Airbnb Experiment Leaves Blogger in State of Paranoia

Airbnb
The Crazy Train?

Hey there, fine readers! You ever get nervous sometimes about a decision you made, and start to second guess yourself? Like that time you ate at Taco Bell and were somehow surprised by the aftershocks? I’m starting to get that “Taco Bell feeling” with the Airbnb Experiment.

Paranoia might be too heavy a term to throw at this. But I’m downright nervous. Even though I’ve run all the numbers and chatted with other vacation rental owners in the area, I’m anxious for this investment to prove its value.

There isn’t much to complain about. I closed on the sale this Tuesday. It was a pretty easy process. I had to scoot over to our bank branch in the morning to wire $26K for the down payment plus closing costs to the title company in Michigan.

Later in the afternoon, a mobile closer stopped by work and I got to sign all the closing docs down in our lobby. Done in 10 minutes.

old man from Jimmy John's spot
“10 minutes? Unacceptable!”

So yeah, things are moving right along. No hiccups.

Then I started to run the numbers in my head and look outside at the first snow flurries of the season. My inside voice says, “I can’t rent this thing for a long long time.” And like a robot from a futuristic television show, I start to short-circuit. “Does not compute! Does not compute! Error!” I blue screen, shut down, and head back to my cube, with a little smoke coming out of both ears.

Lessons in Patience

This is all planned paranoia. I knew what I was getting into when I first made an offer on this place back in late August. It’s a seasonal rental and the high season, May through September, would be just in the rear view mirror right around closing time. By the numbers, I’ll probably wind up with six months of vacancy before someone wants to jump in the chilly waters of Lake Michigan, next spring.

Each month of vacancy costs $718 in PITI (monthly principal, interest, taxes, and insurance.) Pronounced like “pity.” The one small bonus is that first payment isn’t due until December 1.

Even if on paper it’s not “free”, I’m still calling November a free month. When financing a property with the bank’s money, I’d be happy to get any time up front without payments, since I’m using out-of-pocket funds to make the necessary improvements.

  • Calculating the PITI @ 5 months x $718 = $3,590. Gulp.

Let’s also remember that this is a condo. That means I have association dues to pay, each and every quarter. The association isn’t about to give me any “free months” like U.S. Bank is.

  • Calculating the association fees @ 6 months x $133 = $798. Sigh.

There are some other costs involved that are fairly minor but worth mentioning. I can winterize the property to keep utility costs low, but I expect some base level costs nevertheless.

  • Calculating the utilities @ 6 months x $50 = $300. Damn.
Airbnb
The appliances can at least take a break for six months.

And then there’s the upgrades and furnishing costs

I’ve already plunked down some serious money to get this place ready, and that was before I’d even CLOSED. In fairness, a couple of our long-term rentals needed upfront repairs that rang up quite a bill. Typically though, you want to keep those costs contained, under $10K or so, to keep your Cash on Cash Returns solid.

With the Airbnb, I intend to keep those pesky upfront costs right at that $10K ceiling, if possible. Nearly half of that amount is just to repaint and replace the carpeting with Pergo. Here’s what it looks like now; like a place you might have rented your senior year of college:

Airbnb
Needs some work.

As you can see, without a healthy face-lift, this place won’t fetch a good rent. Or worse, the condo could go vacant through much of the high season. That carpeting is the original nasty from 2005. The walls and trim are abused and dull.

Normally I’d do all the painting myself and save a big wad of cash. But there’s a couple of factors compelling me to hire out this job:

  1. I have one long weekend of PTO left to fly to Michigan and get shit done this fall. The choice is either hire-out the flooring job, or hire out the painting. Both cost about the same, but I prefer to do the flooring and avoid a weekend of paint fumes.
  2. Vaulted ceilings.

The total cost to repaint with nicer earth tones, including the ceilings (job and materials): $2,500.

The total cost to DIY the Pergo install (materials only): $1,600.

While I’m out there, I hope to find creases of time during my four-day stretch to install a new kitchen faucet, kitchen cabinet hardware, a NEST thermostat, and a Schlage Sense door lock. Those last two items I expect will be quite useful, as both can be operated over the Internet. The NEST allows me to keep an eye out for wasteful energy consumption. The Schlage Sense will help us dole out new entry codes for each new guest.

Throw in a Roku Box, a Google Wifi Station, and some alarm clocks, and there’s another $700 already plunked down. I haven’t even looked at furniture yet! Holy shit!

Calming down, with the aid of numbers

When you add it all up, I’ll be in for $9,500 before I’ve even gone shopping for beds, sofas, and dinner plates. There are some tactics I’m using to mitigate the upfront costs. A very handy Home Depot credit card offer allowed me to defer the Pergo, Faucet, and Lock expense of $2,000 for 24 months at zero interest. I figure I can spread that over the next two years as part of a general maintenance expense.

Second, and this is huge: My parents still have a lot of stuff from their recent downsizing. The Airbnb will benefit from a rarely used toaster oven, coffee maker, and other kitchen essentials. All this adds up.

Not to mention, my mom and step-dad are willing and able to help me this weekend with the many projects I have crammed into a tight schedule. Love ’em! Dinner is on me!

Finally, I have to remember to look at those cash on cash returns and realize that once this place is spiffed-up and furnished, a typical summer month could generate over $4,000 in net returns. Given a decent five month stretch from May to September, the Airbnb could yield $20,000 before even considering the low-season months.

So, take a deep breath, Cubert. Nothing ventured, nothing gained. The calculated risks and hard work will come out to reward soon enough. In the meantime, remember that pretty, little lake view you get, if you stand on your tip toes at the living room window?

Airbnb
You see it? You see it? That little sliver above the middle of the roof line? Classy…

Comments 29

  1. That would definitely be stressful but at least you have time to get it all ready to go for next year! I suppose getting it done soon would help for pictures/listing on AirBNB. We are in the middle of a big renovation and the idea of the house being an AirBNB down the road made us do some serious thinking (and upgrading of our original plan.) Do you have a plan for cleaning/turnover in between guests? (I probably missed that somewhere.)

    1. That’s a great point, Vicki. Those well-staged pictures are so important with Airbnbs. I managed to get my folks to snap some nice pics on a nice fall day a few weeks back – so at least the outside is covered!
      Definitely planning to have cleaning and turnover – it’ll be an added fee.

  2. Looks like you have a really nice place there. Plus you’ll be really pleased I’m sure when you get a fresh coat of paint in there. It really brightens everything up. We are in the (slow) process of applying a fresh layer inside our place. Looks much better. I hope everything works out for you! I’ll keep your place in mind if we ever get up that way 😉

  3. Not to mention, with the Nest you can prevent people from cranking the heat to 90 while leaving the windows open (or at least you can prevent the “cranking the heat to 90 part” 🙂

    1. Right on! We love our current Nest. And definitely thinking of a use case like the one you mention… Cranking the AC and leaving the windows open. Need to get one of those handy window sensors that integrate into the Wireless hub.

  4. Looks like you’ve got a full plate there, Cubert! I lol’d at “like a place you might have rented your senior year of college” because it looks EXACTLY like my apartment in college. But hey, it gets the job done. All the upgrades sound awesome. I’d stay there!

      1. Man, y’all lived classy in college. Me and five friends were sharing one unit of a a run-down historic home that had been converted into five multi-tenant units.

          1. Totally would have felt luxurious. I bet you even have forced-air heating in there 🙂 Of course, college-student housing in Ypsilanti is a far cry from Charlevoix. My parents have friends who own a big rental in Charlevoix, actually. Really nice area.

  5. I haven’t been an AirBNB host, but we did set up our home in northern MI for summer rentals in the past. There is a lot you need to stock for your guests, particularly in a 4BR / 4BA which is what we had. I remember buying 20+ towels, and yes, we still have them even the house was sold several years ago. The Kohl’s bill, which also included bedding, a blender, and other necessities was brutal.

    We may very well have an AirBNB condo attached to our future lakehome, and I’ll be interested to hear about your experiences with it. The Schlage Sense locks seem like a brilliant idea.

    Cheers!
    -PoF

  6. Oh, man. You gut more guts than I do. But your looking at the total costs of setting up a rental. That’s something my foolish self didn’t contemplate when I dabbled in real estate. And you also have AirBnB as a middleman. Something tells me you’re going to be much better at this landlording thing than I was. Best of luck, my friend.

    1. Hey, Mr. Groovy! So cool of you to swing by, cat! I appreciate the vote of confidence. I doubt I’d have the guts if I didn’t have five years of long term rental experience under my belt. Landing in Michigan in two hours – then the flooring project begins!

  7. Hey, if it was easy, everyone would be doing it 🙂

    Where’s this place, how many sf, and how much will you be charging per day? It looks like a pretty good deal compared to what you would be spending around here. Your 6 months expenses seems like what someone would be spending for 1 month for a 900sf condo around here.

    Reason why we haven’t’ been able to acquire any RE except our home 🙁 . Maybe once we finish paying off our current mortgage.

    99to1percent recently posted…How we plan to pay off our $500K+ mortgage in 5 years
    https://99to1percent.com/pay-off-mortgage-5-years/

    1. Good point! 🙂
      The place is in northern Michigan – Charlevoix. About 1,000 square feet. I’m an exhausted pile of crap today after two straight 12 hour days of labor – and two more to go. Whew!

  8. I will add something (I find) very relevant
    The comments on this and may other blog sites are multiple levels above “social Media”s level of TRUE (notice I said) TRUE interaction….as in meaningful, as in we all are thoughtful!!!
    Peace
    Scott,

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