So you’ve invested in a property, finished the remodel, and now you are ready for tenants. Would it be more lucrative to pursue a long-term rental agreement? Or could you generate more revenue by listing the space on Airbnb?
Ande Burchfield is an attorney with Burchfield Law, PLLC, serving businesses, non-profits, and real estate investors. Ande has an extensive real estate portfolio of her own, and she was already managing several long-term rental properties when she joined Airbnb in 2012. The vacation rental market in Oklahoma City proved profitable, and she has since expanded her short-term rental business to include three properties in the area. Ande is prepared to explain the formula she uses to determine whether a property is a good candidate for Airbnb, or would serve her better as a long-term rental. She also explains how to evaluate the demand for short-term rentals in your area, as well as the expenses associated with Airbnb that will affect your decision to rent to either travelers or lessees.
The evolution of Ande’s Airbnb business
Ande’s first Airbnb listing
The Airbnb lessons Ande learned early on
How to determine if demand exists for Airbnb in your town
How to decide whether to offer long-term rental or list property on Airbnb
Airbnb’s push to pay cleaners $15/hour
Rich Dad’s CASHFLOW Quadrant: Rich Dad’s Guide to Financial Freedom by Robert T. Kiyosaki
Email: [email protected]
This episode is sponsored by Hostfully.com where you can create a custom digital guidebook for your guests!
Complete Transcript for Get Paid for Your Pad Episode 171
Jasper: Welcome to Get Paid for Your Pad, a definitive show on Airbnb hosting, featuring the best advice on how to maximize profits from your Airbnb listing as well as real life experiences from Airbnb hosts all over the world. Welcome.
AD: This episode is brought to you by Hostfully, a company that helps you make beautiful guidebooks for your listing. Make your own at Hostfully.com/pad, and special for Get Paid for Your Pad listeners, you’ll get a free guidebook consultation after you make your guidebook.
Jasper: Welcome to episode number 171 of Get Paid for Your Pad. My name is Jasper, I’m your host, I’m currently in New York, I just arrived – I’m a little jet lagged, but it’s all good. I have a very special guest, her name is Andy Birchfield, she is a business and investment attorney at Birchfield law, and she is also and Airbnb super host. We’re going to talk the differences between long-term investing, long-term rentals and Airbnb. So, Andy welcome to the show.
Andy: Good morning, Jasper!
Jasper: How are you?
Andy: I’m great, thanks for having me on the show.
Jasper: It’s a pleasure – Andy reached out to me, she said she’d been enjoying the podcast and said she had some interesting things to share. I’m very excited to have her here today. So, how did you find out about the podcast?
Andy: So, I occasionally drive long distances and I was searching for, and thinking about my little Airbnb business, and I thought how cool would it be if there was a podcast out there that would keep me in touch with Airbnb news that would keep me in touch with tips and tricks. I searched, and there you were, Jasper.
Jasper: Awesome, and where are you based?
Andy: We are here in Oklahoma City, Oklahoma.
Jasper: Oklahoma City, nice! I visited there about seven years ago. It’s actually a fun story. When I was 17 years old, we had a guy from Honduras who was living in my parents’ house. He returned to Honduras, and back in the day we didn’t have Facebook etc., so I kind of lost touch. But then I got Facebook, I was living in the US, in Chicago, and I got a Facebook request from him. It turned out he lived in Oklahoma. So, I jumped on a plane, I went and stayed for a week with him. I think we hadn’t seen each other for something like 15 or 16 years, when I met him in Oklahoma.
Andy: That’ awesome!
Jasper: Let’s dive into Airbnb and long-term renting. Do you want to share a bit about your background about what you’re doing and how you got into?
Andy: So, I have been a landlord longer than I’ve been an attorney – about seven years now. Slowly, we have grown our long-term portfolio. Generally, we remodel our own homes and rent them on a year-long lease. I manage them. And after remodeling our recent projects, I told my husband, I’d like to try this Airbnb thing as an experiment. I’m a lawyer by trade and the real estate thing is something we do on the side, this Airbnb thing was another something we’d do on the side. We took everything from our second living room, our guest bedroom set, tried it out, it was a pretty big hit. The numbers were looking good and we decided to stick with it. In the beginning, with this experiment — I’m from a very small town in NW Oklahoma, I’d tell my friends that I was thinking about this Airbnb thing, they’d say “does anyone come to Oklahoma?” I knew, being from a small town, that I was a tourist to Oklahoma City, so I had that belief. I’d been an Airbnb member since 2012. I wanted to be involved in it. In the very beginning, I managed that one listing myself. I slowly tried to systemize it. I learned the tips and tricks you talk about with guests, self-taught, systemized slowly. I added cleaners, I would train them myself and figure out payment systems and schedule systems, all the while, shout out to Robert Kiasaki here, Cash Flow Quadrant – if you’ve read it, I was trying to move the Airbnb to make a business. Eventually, I hired someone to manage it. I picked someone from a law firm I worked at before I moved out on my own, she’s fantastic. We’ve kind of learned, taught each other the role of the manager, and how she can elevate the business, and now, we’ve added two listings since. Now I can step away – I can look at it a handful of times a month. Now, I can be attorney full time again.
Jasper: Awesome. That Robert that you mentioned, can you mention his name again?
Andy: Robert Kiasaki.
Jasper: He’s the author of Rich Man, Poor Man or Poor Man, Rich Man?
Andy: Rich Dad, Poor Dad.
Jasper: Haha, oh yeah.
Andy: He wrote a book called Cashflow Quadrant. I haven’t read it, but I’m familiar with the concept. You can be self-employed or a business owner, and from what I know about you Jasper, you’re a business owner, because you travel all the time.
Jasper: That’s right. Robert is a very well-known author and speaker. I’ve read some of his stuff and downloaded a game he created that teaches you how to invest in real estate. It’s called Cash Game?
Andy: I have heard it of it, but I didn’t know it was an electronic one. My husband is a real estate broker and investor too, and I have many times priced the board game and thought, “no we won’t use it much” but I think it might be his birthday gift this year.
Jasper: It’s a pretty fun game, I downloaded it on my iPad. It teaches you the basics of real estate investing. So, tell me more about your first Airbnb listing, was that an entire unit? Was it a spare room?
Andy: At that point, in our long-term real estate development, we were mainly looking at multi-tenant rentals. We had identified duplexes, triplexes, quads as something we wanted because we think there’s a scale there and one mortgage for multiple units, you can quickly do all your maintenance needs. Our first listing was a duplex. I love a duplex for an Airbnb property because I’m paying for the utilities, shared walls. It’s on a public golf course. IT sounds fancy, but it’s not an upscale place. The neighborhood is a renter neighborhood, there is one owner that owns like 80 percent of the neighboring condos and townhomes, so all the yardwork is taken care of. IT rents for about $900 in OK City, and I would consider it class B property. So, we remodeled ours on the inside, and I’d consider it very standard, updated finishes. We do the cheapest stainless-steel appliances, so we hit that little sweet spot. We think the neighbors get about $900, our place rented for $995 monthly. One of the better homes in the neighborhood. The backyard looks out over the driving range, it makes for a beautiful photo on my Airbnb listing. A lot of guests say they like sitting out there in the morning and watching the driving range.
Jasper: Awesome. You mentioned some learning lessons that you learned very early on. Do you want to share those?
Andy: Yeah, so we are entrepreneurs and profit first and let’s get that going. At that time, there were only about 100,150 home listings on Airbnb, since then, more than doubled. People rented it and it turns out, they wanted curtains on the back of the house even though it looked out on the driving range. We would have been fine without them, but it’s about what your guests’ standards are. We’ve since learned, and I’m constantly reminded listening to your podcast, we’ve got guests staying with us that might be jet lagged, so we do black out curtains, and things like that we’ve learned
Jasper: That’s an important one we talked about a few episodes ago on How to Make the Perfect Bedroom, and especially now that I’m jetlagged – it’s much easier to sleep when the room is completely dark vs. when the light is coming in. I want to go back to what you said earlier, this is important, too. Most of your friends were saying OK wouldn’t be a good Airbnb spot. That’s something I’ve heard from a lot of people, they ask that question, I’m in this small town or village, do you think there’s enough demand. You don’t know until you try. You can get indications from looking at hotels in your city. If you don’t have enough demand, if you’re in a smaller place, you can use some of the other platforms – Homeaway, Booking.Com, VRBO – there are so many different platforms out there that you can use. You can use those as well to fill up empty space in your calendar if Airbnb isn’t providing you with enough demand.
Andy: We sue both VRBO and Airbnb, and I don’t think it’s too intimidating, you just have to sync your calendars.
Jasper: Right, and there’s also all sorts of software out there you can use, too. They’re called channel managers.
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Jasper: Let’s talk about differences between long-term renting and Airbnb. As I understand, you have several units that you’ve invested in. Some are long-term rental and some are Airbnb, my question to you is, how do you decide and what are the pros and cons of both.
Andy: So, I’ve come up with a little formula, it’s simply what you think your Airbnb net income is, minus your long-term rental gross revenue potential. In the Airbnb net income, I’m taking everything that you’re going to receive, so not taxes, because Airbnb does that for you, minus all your expenses – we take that number, you look around at comparative units in the area, and come up with what you think you could get on a traditional one-year lease. In my case, I have a manager now, I make $700 Airbnb net income after I subtract that I could get $1,000 from a long-term rental. As short-term rental owners and hosts, we have to know our numbers. I encourage everyone I speak to know how much you’re spending on all these little items and about how fast your furniture is being torn up or worn out and replacement costs for it, or you won’t be able to come up with this number accurately. In my area, I’ve already shared a little about our first listing, we’re renting that for about $1,000 long-term lease. In OK City, there are some really hot neighborhoods, they’re really fun to live in, they’re more pedestrian friendly, there’s more going on, street festivals – in those areas you can get a lot more for a long-term rental. Say you get $1,500 a month, my personal experience is, there’s a cap to how much you’re going to get during the four week-nights from an Airbnb listing. By using this formula in OK City, I’ve identified the types of units I want that will make me the most money. If I lived in a high tourist town, like London or New York City, there’s much smaller footprint listings that are much cheaper to maintain, that probably garner more income from Airbnb just inherently. So, even though they could rent for a lot on a longer-term basis, your spread between Airbnb and long-term rental is going to be great enough that it merits the active income. I’m going to turn to a cornerstone of our business, which is always looking at real estate as the underlying asset. If it’s financed we have the mortgage, we had to include all the taxes and insurance and maintenance, we would have to be paying for that, we’d pay for that regardless. We isolate those expenses as the underlying real estate asset. I try to look at Airbnb and short-term rental business on top of the asset, by doing that, we can be confident that it’s worth the extra effort of doing Airbnb
Jasper: You mentioned some numbers – you said the apartments rent for about $1,000 – $1,500 monthly in OK, what would be that Airbnb revenue on those places.
Andy: You know, I’ve looked at that, because we’ve kind of contracted new properties and four new units. My listings are not near town center. I do think there’s more money and a higher rental rate near town center, I just haven’t been a part of that action yet. I kind of look at Air DNA to figure out about their management, I wonder if it’s just not as tied down, on Air DNA, it doesn’t look like much of a difference. At least a $10-$20 a night on weekends. My new units are closer there. It’s a duplex, not going to have the best neighbors. Going to be the nicest house on the block again. One of the neighbors has some furniture on the front porch, some overgrown landscape. I think I’m going to be very accurate on my listing and overcome it with a great guest experience. I think there will be a lot of guests that will be grateful and thankful for this space, even though it has neighbors who need a new roof. So, I’m going to figure out what’s going on down there as far as Airbnb income. For now, my difference when I take out my Airbnb income, it’s about $700 a unit.
Jasper: So, in those cases it’s more profitable to rent out the long term?
Andy: Let’s say, we moved my listing, we call it Air House 1, let’s say we moved it to a nicer neighborhood in OK City, we move it to a hot neighborhood where you can walk, there’s nightlife. I think for the same space, and the same cost to me, I could probably be getting $1,300 a month off that rental. If my Airbnb costs stay the same, my net income goes to $700, reduces almost in half. It’s not worth my time, 2-3 days a month looking at this to validate a few extra hundred dollars a month. I’ve visited a beautiful Airbnb in Austin. They had beautiful furnishings, they probably spent $15,000 on furnishings in the place and consumable, they were using high end soap and shampoo. It was beautiful. I looked up long term rentals were getting in the area and found out how much they paid for home, because I’m an attorney and can use public databases like a boss. I did the numbers and it just felt like they were doing Airbnb because they enjoyed it as a hobby. As a business, it didn’t look like the numbers were there for them.
Jasper: That’s interesting, in my experience with long term renting, I only have one to go by. I used to rent out my apartment in Amsterdam for long term. I ended up making 2-3x as much on Airbnb, but that’s not the case for every location. Like you mentioned, the places like NYC, Paris, London, there’s unlimited demand for Airbnb. It’s not hard to get full occupancy when you’re in one of those cities. When you’re in a different place, the dynamics might be very different. You might not be able to fill up your calendar completely. Long-term renting could be a better option, and as you mentioned, there’s a lot less work when you’re doing long-term renting, there’s no check-ins and cleaning and stuff.
Andy: The cost of recruiting and training new cleaners is something we have to calculate in Airbnb expenses. In some of those areas you mentioned, the cost for cleaning might be a lot higher. Airbnb, as you probably know, is coming out with an incentive to advertise that you pay your cleaners at least $15 hourly. In some markets, that’s going to cut into a host’s margin
Jasper: I didn’t know that by the way. Is that the new minimum wage in the US? Or what places are moving toward?
Andy: There’s a city and state battle on minimum wage. St. Louis has been in the news right now. I think $15 hourly is a Mr. Chesky number and I think it will be great. I pay my cleaners by the job, I use Properly, use Properly. I’m ready to turn off the marketplace if I pay for the app, I’ve had Airbnb hosts in town poach my cleaners, but I’ve talked to the owners, I use it. I have this checklist, it’s fully automated, I can hire a 19-year-old college girl, she’s never managed a home of her own, but between the manager and the cleaner, she can change the sheets, do everything she needs to on that Properly list. I pay by the job. If she’s fast, she can make $15 hourly, I absolutely want my cleaners making that. If they’re slow, they probably don’t.
Jasper: Absolutely, I do the same thing. I pay per check-in. I’m transitioning to a new Airbnb and other places around the world, I used to pay a fixed amount. If they’re fast and efficient. They can kind of bump up their hourly rate. Awesome. Well, we’re getting to the end of the episode. I want to thank you for coming onto the show. I wish you all the best and lots of luck with your real estate and Airbnb business in OK.
Andy: Thank you Jasper. You’re really doing a great service to the host community out there by hosting this podcast, so I really appreciate it and I hope you keep it up.
Jasper: I definitely will be keeping it up, and thanks for the kind words. Listeners out there, thanks for listening. On Friday, we’ll be back with the newest episode. I hope to see you then.