on Tuesday, March 13th, 2018 at 10:12am.
My Airbnb investment 10% ROI - Passive Income
By sharing my experience investing in Airbnb hopefully you will be able to make a more educated analysis and decide if this is an attractive business for you.
Real estate is a well known method of diversifying your portfolio to ultimately expand your wealth. There are numerous ways to manage your real estate investments; rent them out, “flip” the house, real estate investment trusts (REIT), etc.
Now, I know flipping houses has become extremely popular, but I’m into the passive income. So, the most alluring way to manage my real estate was actually through AirBnB. I’ve been doing this for the past three years now and have a good grasp on how operations work in this area to, ideally, help another person determine if this is how they want to manage their investment property.
To be as transparent as possible, my actual properties and values will be used from my experience.
After taking a glance, you can see, our ROI right now ranges from roughly 5%-10%, averaging out to 6.91% ROI, not bad at all. There are some obvious fluctuations between the seasons, but those are pretty solid concrete values.
I try not to consider the possible appreciation of my properties, I don’t plan on selling anytime soon. My strategy is to keep these assets “forever.” The reason being, in approximately 15 years my biggest expense (mortgage loan payments) will have fully be paid off. Once I get to that point, I’m predicting my ROI on property 2 to be 22% and property 3 to be 14%, that’s more triple for each one!
Earnings 2016 (only two apartments)
Why in Valencia, Spain?
There wasn’t a real mind-blowing realization to have these properties in Valencia. It wasn’t about property taxes, prices, etc. even though, Spain is a great place to visit when in Europe and Valencia is a very charming city to tourists.
My biggest reason was honestly more personal. I lived there for several years and met tons of great friends, including my best friend/fiancé. It’s safe to say I special connection with this place and can see myself living there again.
Another reason was, through these connections, I had reliable people to help me since I am all the way in the U.S. now and something is bound to happen at one point or another.
I strongly believe that having all of the properties in the same area has been extremely beneficial for me. Cities like Dubai, London, and New York are hot spots for tourists and great to invest in, but that would just be added stress I don’t want to deal with at this point.
Think about it, if there’s a plumbing issue one of my good friends in Valencia, would be willing to point me in the right direction and even go to the property and inspect the quality.
I’ve even taken grouping my properties together a bit further by having two of them in the same building and one just a couple blocks away. My friends keep joking that I’ll eventually but the entire building, already owning two of the six apartments (which I’m really thinking of doing). In all seriousness, it’s just been easier to manage and if there’s an issue in one and the other is open you can move your guests with no problem at all.
I will say that most of the initial risks can be easily mitigated. It’s fairly straightforward to validate since the want to travel has dramatically increased and AirBnB is debatably one of the best ways to enjoy traveling.
One can look for an apartment, in your area for this coming weekend, on AirBnB.com and notice there are “X” available options: let’s assume 100 apartments. Now, search for apartments in your area 3 months ahead, you’re most likely going to get a lot more options: assume 900 (these were roughly exact amounts when I searched). Calculating this out, approximately 90% of the available options in the market are booked in the near future, which is amazing.
My biggest concern is that AirBnB is still a relatively new concept. And with all new concepts there are some issues that can and have risen. Probably, the most substantial is that nearly all cities don’t have the right legislation or regulations in place. Without the right regulations, companies are buying entire floors of apartment buildings and only posts from AirBnB. This leaves the hospitality industry worried what will happen to their hotels and number of travelers staying with them. But, the biggest concern is to the people who live in the other apartments being left with the uncertainty of random people always being in their building.
In Spain, for example, each city has to create their own legislation around it, and there are several that may declare it illegal (or maybe not legal to rent more than 3 month per year).
No one can predict what will happen with the growing appeal of AirBnB. But, I can assure you, I will try to take full advantage of the situation, while being as respectful to others as possible.
The next risk is: AirBnB might be a fad and may longer be an option. In this bad scenario, one should still have a plan to cover the mortgage. My plan to cover this is quite simple; convert my properties to be long term rentals where I have tenants who sign a lease with me. For example, my second apartment could be rented for about 500 EUR/month, covering my 390 EUR/month mortgage and still making a profit of 190 EUR.
Essentially, what I’m getting at is, there’s no investment that has “zero” risk.
Is this really passive?
This really depends mainly on how much work and responsibility are you willing to put in? The more that you delegate up front, the more passive, but could make you less if you don’t continue the work ethic.
This is my personal workflow:
1- My fiancé and partner take care of attending all the reservation requests, managing bookings and communication.
2- We have a team member that takes care of the entire process once the reservation has been confirmed. Meaning check-in, check-out and cleaning.
3- We have contractors in case something breaks down and for all needed maintenance (remember there’s a lot of people continuously “living there” and you need to keep your standards high)
Point 2 is key here: unless you are willing to make this your full time work, you need to find someone that can take pressure off of you for the operations. It’s a lot of work, not number of hours spent per day, but that it’s all over the place! People arriving before others leave, and flights being cancelled which means guests don’t get there until 1:00am and you staying up to hear from them.
We have one person that we fully trust and she handles that for us, and the way that we structured the deal is that she gets 20% of our income. Why 20%? The number seems fair to me. Why not paying per hours? That is another option, but in my case I wanted to create a more team spirit around it, something like “if things goes well, means that we all do prosper and vice versa”.
Now, there are also companies that offer these services, and they handle everything (so real passive), but they charge between 25% and 45%, and they even keep the cleaning costs. I really don’t like that model for the following reasons: A) Seriously, 40%? I made a massive investment, I have all the risk, I have to pay for all the utilities and services, and you expect to keep 40%? B) I have this idea that an agency won’t ever care as much as you do. They may miss opportunities because they’re busy with someone else’s property.
The first one
As always, the first step is the hardest one. I was extremely scared of BUYING A PROPERTY in a country where I don’t even live. I probably researched close to 100 units before making any decisions, considering options of size, location, etc. I created the fake profile to test the idea, along with several other steps to gain courage and move forward. So far I think that was a great decision and I plan to keep growing this part of my portfolio as much as I can in the upcoming years.
One “mistake” that I made was not being open to ask for a mortgage, instead I paid everything up-front. At that point I knew even less than I do now, and my view was “I don’t want to owe money to anyone, it’s crazy to keep paying for 20 years for this apartment” so I saved as much as I could and ask relatives for the rest as a loan.
At that point I did not know the difference between good debt and bad debt, but, we it was a good learning process (for more references read Rich dad, Poor dad)
The following ones
After validating everything will work, and seeing payments coming to my account almost every week I was ready for more. I saved some additional money, kept looking for other opportunities and asked for a mortgage.
I was lucky enough that I got another unit in the same building, and my thoughts were: if the first one works, the second should. So without much hesitation I proceeded with #2 and later this year #3.
How fast can I expect returns?
That is the magic: right away. In all my cases I bought the apartments with all the furniture (I need to add and fix few things, but nothing major). And once you list it on Airbnb you should be get requests coming within a few days.
The third property I bought had people staying in it the same day I signed the transaction papers. I also had it booked up for the next two months.
What you should look for
This is totally a personal opinion.
1- Location is KEY. You pay more, but there is way more people going to the city than it’s suburbs.
2- Good pictures make a BIG difference. AirBnB will send you a professional photographer to the apartment for free…UTILIZE IT.
3- Small apartments are maybe better (at least to start with). Price for buy is cheaper, while rent is still similar and the number of issues tends to be lower. I normally only rent mine to couples vs a group of friends going to a new city just to party.
4- Main rule is use common sense. Be practical, treat people well, help them to have a nice experience, think how would you feel staying the property. I am user/traveler of AirBnB as well, so I have a sense for the things that are important to me while traveling and try to apply the same concept with my guests.
Hope that by sharing my experience you can get a better feeling of what to expect. I will be more than happy to answer any question and all the feedback will be greatly appreciate.
Overall I’ve been very happy with the results and will keep growing my AirBnB portfolio.
The returns are in general better than just okay. There is always the possible appreciation of each unit and if things change you always have to have Plan B at the ready.