How I Lost $20,000 with Airbnb

It is great to experiment, try new things, and learn from them. Like a lot of people who travel, I have stayed at multiple Airbnbs. For those of you who are not familiar with Airbnb, it offers alternative accommodation. Instead of staying in a hotel, you can stay at someone’s house or you even rent the whole house. It is convenient when you travel with a larger group of people — instead of renting multiple rooms in a hotel, you could rent the whole house. It works well when you rent. 

Being a Host:

Like some people, I thought it would be great for me to try being a host. Though renting houses or Airbnbs is not the core of what I do, I still wanted to experiment. I have a place in the Austin, TX area and thought it would be great for me to Airbnb it. The idea was to make more money than what one would make as a normal rent and pay off the mortgage sooner. I could have easily rented this place out and made $2,200 a month and the tenant would pay for electricity, gas and others. Either way, I did not want to take the easy route. I was all excited to get the Airbnb process started. 

Identifying a Property Management Company:

I did not want Airbnb to take up my time from the get-go, so I decided it was best to hire a property manager to manage the Airbnb. We identified 3-4 companies, interviewed them, and shortlisted one. They had great reviews on the properties they were managing. 

Furnishing the House:

I had delegated this work. Jaelyn Neely did an amazing job of furnishing the house. We spent anywhere from $12,000 to $15,000 to get this completed. I did not do much here and the entire credit for the amazing work goes to Jaelyn. The way she furnished it, if I had hired an agency, it would have easily cost over $30,000. Because everything in the house was hand-picked and we saved on other costs, we were able to do it for under $15,000. I was super impressed with Jaelyn’s work on furnishing the house. 

Airbnb Listing and Rentals:

Once the house was furnished, the property management company took pictures of the house and they did a great job. The house was listed on the Airbnb site. The pictures were great, the house was in a good location and it checked all that was needed. The guests started coming in. 

Commission and Cleaning Fee:

I did not negotiate much with the property management company on the commission they would take on each rental. They wanted to start with a 20% commission and I was naive and said ok. I wanted them to make good money and stay motivated. On top of that, there was a cleaning fee. For our property, the cleaning fee was like $180 – $250 per rental. It was very steep. Especially if someone is staying for a couple of nights, it does not make sense to pay so much as a cleaning fee. However, I did not negotiate because I wanted the place to be super clean. The place was usually spotless and the guests also had great reviews. 

We mostly received 5 star reviews. I was excited to see the reviews. Though we had great reviews, the monetary return for me wasn’t good. The property management company did make some money (20% of the rental), the cleaners made very good money – $200+ on cleaning and we had to stay competitive with the rental price to get the booking. At the end of it, for the first 2-3 months, I made $1200 or so / a month. 

I was happy with the property management company and the reviews we were getting, but not so thrilled with the money I was making. Jaelyn and I talked to the property management company and they agreed to reduce their commission to around 12.5% or 15%. I suggested they change the cleaners so we can have a lower cleaning fee and we will have better chances of renting our property. 

This was something that they recommended against and I decided to stick with the existing cleaners. After trying this for a year, the most I would have made is maybe a little over $2000 a month. One month it was $1800 and the remaining months it was less than $1500. Some months I just made $800.  

The Last 3 Months:

After trying with the property management company for almost a year, we decided to let them go and take over the listing. The transition was fairly smooth. My thought process was, we can self manage the property (of course with the assistance of Jaelyn) and we also found someone close to the property who is trusted to take care of the property and also help with cleaning. 

We thought we could at least make $2500 or so a month. However as you can imagine, this was more complicated than what I had imagined. It was a lot more work for Jaelyn and we had to keep discussing this in our weekly calls (which I did not want to do). We also had guest complaints on the cleanliness of the place (we could have done a better job). After 12-15 months of trying this, I decided it was not worth the effort. I decided to end the listing and simply rent the place. The place was rented in a week. 

Learnings:

Though I did not make money and would have lost at-least $20,000 (not even factoring the rent I may have otherwise received), I am glad we ran this experiment.

Airbnb is not for someone who wants to rent one property and make money from it. If you have a few properties, it makes sense. It is better if you manage it rather than property management. (They eat up your margins significantly)

They can take up a significant amount of your time. Thankfully for me, I had delegated, I would not have spent a whole lot of time on this. However, this was still a line item to discuss (which did cost some time).

After this Airbnb experience, I also wondered what is the difference between Airbnb and Expedia. In a way, Airbnb is just a booking engine. Expedia is also offering homes for rent. 

Property management is a beast. If you live close to your home and want to make additional income it is ok. However, if you are dependent on others, it may not be the best thing to do. There are also other restrictions or inconveniences to neighbors and more which we did not often talk about.

Thankful for these learnings.