I have embarked on a new adventure and I must say, I am quite excited about it. I have just converted one of my Indy rental properties into a full-time vacation rental. This is something I have been wanting to do for a while now and I finally got the opportunity to do it when one of my rentals became vacant this past December. It’s bringing new life back in me and more importantly, giving me new stuff to write about on this blog. There is only so much you can write about buy and hold rentals. Most of which I have already written about in my older articles. Now you will be able to read all about how to transition a traditional rental converted to a vacation rental and see all the real numbers involved.
For those of you who do not know me, I have been on a journey to financial freedom for the past 3 years or so. I have built my real estate empire into 7 rental properties (5 in Indianapolis, 1 in KC and 1 in Austin ), 1 owner financed performing note, and 1 hard money loan that I currently have lent out. It has been a wild ride to get to this point and the biggest impact of all was when my wife and I decided to leave Austin, TX to come to Indianapolis. We made this life altering move for the sole purpose of being able to achieve financial freedom faster. The real estate market is extremely good for investing in Indianapolis and the cost of living is far cheaper than where we came from. It has been one of the best decisions I have made to date.
For those of you who have been thinking about getting into the vacation rental/airbnb game, you are in the right place. I will try to document everything I go through, the good, the bad and the ugly as well as how much money I make from it during this experiment. It should prove to be some interesting content for sure. This is…
My AirBnB Experiment in Indianapolis – How I converted a rental property into a vacation rental
Why am I doing this:
Ever since I moved to Indianapolis, I have secretly always wanted to be a vacation rental/airbnb host. It just seems like a cool side hustle and a potentially great way to boost our income. I currently own two properties here in Indy that in theory should be a good VR (vacation rental) based on location alone. Both of these properties are about a mile from downtown and even less to the hip Fountain Square area. So with that being said, one of them became vacant a few months ago after sitting idle for 3 weeks with zero interest because of the holidays (no one moves during the holidays it seems). My wife and I decided it would now be the perfect opportunity to convert this rental property into a vacation rental. For those who are wondering, they are properties #7 and #8 on my monthly net worth posts.
But what really pushed me over the edge to try the airbnb thing was an article that came out last month by AirBnb themselves. In this article they showed data indicating that Indianapolis (of all places) is the #1 trending American city for vacation rentals for 2018. Indy saw a 256% increase in bookings in 2017 and the numbers do not seem to be slowing down. This is a huge freaking deal in my opinion!! Based on that knowledge and what I already know about this city, it’s a no brainer to at least try to get this going. Here is the official airbnb article by the way if you want to check it out.
Unfortunately I don’t have a way to accurately predict how much money I will be able to make from this endeavor. It’s a risk I am willing to take though and I have been known to take risks. I honestly do not think you can achieve success without taking risks. But that makes for another post.
Original numbers from when it was a traditional rental property:
Here are the numbers from my rental property before I converted it into an AirBnb.
Purchase Price: $65,000 (Purchased in late 2016, bought in cash from a wholesaler)
Fix up costs to make rent ready: $20k
All in: $85,000
Rent Price: $950 per month
Yearly income minus Property management fees = $10,260
I successfully had this property rented out for a whole year with no issues. Based on those numbers alone though, the returns were not great in my opinion. As a matter of fact, out of all the rental properties I have, this one had the smallest returns/COC in my portfolio. The reason for that was because of the location of the property. I knew that purchasing a property this close to downtown would limit my returns at first but increase the appreciation potential. It was a calculated decision I made because the neighborhood its in is super hot and I want to own as many properties as I can here. Long story short, this property is perfect for an AirBNB.
My wife and I also just happen to live in the same neighborhood of our new airbnb which only makes it so much better and easier to do this.
Potential numbers for converting to a vacation rental at 50% occupancy:
Here is my initial guesstimate on what this property might make as an airbnb at just 50% occupancy per month and an average of $120 per night.
$120 per night/15 nights booked per month = $1,800
Minus Airbnb fees at 3-5% = $54 – $90
Minus utilities/internet = $100 to $350
Minus restocking supplies = $20 to $50 per month (total guess here)
Possible monthly profit at 50% occupancy = $1,340 – $1,596
Possible yearly income minus fees = $16,080 – $19,140
With those rough numbers at just 50%, that could provide an increase of $400 to $650 more per month. Obviously this could be much higher if the property were to be booked at a higher rate which is what I am hoping for. I like the potential it has but the caveat is that it will require a LOT more work to be an airbnb host. I am not considering this a passive investment by any means. My wife and I will both be actively managing and cleaning the home during turnovers and booking reservations. It has yet to be determined how much actual time we will spend on the house but in time, I will let you know.
The fun part will be my future posts where I reveal actual numbers.
How much is it costing me to convert my empty rental property into a fully furnished vacation rental?
As of 4 days ago, the house has been fully furnished and is 100% ready to be a vacation rental. As a matter of fact, I published the listing 4 days ago and as of right now, my new airbnb is active and booking reservations. Keep reading for more info on how that is going so far.
To fully furnish and fix up the house to vacation rental standards we have spent exactly $9,722. That is more than I originally wanted to spend and the reason we ended up spending so much is because we kind of went above and beyond with what we really NEEDED to do. For example, we spent $2500 getting the whole exterior of the house painted. We didn’t have to do this but the curb appeal in the picture alone we thought would make a huge difference when travelers are selecting a home to stay in. Anyhow, here is a summary of our total costs:
House size: 1800 sq ft (ish), 3 Bedrooms/1 Office/1 Bathroom/1 Laundry Room/Living Room/Dining Room)
Furniture: $3,141 – Purchased all from Ikea. THANK YOU IKEA!! The house was completely empty and we had no furniture to provide from our own house because we threw out all the junk when we moved to Indy already. Ikea is by far the cheapest place to find furniture other than scrounging for free items on craigslist or something like that.
Supplies: $2,335 – This pretty much includes all supplies/cleaning/house filler stuff/linens/alarm system/kitchen ware/etc. This stuff added up real quick. It was all fairly necessary stuff to provide a fully functional home that includes all the normal amenities.
Appliances: $1,297 – The big one here was the washer/dryer we purchased. We thought having this in our vacation rental would be an added bonus and possibly help in the long run with booking reservations. I could have went used here but I could not find a reliable source to purchase a used washer/dryer. Didn’t want to risk it so we just bought a brand new one. We also needed a microwave and toaster.
Art: $246 – Cant have a cozy home without some art on the wall now can we? We tried to go cheap here and ended up buying nice poster type art and bought the frames separately. With all the rooms in this house, it added up fast.
Repairs: $2703 – Most of this was painting the exterior of the house but we also put in a new mailbox and some other minor stuff that I did myself.
Total amount spent on fully furnishing, repairing and converting an empty rental house to a vacation rental = $9,722
As you can see, it’s not cheap doing this. Overall, even with spending this much money I am still anticipating making some nice returns. Only time will tell.
My property is now officially listed and published, here are the results:
It took me about a month to get the house from a vacant traditional rental to publishing on airbnb and VRBO. Most of the time was spent on waiting on Ikea to ship all the furniture and then me having to build it all. It was a LOT of furniture and it took me days to build it all. I am now an expert though on building Ikea furniture. If all goes to hell, at least I can say I came out on top because of this new skill I have acquired. 😉
Active days listing has been published: 4 days
Number of nights booked already: 23 nights
We already have 23 nights booked starting from this weekend up until August with our first guest staying this weekend. Considering its only been 4 days, I am pleasantly surprised at the amount of bookings coming in already. Part if not all of this is because I listed the property at a lower rate then I originally wanted. The reason for this is to attract as many bookings and ratings as I can get to get me started since I am a newbie with zero reviews. Once I get a handful of good reviews, I will start increasing the price to my desired price point.
I am not claiming to be an expert in anything and will definitely be learning as I go during my new airbnb experiment. But rest assured, I will document it all and whether I fail or succeed, I want you know all about it. Worst case you can learn from my mistakes.
Stay tuned for future updates on my airbnb experiment in Indianapolis and please ask as many questions as you have or share with me valuable information/tips to help me succeed in the comments.
Looking forward to hearing from you.