Are AirBnB & Short Term Rentals Worth It? - Ken McElroy LIVE!

welcome to the ken vacary show i'm your host danielle and i am here with ken hey guys what's happening so today we are going to dive right into it we are going to be talking about airbnb yes short term short-term rentals yep short-term rentals we get a lot of questions about this and a lot of dms about this and uh joseph on youtube said that he has been considering switching his uh long-term rental into an airbnb yeah yeah so airbnb is awesome i like it a lot it's been around since 2008 if you can believe that it's been around for 12 years started as like um couches right they were couch surfers yeah yeah so it's it's kind of it is cool i mean obviously it's kind of a household name now but but uh the the reality of it is just a managed platform for short-term rentals and they don't charge the people any fees to go on it i think most of the people know this um you're either a guest or a host and now they even have these super hosts but um the big thing that you know i always tell people around airbnb because the reason most people look at it why do you think that well they get more per night they get more per month 100 right so that's the issue that's very alluring to people you just gotta focus on that so i had the same issue when we were talking about um um assisted care facilities you know people are like ah we're good you know we get 4 000 tonight or 4 000 5 000 a month i mean you know on these assisted care facilities whereas maybe the normal rent would be a thousand or two thousand let's say and and i you know and so they they would make the numbers work but um you know but then there's a lot behind it they always make the numbers work at on airbnb at full occupancy yeah so right and that's kind of the point so listen i have nothing against this guys like i think it's a great resource for people like you know there's if you can monetize places to sleep why why don't you like it's interesting i was looking um on airbnb recently and they have they have boats they have they have house boats there's one up at a lake i was looking at there's actual boat in a slip so you get the entire boat in the slip um they have rvs i i saw this one house in montana it was a beautiful home and the guy had two rv pads and rvs and and so you know it's open if you can rent a castle well nicole from premium said yeah she rents out one of those tiny homes in her backyard yeah airbnb so yeah so so that part is really cool and creative i think and you know and it's it's it's it's a true side hustle but the point is is if you're trying to make the numbers work by only having airbnb i think that can be a mistake depending on where it is so obviously if you're right in the heart of maine and maine in an area that's always high you know demand and the the hotels are always full like let's say coronado california or coronado island or something like that right i get it but but uh generally you got to be careful i think on how you underwrite these well there's a few things you know so i you know i was kind of looking into it and you know with an airbnb when you start the airbnb there's a bigger upfront cost because you're providing all the furniture all the silverware you know the basic um you know condiments and things for food so there are things that you're kind of throwing this big upfront cost on that you normally wouldn't have to do in a long-term rental yeah yeah yeah and there's that of course and obviously that's going to command your rate and yep and also in a good way kind of like you know amazon does with books you you get rated based on you know the condition and yeah definitely experience all that kind of stuff so i think that's very fair um you know it's uh oftentimes these rates are less than hotels so i would think that as number one you're going to want to make sure that your rate's significantly below a hotel because if uh you're competing against the hotel unless you're a whole home uh yeah yeah or if you're a large home and things but there's things to consider i mean you have to pay all the utilities unlike you would on a normal rental um it can be seasonal like i know in phoenix where we're at you know you have busy season and in the summer you're gonna have to account for the vacancies yep same thing with the skiing areas you know i've rented actually whole homes off of airbnb uh through you know for skiing for weeks at a time and um you know the the cool part about airbnb is oftentimes these are spots where you know hotels are not right so these are areas you know like uh we're going up the oregon coast and there's not a lot of hotels up along the oregon coast there are but sometimes they're hard to rent uh because they're smaller and they're and um they're always full and and so airbnbs are really popular up through there and people can stay you know and so you got to kind of pay attention to the amount of competition in the areas yeah yeah so i was looking at airbnbs in las vegas and that would be a tough time yeah you know i mean but people wouldn't kill it on those though but you got to imagine i mean if you're you know if you're competing against the mirage hotel and they do an 89 or a 99 or a 129 rate you know it's going to affect you if you own something nearby there and so you know competition is a big big thing i think to consider but i think a massive advantage to the airbnb's is you don't have to worry about evictions especially or rent control especially in some of these more tenant friendly states you know you don't have to worry about evicting somebody you don't have to worry about a rent control you're kind of could make more money that way and be easier that way too yeah potentially there's you know there's you know some of these states and cities have come after airbnb like like uh new york basically says that um it's illegal to rent anything less than 30 days yeah period california's been really hard yeah california has been hard santa monica actually they they have uh the um regulations and investors actually must live on the property oh wow okay and they must have a business license and they need to pay a 14 tax well right right the tax is a big big thing and that's actually what the hotels are coming after airbnb right now on this issue because they're saying it's largely the people are avoiding the tax piece yes and you know guys you know this is coming i mean if there's one thing that states need right now is taxpayers santa monica already passed it now i don't know if it's gonna continue but the the point is if you're doing some kind of transaction with somebody and you're not paying your fair share of tax i can pretty much assure you that that is coming in your future well so let's talk about something that we brought up which is you know the legalities of airbnb so i know like at my um condos and homes we are not allowed to do anything less than a 30-day rental but i know a lot of people do and i think a lot of people that do airbnb they kind of skirt around it because nobody really enforces it um and you have that issue at some of your properties too where people were renting out apartments and using them as airbnbs right right yeah yeah this happens yeah you know listen i love entrepreneurs and i think this is great and if you can make some side hustle doing this that's great the the real issue becomes um a private property rights versus you know municipalities and hoas so so what that means is you own something and now a governing body could be an hoa says sorry you know you're not allowed to use it how you want and so this is a big big issue it's coming up a lot a lot of the hoas passed laws to try to avoid these because you know uh granted i mean if you're it does change the dynamic of a neighborhood yeah oh yeah if you're living next to an airbnb i mean there's parties and there's bachelorette parties and bachelor parties and great tenants too you know great um just families too that aren't really very loud but there can be a lot of that transition it's going to be disruptive and and you know so it's a it's an interesting battle rob said he lives next to an airbnb and he's in a lawsuit right now yeah yeah so it can be a problem obviously and and uh hosts which are the people that own these things um have had lots and lots of problems around damage and parties and things like that and especially during the pandemic when uh when people you know the bars guys airbnb was on a roll oh i know people that just straight up would run them for 30 days just to be able to have parties yeah right and so do i and so so you know so all that did happen will happen um interesting airbnb as a company the stock um i don't think they've done that well on a um you know financially but you know because they've been growing the whole time and you've got to throw a lot of money at growth right there's kind of a prediction that when everything kind of opens back up that airbnb is going to take a big hit and you think about it makes sense as hotels open back up people don't have to distance anymore and they yeah and then the other thing is is that there's a fair amount of competition coming up yeah so vrbo vacation rental by own a vacation rental by owner i think it is um you know it's traditionally more kind of um you know call it uh you know rural locations in 30 days at a time yeah yeah and and uh airbnb has historically maybe been a little more urban and and so it's it'll be interesting to see but i i would expect that you're gonna see more and more of these kinds of services pop up but i think the issue is when it comes to the regulations you know if you if you buy um a condo or a house that cash flows on that monthly rent but you decide to try airbnb and make some more money there's nothing wrong with that yeah but where it gets dicey is when you pay more for a condo or house because you can cash flow off of this airbnb money because you don't know if the state or city or whatever is going to or hoa is going to regulate that and then all of a sudden you're making just your monthly rent and it's not cash flowing like your airbnb would have right right so so i have a lot of experience in this area i actually had a company called short-term housing um and and we literally did this so i bought at the time i think i had almost 200 units of furniture and we were putting them in our places because every one of our places had a vacancy or two so we we set up a few at each location all around and we would rent them by the night and by the week and a lot of times when people come to a big apartment community their parents you know let's say or their family or whatever um needs a place to stay other than maybe their place and so we would you know it was they they did pretty well it's not an easy business yeah there's a lot of work from that and but brian from youtube had a good question he said if you owned an airbnb what would you what would be a good prediction of how booked you would be to calculate into your cash flow yeah so um the well there's i think how you price it is up to you but you the first thing on the pricing side is you have to and pricing determines occupancy right so so if you if there's a hotel that in the summertime that you can rent for 150 a night you probably need to be below that well depending on how many bedrooms and things yeah if it's a home then of course you don't need to be but if it's a if it's not you do so so everything's a little bit different so pricing is very really really important to occupancy obviously and and then from there it's um demand and and so if you're you know on a main somewhere in an area that is highly occupied like like let's say you know around disneyland or disney world or or something like that you're probably going to do all right you know because the hotels let's say might be expensive and so a family might look at some kind of an alternative to be there so those would be great locations and so all of that has to determine the occupancy right and and so it's it's a demand thing how many people actually want your place but when he's calculating that for cash flow like what would you tell him to calculate it at fifty percent occupant twenty-five percent it's impossible to say because you know you if you you you need to actually know the location and and you know the area and the price right but you know even in my world for apartments if if we have a one bedroom that's sitting vacant for a month we know it's a pricing issue or a marketing issue or a demand issue right so you have all those three things and and so you just have to kind of figure that out but obviously you need to you need to account for a pretty significant vacancy for turning it over um and then you know i think airbn one of the things i read recently about airbnb is that they're um they're starting to uh people are getting starting to get upset around the fees yeah you know the cleaning fees there's a cleaning fee and i believe there's also a management fee that you as the renter pay so that airbnb manages you and the you know um owner and everything the host yeah so so they're starting to get upset around that so that can also increase the price of you know what you're going to pay and so all of those things need to be considered it's not you can't just pick a number um but the you know you know it let's put it this way if it doesn't work you should make sure that it can work financially on a on a longer term basis and i like that right so exactly like it's very hard brian to answer your question to um just pick a percentage right of what it should be occupied but what it should be is cash flowing if airbnb doesn't work out and you want to put a long-term tenant in there because that's going to be an easier regulation yeah and the reason we you know think about this brian like um like i'm going to manhattan beach this summer okay i'm a block not even a block i'm one you know one house off the beach okay as you move inward like 10 blocks 20 blocks things are cheaper and they're more vacant that's just the way it is so you know so and that's in the exact same town just eight to ten blocks away so there's a perceived value for things on the location of them and it's going to be the same for anything anywhere right and so you just have to keep that in mind yeah and just to lastly touch on we were starting to talk about it but it's a lot more work it's so much more work that's why i don't do it yeah it can be yeah i mean think about this like i was actually um i'm gonna visit my mom in seattle this summer and so i looked on airbnb and i could rent an entire house for two hundred dollars for one night which is all i need right because and the reason i'm looking at that is because i have a dog and i can't find a hotel that allows a pet so i went to airbnb that allows pets and and i ended up passing and founding found a hotel that that will take dogs but the the the point is is i would have rented that house for one night i i mean now somebody's got to come in and clean it and turn it again and right and so you know it's just obviously you want to try to get somebody there that's going to be multiple nights yeah and then two you always have to think of you know the liability when you have people coming in and you know you can't help it but people are gonna have parties and they're gonna you know depending on who they are and you have some liability there with that and some destruction to your unit and those kind of things that's right yeah that's right so if you are going to do it you know i would suggest you test it you do some minimums like three night minimum for example or something it makes it worth your time because it's gonna upset the tenant if if they pay let's say a hundred bucks or 200 bucks and then they have a hundred or two hundred dollar fee to clean it yeah and to turn it right so you know it's not gonna be a great experience all the way around so i'm sure there's people that are listening they're you know a lot more proficient at airbnb rentals than i am but the the main thing is just to make sure that you're not relying on it for cash flow right it just should be something you're trying but you can always go back to that yeah if it doesn't work out hopefully it does but if it doesn't work out you just want to be able to make sure that you could say okay i'm not doing airbnb anymore and i'm going to just rent it long term and cash flow it yeah and one more thing because you know that i'm an insurance i don't know freak or whatever but um you want to make sure that you don't skimp on the insurance you let your insurance company know you're doing vacation rentals because it's a totally different kind of policy and it's more expensive and that is because if something drastic happens and they find out it's on airbnb and you don't have a long-term rental in there they just won't cover it yeah that's a good point just yeah you need these are not legal everywhere and you need to check your zoning and your regulations and and and also know that uh the cities don't like these a lot of times neighborhoods don't like these hoas don't like these neighbors don't like it neighbors don't like these and so uh it's a you know just don't bank your future on them it's a it's a night you know take it while you can and and uh run it the best you can but but also know that it might not be a long-term strategy and neighbors are all over this because i know i moved in uh some long-term tenants into my house and one of the neighbors had the audacity to go to the door and asked to see their lease to make sure that it was at least 30 days oh wow so neighbors are definitely on top of this hoas are on top of this you know they're not really messing around yeah yeah yeah and obviously you're better off with long term in my opinion i like the stability you don't make as much money but i like the stability i like not having vacancies throughout the month i like not having to manage it and i also like having the deposits to be able to take care of anything you know when people move in or move out and i know that's all covered on airbnb with credit cards and all that kind of stuff and there's you know that is one of the things that comes up a lot is damage yeah but but it's still if you have a damaged unit and they need to come in and fix that you're losing that revenue too so i mean yeah it's a thing i mean i just you know having long-term tenants in there if they're good tenants it's pretty low-key you know pretty easy so i wanted to hop in we have some premium questions uh lauren on premium asked um you mentioned that you like first floor rentals compared to second or third floor rentals and she wanted to understand why yeah so you just think about it the uh i guess it kind of depends on the tenant so in in the properties that that i was speaking about specifically it was a senior property so it was in a senior area and so seniors didn't like going up and down the stairs but also you know there are there are um safety i know single women that actually like actually being upstairs right and no one above them and and so some people like being upstairs i you know but if you look at the data the majority of the people like downstairs units over you know second third floor or even higher well yeah you pointed out you know elderly people which are great tenants usually they obviously want a first floor unit people with animals want a first floor unit um you know younger people tend to not care as much but then you're kind of limiting your it just depends on who they are but i think if you just you know it's not for everyone but most people would air toward if they had the choice have one upstairs one downstairs exact same unit right above each other they would probably take the downstairs yeah unless the upstairs had some amazing view off of some balcony or something like that right um you know but but generally that's the case and um you know downstairs can also be a problem from a noise standpoint with people upstairs so sometimes people like to be upstairs it's a security issue it could be potentially uh so jake from premium he wanted to know how do you know when you can do a value add well the value add is um maybe let's explain maybe whatever yeah so what a value-add is is the the greatest example would be maybe something that was really dated inside and you fix it up with money and you know new new flooring new appliances new new countertops new paint and then you charge more rent that would be a traditional value add it doesn't have to be related to a renovation it could be things like like we're doing we're putting in carports and some properties and we're charging uh forty dollars believe it or not for these carports we're putting in pet yards for you know when people like be able to let their pets out in their yards and we'll charge for those so those are all types of value adds so there are things or improvements that you would do to something and then charge more a washer and dryer putting a washer and dryer into a unit would be a value add so those are all kinds of value adds and so the the way that you look to see if they work is obviously um by by testing it so if uh let's say let's just stick with the washer and dryer if the if the washer and dryer if they have hookups in a unit and the people are using a laundry room they're already spending money going up and down the stairs well if you're putting that laundry set in their unit you're going to be able to charge 40 or 50 dollars a month because that's what they're already spending so from their standpoint they're just giving it to you instead of to the laundry service as an example um but it's the same way on upgrades it's just like you know when people buy houses flip them and renovate them and flip them for more money it's the exact same thing is just look at it as rent yeah how much more can you rent something that's fully redone more yeah that's the truth now some markets it's not a lot more some markets it's a lot more yeah so it just depends on but you have to test it and sometimes you can overspend on the inside too a lot right so there are things that i've seen people do that you don't get any more rent for so you just got to be kind of careful of um you know how much you spent yeah because i know that you've said that about different units we've looked at where like you know if you'd redo it and get another hundred dollars a month if you're spending you know fifteen thousand dollars it doesn't make any sense yeah yeah and that you throw that number out it's it's not a insignificant number i i mean you know on a nice three-bedroom house you can easily spend fifteen thousand dollars on the inside mm-hmm oh easily easily just on you know how you know probably a 40 of that isn't just appliance packages right so you know then you've got your labor and then you've got all this other stuff so you know especially in floorings expensive and flooring labor to put the flooring down all those kinds of things unless you're doing it yourself um but the truth is um you know it can be expensive in it so if you're going to spend that kind of money and then only get a marginal number back it's not worth it exactly so our last question comes from kara from youtube actually she says she is looking at airbnb and talking to some different management companies so she wanted to know what you think about uh the airbnb management companies and she didn't say here but i'm pretty sure she's talking about the people that basically you know run it all for you so it's just not really any work to you yeah well first of all i'm a big fan of anybody that does stuff for me so so if it works great and and i don't know what their fees are obviously but it's just part of your net but but if they depends on what they handle but uh listen if you don't have any experience and you don't have the time then i highly recommend that you use somebody like that you know make sure that you're getting a good deal and make sure that they're worth a damn because they might not be right they might just be it might be a startup make sure they have some experience yeah no long-term commitments just yeah month-to-month or three months yeah whatever yeah give them a try and and uh you know i don't know all of what those guys usually provide but if they um you know airbnb is a cheap service i think you could i think you actually list for free and and there's an annual fee or something i think they pay like three percent it's really cheap so you getting your stuff up there taking photos and all that kind of stuff it's not very hard i wouldn't pay a company to do all that stuff so it would be interesting to see what they actually do maybe they manage the tenant while they're there and maybe the maids while they yeah yeah that's probably worth it unless you have kind of all that in-house but for the most part i think that um if you don't have the time definitely use the manage for company yeah yeah well awesome well thanks you guys for tuning in today uh if you want to join premium go to kenmcrory.com forward slash premium we always answer all your premium questions and we'll see you next week yeah thanks guys we'll see you soon you

Channel: Ken McElroy

Views: 38,303

Keywords: Business, Coaching, Earn Wealth, Entrepreneur, Entrepreneurship, Freedom, Get Wealthy, Hustle, Investing, Ken McElroy, Lifestyle Business, Personal Development, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Real Estate Investing, Rich Dad, Rich Dad Advisor, Self-Help, Success, airbnb, is airbnb worth it, real estate investing 2021, real estate investing for beginners, real estate investing with no money

Id: cBLhpqIcQfo

Length: 26min 43sec (1603 seconds)

Published: Mon Jun 28 2021