Tag Archives: real estate

My AirBnB Saga: When Backup Plans Fail

Buffalo Airbnb

“If you don’t have a Plan B, you don’t have a plan.”

About two months ago, when the property manager of my AirBnb completely dropped the ball, I was forced to manage it myself from a distance and I was stressing out. Luckily, I had relative who lived nearby help me out and I handled the guest communications. This worked out temporarily but I needed a permanent solution. As I mentioned in a previous post, having a backup plan is essential. Actually, it is also essential to have a backup plan for your backup plan. I had a few backup plans in place so I wasn’t too worried. It was not until those backup plans started to fall a part that I did start to worry.

“If plan A doesn’t work, the alphabet has 25 more letters”

Plan A: Find another person to manage the property. After listening to Biggerpockets and reading a post on Mr. Money Mustache, I learned that Zeona Mcintyre attained FIRE with her AirBnB properties and also successfully helped others manage them. I guess she takes FIRE seriously because I didn’t hear back from her for a while. Apparently she was busy traveling, but she did finally get back to me and looked over my property. Unfortunately, after her review, she told me that my property was not the right fit for her to manage. I’m assuming she generally manages higher end properties. Off to plan B.

Plan B: Rented.com. So this company says that they match short term property managers with owners who want their second home or vacation home managed for them. The company offered the standard commission based management structure but focuses on what it calla a “guaranteed rental contract,” where the owner would be paid a fixed monthly amount. The site has a calculator which estimated the monthly rent amount to be around $1400 which was great because market rent for a long term rental of one of my units would be $750. However, the person I spoke with at the company believed that the guaranteed amount would be slightly lower after he received more information. It took a week or two for the company to find a local property manager who was interested in managing it. She went to look at the house and it appeared that the guaranteed rent would be even lower than initially suggested. At this point, I wasn’t as sure if I liked this option as much but I was dealing with some issues managing the AirBnB from afar and it was still a strong consideration. Then I was told that the manager decided that she did not want to manage the property. Based on her profile, she mainly manages properties in a ski resort an hour south from my property so that may be why it wasn’t a good fit.

Plan C: Turn it into a long term rental. As I mentioned above, the property would rent for $750 per unit (it’s a duplex). That amount isn’t too bad since the rental income would cover all my expenses with a decent amount of cash flow to spare. However, from what I’ve heard, the tenant quality is not the best in that area. The other downside, which is probably the biggest downside, was that the property was already furnished and I spent a decent amount doing so. What would I do with all that furniture? This would be a last resort so let’s continue with Plan D!

Plan D: Self-manage. After I terminated my contract with the property manager, I was self-managing the AirBnB with the help of my relative for about a month. Things were going relatively smoothly and I received a few positive reviews. However, there were a few issues that came up which made me reconsider self-managing. A guest called me up at midnight with an issue with the air conditioner in one of the rooms. I was able to resolve that issue as well as another issue relating to a broken toaster the next day with help from my relative. I gave the guest a discount for the inconvenience. With another guest, he had some problems with the electronic keypad. I was on the phone with him for awhile on Labor Day while I was on vacation with my family. That issue was resolved, but I realized that I didn’t want to have to deal with these issues, especially when I was often helpless being so far away. I think if the property was very new and everything was updated, things would run smoother. However, it is an older house and while I did make a lot of repairs to it after I fired the property manager, things just go wrong more often in older houses.

Plan E: Contact other AirBnB hosts in the area. Having difficulty finding anyone willing to manage the property, I knew I needed to at least have a reliable cleaner. I contacted a couple of cleaning companies but they did not clean AirBnbs and many actually wanted to set up an appointment to give me an estimate and come back the following week! Wow! I’ve never hired cleaners before but that’s the first time I’ve heard of that policy. I contacted other AirBnB hosts in my area, but I assumed many wouldn’t want to give up that info as a reliable cleaner is gold to a short term rental host. However, most AirBnbs in the area are duplexes where the owner lives on one floor and rents out the other floor. They also often did their own cleaning so there was a chance they might want a side job, especially if the person was not employed, retired or working part-time.

One AirBnb host mentioned in his profile that he also manages other people’s properties. I spoke with him and he agreed to manage my property as well. Since he has taken over, a huge burden has been lifted from my shoulders as he has been great at taking care of issues. And there have been issues! However, things have calmed down and have been running smoothly. Things are going so well that I’ve even contemplating buying another property to rent as a short term rental!

FI Can’t Wait

First Day of School

First Day of School

About seven years ago, I found the blog Early Retirement Extreme and I was intrigued. Jacob, the writer behind the blog, is a bit extreme in his approach so I didn’t see myself following in his footsteps. Soon after that, I discovered Mr. Money Mustache, and his lifestyle and approach made it more palatable. Many other FIRE blogs followed and it seemed that they had attained this lofty goal. I was hooked and started to question: why not us?

The “WHY”

When I first learned about FIRE, I didn’t have any strong motivation to reach financial independence. Sure, I had a long commute and I didn’t really want to be stuck at the 9-5 job forever, but I didn’t hate my job. After my first son was born, life became much more hectic. With dropping him off and picking him up for child care purposes, I was away from home about 12 hours a day. I didn’t feel like I had much quality time with my family. Things got more hectic when we had our second child.

There are plenty of parents who have even busier and more inflexible schedules than me, so I sometimes feel guilty for complaining. However, seeing those who have attained FIRE has inspired me to want more out of life. Back in June, my first born graduated from preschool. He started kindergarten yesterday. After committing almost seven years to this FIRE journey, I still don’t see the goal on the horizon. There are still too many variables involved. How much will our expenses be with growing children? What will we do for health insurance/dental insurance? Also, we live in an high cost of living area making it extra difficult. Yes, that is by choice, but it would be also difficult leaving all our family and friends.

The Slap in the Face

As I mentioned above, I don’t hate my job. But would I be here if I didn’t need the money: absolutely not. While I can’t quit my job now, I’d be happy if I could have a more flexible schedule, and my position is an excellent fit for a flexible schedule as I mainly sit at my desk researching and writing. I don’t deal with the public and rarely have to meet or speak with colleagues. There is no reason not to allow telecommuting or flexible schedules. Also, while I may be biased, I do believe I have been a highly productive employee over the decade that I have been here. Many employers are shifting towards allowing flexible schedules as well as a work from home option. The governmental organization I work for has been pretty flexible with alternate work schedule in the past. Unfortunately, this governmental organization has decided to go against the grain and disallow most requests for flexible work schedules.

A month ago, I submitted a request for an alternate work schedule. Since my older son was starting kindergarten and my younger son was starting daycare, pick up and drop off was going to be a little challenging. I asked to work from 8:30 until 4:30, instead of the usual 9:00 until 5:00. With my long commute, leaving early would allow me to beat some of the traffic and get back in time to pick up my kids. Honestly, even if I wasn’t trying to get home earlier to pick up my kids, this schedule would save me a lot of unnecessary time wasted in traffic. I would be working the same amount of hours so no big deal right? My request was DENIED. And to pour salt on the wound, they couldn’t even spell my name correctly on the denial letter.

Sure, this really isn’t that big of a slap in the face. Plenty of others deal with a lot more B.S with their employer. I think having some F-You money stored away and having read others who have attained FIRE makes it even more difficult to deal with work stupidity. Sure, I would have loved to have said, “so you’re denying my request…I’m out!” However, I’m not ready to take that leap. Plus, I have a pension and it is a pretty strong pair of golden handcuffs which makes it even harder to leave. So I’m not planning on leaving, but I am focused on getting to FIRE quicker.

The “HOW”

For the first leg of my FIRE journey, I was focused on maxing out my deferred compensation plan and Roth IRA, entrusting the index funds I had to do the heavy lifting. I remain a big proponent of this strategy, but feel that it will take a lot longer to attain FIRE going this route being that I choose to remain in a high cost of living area. Maybe I’ve been bitten by the real estate bug, but I believe that using leverage will help me arrive at my goal quicker. It may be a little risker, but I’m willing to take on that added risk.

Sure, things didn’t go as planned with my latest real estate venture, but I remain undeterred. I don’t look at it as a failure, but as a learning experience. Also, while things didn’t go as planned, it wasn’t a disaster financially and things have stabilized. I plan on pushing forward investing in real estate and hope to share those plans in future blog posts.

Lessons Learned Investing in Real Estate Long Distance

Credit: freedigitalphotos.net

Credit: freedigitalphotos.net

With my rental property in Kansas City, I have had a great experience working with the property manager I found who is handling the day-to-day operations. Maybe after my positive experience with that long distance rental investment, I became a little too overconfident that I could easily replicate my success. There were a few differences in my approach in finding the property manager which might be the reason for the different results. There are also a few things that I’ve learned with my last experience.

References

I found both property managers on the Biggerpockets.com forum. It is a great resource, but anybody can sign on and participate in the forums. With the property manager in Kansas City, he was a pretty established member of the forums and provided good advice. A few of the other members would point to him as an expert and others also mentioned that they used his property management services and had a good experience. I contacted members who had used his property management services and asked them to give me more details about how they found their experience. With my AirBnb experiment, the property manager was a relatively new member and I couldn’t find anyone who had worked with him in the past. He seemed very knowledgeable and had a pretty strong resume, so I took a leap of faith. I made a mistake. References are very important. It’s important to hear positive recommendations from investors who have dealt with the property manager or provider in the past.

Trust and Integrity

In my previous post, I explained why I think owning an AirBnb investment property can be very profitable. I still believe that to be the case. The numbers reflect that. However, numbers don’t mean a thing if you have a horrible person running the show. When I read real estate investing forums, I see a lot of people really focusing on whether an investment is a good deal based on the numbers. Yes, this analysis is very important. However, what is more important is to have someone with integrity and that you trust on your side. It doesn’t matter how good the numbers are, a bad manager can screw up that deal. Having a good team in place is more important than the deal.

Back up plan

“If you don’t have a back up plan, you don’t have a plan.” Things don’t often go as planned. You need to make sure that you have multiple exit strategies so that you’re not stuck with the original failed plan. I knew there was some risk involved putting a lot of my trust in this property manager and also with short term rentals in general. The numbers were enticing enough for me to give it a shot, but I made sure I had back up plans. I had contact information for other property managers who could take over if things went sour with my first manager. The property would cash flow as a long term rental too, so I could always convert it to that. Although, I’d have to figure out what to do with the furniture. I could rent it as a furnished rental, however, in this case, I think the demand would be pretty low. Finally, I had a family member who lived nearby the property who I could trust.

My Long Distance AirBnB Investment Disaster

AirBnb
I was excited about my AirBnb investment. There were some delays with the property manager getting the place furnished and ready to be rented out, but there didn’t seem much to be concerned about. He was pretty good at communicating with me about what was going on. He also listed the property on AirBnb with the date he anticipated it would be ready. To my surprise, people started booking! There were no pictures of the interior of the house nor were there any reviews. Although there were reviews of the co-host, the property manager’s local area manager, who had pretty good reviews.

As the date the property would go live got closer and it still wasn’t ready, the first guest started to complain about the lack of photos. I started to get a bit concerned and I contacted the property manager who assured me he would personally be there to make sure everything was completed. (I’m not exactly sure how his business model works but he manages properties in multiple cities and has a local area manager handle the day-to-day duties, who is listed as the “co-host.”) Photos were finally uploaded onto the site, which was the first time I’d seen the finished version. It looked pretty nice. There were a few things, I thought would have been done better, but for the most part, it looked good. It’s a 2-family house so I had two guests that first weekend. After a few days, I was notified that the listing had its first reviews. I was excited to see them, but after reading the reviews, the jaw dropped.

“Messy”

“Smell of cigarettes”

“No air conditioning”

“Lock on bathroom door doesn’t work”

“habitable” – Definitely not a compliment on an AirBnb review!

The property manager said these issues would be fixed, but he was already getting less responsive. He said it was peak summer season and apologized. I noticed the next day that the co-host was changed. When I asked him what happened to the original co-host, he told me that she decided to leave. At that point, I started receiving contact from the guests. The new co-host wasn’t great at responding to inquiries or guest questions. She also provided the wrong wifi password. The property manager said he would speak to her about these issues and make sure I didn’t have to deal with any calls/messages.

The Final Straw

I receive a message from the new co-host telling me that she was quitting and that she wanted to be paid for cleaning. (The property manager is responsible for this payment based on our agreement) Apparently, she was the cleaner on top of being the co-host. I contacted the property manager and did not hear back. That evening, a guest called me and says that he is trying to get in, but no one has sent him instructions. I did not know the passcode to enter the property, and the guest was understandably upset. I frantically called the property manager multiple times as well as the co-host who had just quit, but there was no response. (I would later learn that it wouldn’t have mattered since the apartment was not cleaned anyway) I was very apologetic to the guest and fortunately, he was able to find other accommodations.

The morning after this disaster, I receive a brief e-mail from the property manager saying that what happened was an absolute failure and that it was hard to find reliable workers. He said that he was diligently looking to replace the co-host. He didn’t even have the decency to call me back to explain what happened. I responded to his e-mail later in the afternoon to inform him that I was terminating our agreement. He never responded to that e-mail.

Implement Emergency Plan

In my previous post, I said that I had a back up plan if things didn’t go as planned. This was the time to implement it as I had guests arriving later that week. I mentioned that I had a family member who lived up in Buffalo. Well, he saved me and got things cleaned up, changed the passcodes, and fix some minor things. I tried to find cleaners but most weren’t used to cleaning short term rentals. They asked to come for an estimate and then schedule a time for the following week to clean. REALLY?! You have to get an estimate? I’ve never heard of such a thing for cleaning, but I’ve also never hired a cleaner. I used an online platform which specifically lists Airbnb cleaners. There was only one in the area the property is located and I contacted her. I was also able to see her full name when signed up on that platform. When I googled her name, I found she had a criminal past. Whoops! Good thing, she never contacted me back because I probably would have said no thanks!

I contacted the backup property manager that I mentioned in my previous post, but I never heard back. She also blogs about financial freedom, so maybe she is so financially free, she has no need to take on more clients!! I contacted the company which offers to pair up property managers with owners and offer a guaranteed rent for the term of the lease. I’m waiting on them to give me the rental amount.

I posted about my disaster on the Biggerpockets forum and the members were very helpful in giving me advice and tips. One person even called me to walk me through how to self-manage the property! Another member who lived not too far from my property contacted me and said that he and his wife were planning to rent their house short term as well. He said they were planning to eventually manage other people’s property in the future and offered to help. Awesome site with awesome people…well mostly. Did I mention that I found the original property manager there?

This past weekend’s guest said that the host (ME) was “super nice” and that the place was very clean! So that makes me feel awesome. I also got in contact with a contractor who I worked with before and will have him fix up some things to improve the property. I’ll also have to figure what I want to do long term.

My Options

I can self-manage the property but this option isn’t all that appealing. I kind of enjoy responding to prospective guest inquiries, but I’m sure that’ll get old at some point. I am a little nervous about responding to guests issues during their stay as I feel attached to my phone. I’ve gotten calls/messages about trouble using the passcode to unlock the door and complaints about another guest taking up a parking spot. I like passive income and I’d prefer not to deal with guest complaints. Though I do save a nice chunk of change by not paying a property manager!

I can take the guaranteed income, but part of me will always feel that I’m giving up the upside potential by only getting that fixed amount. I’ll have to see what they offer me before I decide. Based on the estimate given to me by their online calculator, the amount should cover the mortgage, utilities, and give me a decent amount of cash flow. The numbers won’t be as high as if I chose a commission based payment (if things went well and according to projections), but at least I’m assured a set amount.

I can take up the offer from this young couple trying to break into the short term rental game. The e-mail seemed genuine and provided insight into their lives and experience. I tend to trust people, but I’m a little jaded after my last experience. Also, they are not that experienced in short term rentals so there are bound to be some hiccups along the way.

What would you do? Manage yourself? Take the guaranteed money? Find another property manager?

Why I Decided to Buy a Long Distance AirBnB Rental?

AirBnb
In my previous post many moons ago, I mentioned that I purchased a property for the sole purpose of renting it short-term. While I did say that I learned that many who ran short term rentals earned a few times more in revenue using this approach compared to long term rentals, I didn’t go into as much detail as to why I went this route. Some people I’ve told this to are skeptical and think that it is risky. Sure there will be additional risks, but I don’t make investing decisions lightly and I always have a backup plan.

The “light bulb” moment relating to investing in short term rentals property started after hearing a Biggerpockets podcast episode interviewing Zeona McIntyre who attained financial freedom as an AirBnb Entrepreneur. She was also interviewed on Mr. Money Mustache’s blog in the article From Zero to Wealth in Two Years- With AirBnb? The part of the interview that really intrigued me was when Zeona said that she purchased a property long distance in St. Louis and rented it out on AirBnB. I don’t recall the exact numbers but the rental property in St. Louis cost approximately $70,000 and with the revenue she generated through AirBnb, she would have been able to purchase the property in just a few years.

When most people think of short term rentals, they think of vacation rentals like maybe a ski resort in Aspen or a beach town in Myrtle Beach, but those locations can be very seasonal. It’s possible that the high season more than makes up for the low season, but I didn’t want to chance it. Another assumption is that short term rentals do well in locations with high demand such as San Francisco, NYC, and Miami. Other than the fact that San Francisco and NYC have strict regulations regarding short term rentals, housing costs in those locations are very expensive. The increased revenue could be negated by the expense of those sky high mortgage payments. I was looking to find the sweet spot where the cost to purchase a property was affordable, but there was decent demand for short term rental guests. I found a few prospective locations such as Kansas City, MO (I have a rental there!), Memphis, TN, Columbus, OH, Oklahoma City, OK, and Indianapolis, IN. The location I eventually chose, Buffalo, was not really on the radar, but I felt more comfortable with it as it was closer to home, I had a family member living there, and I had originally planned to buy a long-term rental property there.

I was reading a blog post on Mashvisor, a site geared towards real estate investors which provides analytics and data, and it mentioned Buffalo, NY as a potential location where short term rental could work. I also contacted Zeona as she offers short term management services. She told me that she would only be able to manage it once it was fixed up and furnished, but I was hoping for help with that as well. She did, however, tell me that she had a friend who was had short term rentals in Buffalo that were doing well so that gave me some confidence. I also found a company called “Rented” which matches short term property managers with owners who want their second home or vacation home managed for them. The company offered the standard commission based management structure but also had what they called a “guaranteed rental contract,” where the owner would be paid a fixed monthly amount. At the time, the site had a calculator which would estimate the monthly rent amount you could be paid if you entered the address and the amount of rooms and bathrooms. While it is only an estimate, I entered the info of my prospective property and it looked pretty good. Eventually, I found a property manager on Biggerpockets who specifically mentioned that he managed properties up in Buffalo.

“If you don’t have a Plan B, you don’t have a plan.”

Even with some assurances from various sources that a short-term rental would be profitable, I like to have a back up plan…just in case. I had already contacted a backup property manager who could manage the property if the one I decided on wasn’t up to par. I also made sure that based on the numbers, the property would work as a long term rental if this short term rental experiment didn’t work out.

The main concerns of those who are skeptical of buying a property to rent out short term are that the cash flow is inconsistent and that guests will destroy the property. Since my property has only been up and running for about a week, I’m in no position to say whether these assumptions are true. However, based on my research, I did not find these concerns to be warranted. Sure, the cash flow is not as predictable as the fixed amount a long term renter pays, but there are many ways to get a good idea as to how much revenue you can earn. Go to AirDna, Mashvisor, or similar sites to see the occupancy rates and the price that they were charging. The sites will aggregate all the data and tell you how much current short term rentals are making (you have to pay a fee to get this information). With regard to the concern of guests destroying property, that can be true of bad tenants as well. When someone books on AirBnb, they have their credit card on file and they often also have reviews as to how they are as guests from previous stays. There is also the insurance that AirBnb provides if the guest destroys the property, though I wouldn’t want to rely on their insurance.

Update #1: I wrote in my previous post that I planned to convert my Kansas City, MO property into a short term rental when the lease ended. I changed my mind. The property manager found a tenant who wanted to take over the property immediately after the lease ended and the new rental rate was $1050 compared to the $895 the previous tenants paid. I figured it would be best to see how this AirBnb experiment went before I doubled down.

Update #2: Good thing I didn’t double down because my AirBnB experiment BLEW UP IN MY FACE. Just as I was finishing this post, I had to put out a big fire. (No, not a real fire thank goodness) I will definitely try to put a post up about the disaster soon.

Update #3 : Just read How to Establish a Profitable Vacation Rental-The Definitive Guide on Abandoned Cubicle. Yes, I can confirm it is the definitive guide! A very comprehensive post about buying a property to use as a short term rental. You should probably head over there and read that rather than listen to me ramble on about my AirBnb experiment!