This is the update you have all been waiting for!! 😉 As you may have read in a previous post of mine, I converted one of my Indianapolis rental properties into a full time AirBnb vacation rental. I have never had or managed a short-term rental before so I have been learning as I go and trying to figure out the best and most efficient way to run this new business of mine. How is my Airbnb experiment going so far you ask? Well here you will see my actual Airbnb income and expenses after two months of being in operation. The income comes from Airbnb as well as VRBO (Although I have only had 1 booking through VRBO so far).
As you will see, each month has been progressively getting better for me which is what I originally expected. This is due to a strategy I used to start the listing at a very affordable price. The plan was to start off with a low-priced (cheap if you will) listing so that I can get bookings and more importantly good reviews! As with Amazon or any other service including AirBnb and VRBO, it’s all about the reviews and pictures!! And I had zero reviews to start. 🙁 So with that being said, the strategy seems to have paid off and I am quite pleased with how its turning out so far. I think I have all the kinks worked out now and am anticipating great months ahead. Ill keep my fingers crossed.
My listing first went up on January 24th with my first booking coming in on January 28th. So the info you will find below consists of pretty much two whole months (Feb and Mar) and a few days for January.
Reported Income and Expenses for an Airbnb
Short Term Rental Income
Total Guests/Bookings = 19 (Jan, Feb, Mar)
|January (1 week only)||$464.35|
Short Term Rental Expenses
|January (1 week only) Fees||$13.93|
|Jan Monthly Expenses||$103.75|
|Feb Monthly Expenses||$422.86|
|March (VRBO) Fees||$98.25|
|Mar Monthly Expenses*||$413.02|
*Monthly Expenses – Consist of the following monthly bills we have to keep the airbnb running: Utilities/Internet/Netflix/Insurance/Alarm System
- These monthly expenses are higher than what I originally anticipated and wanted. What it comes down to is the Insurance and Alarm system costs that are hurting me. Between the two of these, it’s an extra $138 per month in bills. These aren’t requirements or necessary depending on who you ask. If you have been following my blog then you know that I like to play it safe and conservative to basically cover my butt if things go bad. And that is exactly why I have these two “unnecessary” expenses. See my analysis below for more info on why I have additional Insurance and an alarm system.
**Misc Expenses: Consist of cleaning supplies, extra towels and blankets and other random stuff we missed on our initial conversion of the property.
- After the first few weeks we realized we needed more towels (bath/kitchen/hand) and blankets to accommodate when we have 4 or more guests at a time so we had to do a small round of additional purchases. We also decided to buy cleaning supplies and coffee cups (keurig) in bulk from costco after the first month so because of those reasons, these misc expenses were high and should not be this high going forward. I think it was just a matter of working out some of the kinks to start. The supplies we have now should last us awhile before we have to replenish. We’ll have to see how it goes.
Actual Income (after expenses) = $2568.74 (for 9 weeks of operation).
This actually is not bad at all. I admit I wanted the income to be higher but considering the circumstances that we just started out, worked out kinks, intentionally set the listing price lower, and the fact that we have a few “unnecessary” expenses makes this a good start and I am satisfied with this income amount. As mentioned above, I am expecting all future months to look like the March numbers or better. That would make it a super great rental for me.
Is Additional Insurance Necessary?
In short, No! It’s not necessary but depending on who you ask. For the time being, I personally do think it’s necessary for my own peace of mind at least. AirBnb and VRBO both offer “insurance protection” for your rental property. I did some research on these and heard some horror stories about it which is what led me to go out and get additional Insurance. The normal landlord insurance policy I originally had on this property was no longer valid when it converted to an Airbnb so I cancelled that policy. I could actually only find a few companies that provide short-term rental insurance. Proper and CBIZ seemed to be my best options. After requesting quotes, I proceeded with Proper Insurance. I definitely feel a peace of mind knowing that if something goes horribly wrong and the Airbnb/VRBO insurance doesn’t cut it, that my additional insurance will take care of it.
What I hate about this though is that darn cost! It’s $113 per month for me to insure this property through Proper. That is a lot of money!
Is an Alarm System Necessary?
In Short, No again! This is not necessary either but it really comes down to where your property is located and how comfortable you feel leaving the house vacant throughout the month. My property is in a downtown neighborhood and although I love living here (I live in the same neighborhood as my vacation rental) and love the appreciation occurring here, there is crime here. It’s mostly petty crime and I personally haven’t had any issues to date with it (knock on wood), so it comes with the territory for having a property so close to downtown. I chose to go with the SimpliSafe alarm system which is a self installed system and costs me $25 per month. To me this one is worth it and necessary. I don’t mind paying this expense.
What about Guest Reviews?
After 9 weeks of operating and 19 actual bookings/guests, we received 15 great reviews . Not one bad review has come in. That is super awesome and exactly why we started the listing at an affordable price to start out with. I would highly recommend you use this strategy if you decide to start your own short-term rental. It works!! In about a week, our airbnb host profile will be converted to a “Super Host” which is awesome!! I’m hoping this attracts more bookings. It’s very important to have this status of “Super Host” per airbnb. Because of this I have been slowly increasing the nightly price for the listing already for the up and coming months. WooHoo!!! More money potentially!!!
How Many Hours Do You Spend on your AirBnb per Month?
I know some of you have been asking me about this and here is the info although you will see that with time, the time spent gets lower. The reason for this is because it took us a bit of time to really become efficient at cleaning the property. We have it down to a system now and are able to turn over the property quick.
30 Minutes per month on Administrative Duties: This includes answering emails/questions. Its super easy to do this and doesn’t take anytime at all. It’s actually probably less than 30 minutes, I am just guessing here as I haven’t been keeping exact minutes spent on this one.
1.5 Hours per cleaning: This number changes month by month because it depends on how many bookings you get and also how dirty the guest left the property. 1.5 is an average time that I am estimating although there have been times when its only taken me 30 minutes to turn it over and there was a few times it took us 3 hours. What I have noticed here is that the more we clean the property, the faster we get at cleaning it. As for now, it takes my wife and I about 1 hour to get the property ready for the next tenant on average.
So to give you a better understanding of how much time I am spending here, here are some numbers on a per month basis for cleaning.
January hours cleaning: 4 hours (2 bookings)
February hours cleaning: 14 hours booking (7 bookings)
March hours cleaning: 9 hours booking (9 bookings)
As you can see, the time spent got better in march even though we had more bookings because by then, we were really good and efficient on the steps taken to get the house turned over. So in March, with lets say 9.5 hours spent and about $1700 in income (after expenses), that makes it about $178 per hour. Now since my wife and I are both spending about the same amount of time. Lets break that in half. So we are averaging about $90 per hour for my wife and I each on the hours spent in March which I think will be more realistic numbers going forward.
Is It Worth it to start an AirBnb?
It’s still early to tell to be honest. With only 2 months under our belt, I need to gather more data to be able to tell for sure if its worth it. What I can tell you though is that if the numbers remain the same or get better compared to our March numbers, then yes this will absolutely be worth it. It would essentially be doubling our income on if the house was still a normal rental property. Normal rent price would have been $950 per month minus about $60 insurance per month.
In the future, maybe after another few months, I will do another post running these same income and expenses so we can see if there has been any improvement and also to check on my status on whether or not this whole airbnb experiment is working out for me. Let me know if you have any questions about it or if you have any advice that would be great as well.
Hey Alex! Great post as always. I didn’t see mortgage in the expenses, is this home paid for? Keep up the good work!
Thanks Ryne! Yes this one is paid off. Its #8 property in my net worth posts I believe. Straight cash flow my friend!! 🙂
How about the property tax? You do not take that into consideration as an expense? Thank you for this post, it helps me a lot, I am contemplating starting an Air BnB.
Thanks Alex – good work! Any idea how these numbers would be different if you had a property management company turn the property?
Thanks! I havent looked into how a PM would charge for turning over vacation rentals so I dont know for sure but I bet that it would destroy the returns. Especially if you pay for PM and cleaning.
Great analysis! I too have been doing AirBnB on a house that would typically rent for about $1600/month and making about the $2,000/month from AirBnB. The thing about AirBnB I like is that you can ensure your house is clean and repaired after every stay. I also think when the summer months hit, then that is what you’ll start to make a lot more money Would be nice to see your numbers after the summer.
Hey Charlie! That is awesome you are running an airbnb as well. I think you are right on with the summer months. Im really hoping it boosts up and I have already increased my prices for those months so as long as the same amount of nights or more get booked, it will definitely make more money! Ill keep doing income/expense updates after every few months.
Can you give us any idea of how you “streamlined” the cleaning process? I’ve heard some people swear having a Roomba is necessary…
Well my wife and I both feel that the most important part of having a successful short term rental is how clean it is. So with that being said, we kind of go overboard with the cleaning every time. We dust, vacuum, swiffer sweep, wipe down the whole bathroom/kitchen/appliances/ and furniture after every turn over. As soon as we walk in to turn it over, we are on a mission to get the most done at the shortest time possible.
As for the roomba, I think it would help but those are scheduled to run daily at a certain time and most days there will be a guest staying in the rental. I wouldnt want that roomba going while the guests are there as it could be a problem for them.
Glad to hear that it’s working out so far! Excited to follow this journey in to shot-term rentals!
Great recap of your experience so far, I’ve always been fascinated with folks who convert their rentals into airbnb/vrbo properties, thanks for giving us an insider look at the process.
Hey Jim! Thanks for stopping by and thanks for the feedback.
I give you a lot of credit for jumping into the short term rental business and giving it a go on one of your units. It is outside of my comfort zone but I can certainly see the potential to increase cash flow (potentially substantially). Ultimately it will come down to whether the long term returns are worth the extra work that it takes. Do you have a monthly cash flow goal before you decide to “retire” full time to managing the rentals?
Thanks ML!! Yeah its quite easy for us since the unit is in the same neighborhood we live in and it doesnt take that much effort. Plus once I “retire”, the only thing left for us (wife and I) to do will be just manage all the rentals and vacation rentals. We would love that! At this point, im thinking with no debt and making around 80k to 100k per year would be more then enough to live really well and not hinder any quality of life. Its tough to put a number on it though to be honest. At this point, I am just going to keep trying to make the smartest decisions for us to build passive income and see what happens.
Awesome Post and thanks for the breakdown! I’m closing on a property and planning to use it as a STR. I will be a long distance landlord but even with those costs I think I can do better than long term rentals. I’m pretty sure once you have more reviews and attain Superhost status, things will pick up, plus the summer months as well as football season in the Fall/Winter. So with the insurance, do you need the STR insurance on top of your landlord policy or it replaces it completely?
Hi Andrew! Sorry thought I had responded to this already. Congrats on your closing, that is great news!!! Yeah our airbnb has been staying booked and already has a lot of bookings for the coming summer months which is exciting. Regarding the insurance, the traditional landlord policy goes out the window when you have an STR, it wont cover anything if they find out you are using the home as an STR so its a waste of money to have. You have to get rid of your landlord policy and replace it completely with a provider that covers specifically STRs.
Good for you! I think this works well if you’re self managing the property but for long distance rentals you would need a PM and they charge much more than the typical 8 to 10% for STRs. What was your total cost to furnish and prep the house for a STR?
Thanks Bryan! It was quite expensive to furnish and prep the whole house. Cost me about $10k. I detailed all the numbers and even with that cost, the ROI is still great. Full details here: http://www.cashflowdiaries.com/my-airbnb-experiment-in-indianapolis-traditional-rental-converted-to-a-vacation-rental/
That’s cool Alex you got all good reviews. Yes, I am interested to start short-term rental. I will go as per your advice. Thanks for sharing the updates!
Wouldn’t you be better off selling this house and putting the money in the stock market? By my calculations, your annual income from this would be $14,841 ($2568 / 9 weeks x 52 weeks).
On a home value of $100,000, that’s a 14.84% ARR. Which is obviously good, but let’s take it further.
What are the annual property taxes and homeowners insurance? Let’s estimate $1.5k, so your income is really $13,341. This is straight income, also, so let’s assume you’re paying income taxes at 25%, then your after tax income on this property is actually $10,005. Suddenly you’re only at 10% ARR on a $100,000 property value.
Still not bad, but you also need to factor in the 175 hours per year managing the property (I annualized your cleaning and admin time). So, even if you value your time at just $20/hour, the passive portion of this is just $6,500 (and I expect your time is far more valuable than $20/hour).
Just a thought. I get the top line numbers look great, but digging into total costs of money and time, it’s not quite as convincing.
Hey Eric! Long time bud hope you’re going well. It’s good to hear from you. Awesome comment thanks so much. You make valid points but there are some factors you are leaving out as well in which all 3 cant really be calculated on paper.
First. That income is from my very first two months of ever doing this, I’m expecting and already seeing a higher income from the Airbnb income. This will fluctuate month my month of course but I think for the better.
Second I will have thousands on tax deductions from that rental which will definitely help from a tax perspective.
And last but not least is this house is in a great location that will continue to appreciate over the years. This of course can be thought of as speculation but with what I have been seeing occur here in indy. It’s a no brainer to own in this specific neighborhood.
All those plus knowing that I can easily convert it back into a cash flowing normal rental property or even sell at a profit keep me happy.
Its always been in my opinion that the right real estate properties can will perform better then a stock and I think this is one of them.
I dunno Alex, I’m not trying to be a hater but I’m not sure I follow. Any additional deductions that reduce your tax will also reduce your passive income. If you’re talking depreciation, you’ll have to recapture that depreciation at some point, so I’d have a tough time factoring that as a positive.
While the income will certainly go up (as I expect you’re a good landlord), I was very conservative in the value you put in your time, and I didn’t factor even one hour of maintenance time.
Granted, your optionality is worth something, so you got that. I’d love a longer-term look to see how some of the one-time costs and taxes play out.
Great info. I’m down in Bloomington, and just now bought my 3rd rental property and turning a duplex into 2 airbnb units. Great to see your numbers and progress! I’ve been trying to research as much as possible on airbnb.
Hello, and thanks so much for your great info. I was wondering if the income from the property roughly matches the estimate Airbnb gave you when you first started thinking about doing it? We are considering doing it also but aren´t sure how reliable their estimate is.
We have actually been making more then what the initial estimate was but not my much.
oh, also had one question about insurance. You said it is not necessary, but what if a tree falls on the house or the roof is damaged from a storm? Or someone breaks in when it’s empty. Airbnb isn’t going to cover that, so I see insurance as nessecary, as with any other type of rental I have.
I just meant its not necessary as in its not a legal requirement to have or anything. Anyone can choose not to have insurance but yes, there would be a huge downside if you dont have it and something bad happens. This is also why I think personally it’s “necessary”.
Dude. Are you going to create a course on how to purchase homes (like what to look for) and turn them into AirBnB rentals (like what materials and decor to use)? If so, sign me up! You are CRUSHING it and I’m so excited to watch your progress. I looked into turning my rental into an AirBnB and it seemed overwhelming. Your expertise would come in handy 🙂
I love the way you think!!
First time here from Puerto Rico. It was really great to see how it works in the first months.
I think now is getting a lot better right?
One thing that I saw was how much Proper Charge. Here In Puerto Rico you pay 300$ for a house of 100,000 that cover Airbnb from an accident with the home and with the individual.
Can you tell me what you pay in taxes? We have just started our Airbnb and I wonder if at tax time we will get slammed?
It’s 2021 – how is this particular property doing now? Is you cash flow a lot more now? Would love to learn from you experience from 2018-2021 and I might have missed it but where was this property? Thanks in advance