-4 hours a week flipping. Plus he had to find someone (me) to take over when he went on trips. So he was spending 4-8 hours a week plus a lot of headache to make $15-20K a year. Not saying that is chump change, but you're not getting rich off of it either. 

That being said, I love hospitality and design and from that perspective it would be a ton of fun to try and own a portfolio of Airbnbs. You (a) need to find a location that is very lenient for this type of business (harder than you think), (b) be willing to spend a lot of time on the front end renovating and furnishing, and (c) trying to find a business model that allows you to spend as little time as possible operating. 

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Sep 8, 2021 - 11:43am

Thanks for the insight here. Definitely will take the advice to heart

Sep 8, 2021 - 11:20am

All the above comments are hugely important. Make sure Airbnbs are permitted in your market - you don't want to build a portfolio then learn you can't operate any of the properties as Airbnbs.

Agreed with Monkeydawg that you're far better off acquiring and rehabbing existing properties to begin. There's more to building than meets the eye, even for single family homes.

Sep 8, 2021 - 2:36pm

Make sure you're looking into all the costs associated with development. Are there public utilities at the street? If so, you'll need to factor in tap fees and line connections. If not, you'll need to factor in well & septic digging. Beyond utilities, you'll need to consider allowable uses under local zoning regulations, soil conditions, plus excavation and foundation costs. These other items can add up to what you're budgeting for house + land, and often cheap parcels have issues in these areas. 

Sep 9, 2021 - 5:24pm

No chance you're going to be able to put in a new house at $100k all in with land, plus if you're buying virgin land you need to also provide the civil infrastructure (electricity, water, internet, sewer or septic tank). If it's legal (see the other comments on that) I'd 100% go in the direction of just buying a nice existing property and rent it out. Most resi mortgages are priced for someone to live in full-time and short-term rental revenue can easily cover it if the market is as strong as you're implying it is. I'd even avoid doing any serious renovation work unless the market is so constrained that's your only option, being new to real estate and trying to manage a construction budget/project is pretty difficult. Whatever you do make sure you have plenty of contingency money and try to get as much information/price quotes in advance as possible (i.e. talk with people who have purchased homes for what they look for, understand the cost of closing on a mortgage, getting inspections, etc. as well as talking with contractors on material availability, installation cost, transportation (you say you're not in a city so I'm assuming you're in a rural-ish area with nature destinations like a ski-town or the like?), etc.). 

Sep 10, 2021 - 11:47am

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