How We Reached Financial Independence in 3 Years Using Airbnb & Real Estate

Hello! Today, I have a great guest post from Boris and Susan. They purchased their first real estate property in 2017, and became Airbnb hosts. This was a 4-bedroom home that ended up generating them $120,000 in revenue in the first 12 months. They now host close to 10,000 guests per year across all of…

A foreword given the current state of the world

We wrote this post back in February to describe and share our experience using real estate and Airbnb over the past 3 years to build additional sources of (semi-passive) income. As everyone else, we had no idea that the world would change so dramatically in less than a month after that.

However, although it certainly did change – especially given that the travel and hospitality industry came to a grinding halt and caused a few heartburn-filled weeks – the fundamentals remained valid.

As we’ll discuss towards the end of the article, we’ve been able to make adjustments and pivot in a way that kept our properties occupied, covering costs, and still generating a profit (albeit a smaller one than usually).

The truth is that if we’re looking at a 3-9 months horizon, things will remain challenging and uncertain. However, this was never a short-term strategy for us, as we try to plan for the next 3-10 years and make decisions based on that sort of a timeline. But first, let’s start in the beginning.

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Here’s how it all got started as Airbnb hosts.

For many years, real estate was not really on my radar.

I was happily renting, enjoying the flexibility that it offered, and generally thought of real estate in the context of owning your own home – mainly that it limited your options and didn’t really bring too many positives, other than the hassle of maintenance and doing your own lawn every Saturday.

When I met my wife, Susan, on the other hand, she grew up with a completely different mindset.

When she was growing up in China, the common wisdom was that you should always strive to own your own place as soon as you can afford it.

When she moved to the U.S., she maintained the same viewpoint that owning real estate is a key to becoming financially secure.

We’ve met in late 2013 and started dating shortly thereafter. At that time, I was renting while she already had a condo that she was living in and the topic of real estate and financial independence would start to come up with occasional frequency.

In late 2015, we decided to go to Seattle for Susan’s birthday and, as a surprise, I rented a little houseboat on a lake for the weekend on Airbnb. If only we knew what this would have led to!

We enjoyed the weekend on the houseboat so much that when we came back home, we started to throw around the idea of buying a houseboat of our own to rent out to others on Airbnb and occasionally using it ourselves.

Although we went back to our daily routine, we continued to toy around with that idea – although we weren’t quite sure how to proceed.

Then, as it often happens, the situation changed, as Susan decided to move out of her place and we were thinking of moving in together, so we started thinking about the options. During one late evening, I found myself on Craigslist and typed in “liveaboard boat” into the search.

Pretty much the first result was a beautiful, 36′ foot, twin-engine power boat with a description that started with “perfect for a liveaboard”. Complete with 2 (tiny) bedrooms, 2 (tiny) bathrooms, a living room, kitchen and 2 open-air decks, it seemed to offer everything you’d need to be comfortable.

Best of all, it was half the price of anything else we looked at before at $28,000. Since it was about 30 years old, it was already fully depreciated, so we figured that we’d be able to buy it, use it and then eventually resell it and recoup most of our costs if we took good care of it.

I went to sleep that evening thinking that this idea, like so many other late-night thoughts that “seem like a good idea at the time”, would go away by morning, but surprisingly it didn’t. Even more surprisingly, when I suggested the idea to Susan of getting that boat and actually living on it, she was intrigued!

Within about two months, we gave up the apartments that we both had, bought the boat, found a marina near downtown that had a slip available, and made it our new home. This began the new phase of our life together.

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Our Foray Into Semi-Passive Income

Living on a boat was a life-changing experience for us. It certainly wasn’t always easy, but it was incredibly special and beautiful.

We had the best of both worlds. The marina was near downtown, so we got to benefit from convenient access to work and all of the amenities of city-living.

However, our living costs were cut in half, as we no longer had rent to pay (there was still a sizable marina fee, utilities, and many, many maintenance expenses – but it still ended up lower than renting).

We continued to work full-time while living aboard. During that time, we slowly came to a realization that we want to have a bit more freedom and flexibility in our lives. Although we both enjoyed work, we wanted to have the flexibility to do other things later on and not have to rely on a corporate job. Of course, this would all depend on having enough income to pay for it.

Our thought process started to come back to real estate – but this time, it was also complemented by an idea that we thought that we could generate a decent income passively through hosting via Airbnb.

We’ve used the service numerous times on our own and have even considered renting out the boat when we were away, but we’ve always hesitated making the first jump in it (the marina also did not permit it).

While we were still considering it, an acquaintance passed me a lead on a property that just came on the market and everything aligned such that we decided to move forward with it and purchase it.

Our start as an Airbnb host

As we acquired the property, we decided to learn everything we possibly could come across about being a successful Airbnb host. As we’re both tech, marketing and spreadsheet-obsessed, we wanted to approach this in a very structured, strategic way.

We wanted to figure out how we can best optimize our occupancy and rates, how we can automate the mundane and repetitive tasks, and how we can deliver an 5-star experience to every guest every time – without necessarily creating a second full-time job for ourselves.

We learned everything from scratch, from how to best decorate and furnish the rooms to how to hire a reliable housekeeper and streamline those processes. There were a million little things involved but before we knew it, our property was up and running.

To our great surprise, we’ve ended up generating over $7,000 in monthly revenue from it during the first full month.

This blew us away – this was literally my monthly paycheck and yet here, we were able to generate this all on a side. I think at the end of that first month, we already knew that this would be a game-changer.

Taking it to the next level

The experience with the first property was quite insightful. As we continued to run and optimize our first property, we were already thinking about repeating this with another one.

We’ve decided to take what we learned and do it again elsewhere. After some consideration, we determined that we should look in other cities. This was in part driven by the fact that real estate prices were much more affordable elsewhere, as well as the idea that we actually wanted to spread our risk a bit better.

We figured that if we’re going to approach this with a goal of automation and scale, it wouldn’t make a difference if it was a 2-hour drive or a 2-hour flight from us.

Within the next three years, we proceeded to acquire another 5 properties in cities around the U.S. that we now run as short-term rentals.

Between them all, we’re now on track to host 10,000 guests per year, while doing it entirely remotely – living hundreds and sometimes thousands of miles away from our cities.

For us, doing short-term rentals became one of the key components of our investment strategy. And we’d love to share a bit of our approach, so it could hopefully be helpful to you as well.

Our hosting strategy before the pandemic:

Each time we considered a new city, we started with thinking about the hosting strategy itself. Every market is a bit different and the property should cater to the types of visitors that come there. We generally like cities and urban areas – especially those that have large universities, hospitals, or large companies based there.

This typically means that there are a large number of people coming and going there all the time – not just on weekends.

Other people will find success in more traditional vacation markets or in their own backyard.The truth is that there is demand for short-term accommodations nearly everywhere, so it’s a bit of your personal decision what you want to focus on.

As far as our strategy goes, at least before the pandemic happened, we prefer to rent out the properties that we have by the bedroom. Contrary to expectations, it actually tends to be less work than doing full-house rentals because people tend to leave less of a mess and be more respectful of the space if they are sharing it with others.

We also generally find that at the right price point, people don’t mind the fact that the common areas and bathrooms are shared. After all, they are paying a fraction of what they’d pay at a hotel.

At the same time, we also find that there is a premium on a larger space on the weekends when groups travel. For groups, renting a 3-4 bedroom house is much more convenient than renting multiple hotel rooms – so they are willing to pay a premium for that.

As such, we rent out the full house as a single listing on the weekends and then rent out the bedrooms – individually – during the week.

From the revenue perspective, this will help keep occupancy high and will ensure that the property is not sitting empty during the week. We generally see occupancy rates of 90%+ across all of our properties when we follow this approach.

Our first step was to really nail down our processes. If you simply launch and proceed to handle everything manually, it can quickly become overwhelming to manage it – especially if you’re running multiple properties. You’d essentially create a full-time, 24/7 job for yourself.

Fundamentally, there are several key areas of running a short-term rental business:

Guest communication,
Check ins and check outs,
Housekeeping, and
Price optimization.

Fortunately, we can now benefit from a plethora of 3rd party tools that exist on the market that can automate 95% of our work in a really simple way. Here’s how we approached it:

Guest Communication – typically the most time consuming process is guest communication and sending instructions. This includes details on how to check-in, how to use everything inside the house, how to check-out, and so on. Fortunately, we can solve this by using a tool like Smartbnb.io. This nifty service allows us to automate all of the check-in and check-out communication for your guests, as well as automatically send out responses to the most common questions.
Automated Check In and Check Out – we utilize keyless, digital locks that enable us to create a code for every guest when they check in. These locks can expire the code when the guests check out and generate new ones for every guest, if desired. This makes it very easy the coming and going of the guests.
Housekeeping – we typically invest quite a bit of time in finding, vetting and training a local housekeeper. That individual is quite important to the overall success, as they have a large impact on guest satisfaction (it has to be clean and neat every single time), as well as our ability to manage multiple properties remotely (they have to show up on time, every time).
Price Management – There’s a reason why hotels, airlines, and other industries adjust their pricing regularly depending on the demand, time of year, and a myriad of other factors. This is where technology comes in again. There are a couple of tools available on the market, such as PriceLabs, BeyondPricing, and UseWheelhouse that help Airbnb hosts with price management. They monitor the demand, competition, and occupancy of your listings and those of your competitors and automatically adjusts pricing for every single one of your listings every single day. You can set a strategy that you prefer and it will make the adjustments that help you get there.

Hosting strategy adjustments during and after the pandemic:

The reality is that the crisis had an effect on all types of real estate investors – both with long-term and short-term rentals.

Arguably, for investors with long-term rentals, the situation was also quite difficult. If the tenants are unable or unwilling to pay rent, the tools you have at your disposal are limited.

Short-term rentals are a bit different. Firstly, it’s worth highlighting that for short-term rentals, the impact was quick and significant – but not evenly spread.

As properties in urban areas saw their occupancy decline overnight, there was actually an increase in demand for more remote, drive-to accommodations as people looked to book them for several weeks or months at a time to isolate themselves.

If you owned property like that, you have likely seen a small dip in demand when the country initially shut down followed by an increase in longer-term bookings. So traditional vacation rentals actually fared OK – and will likely continue to do well as people likely switch to more domestic travel for the foreseeable future.

However many others, including ourselves, have properties in urban areas who don’t necessarily cater to the leisure traveler. As such, our demand dried up and did not necessarily recover on its own right away.

As the pandemic situation began to unfold in March 2020, most hosts had to figure out how to deal with the new reality. The objective for most was simple — in the short-term, cover all of your holding costs (mortgage, interest, insurance, property taxes) and hold on until the situation begins to improve.

Taking Action

As the situation continued, we took a number of immediate steps:

Increased the maximum duration that guests can stay from 5 nights (our regular limit) to 90 nights to encourage longer-term stays while also giving us flexibility to go back to regular short-term rentals when things begin to improve.
Tweaked the pricing to offer discounts for multi-week or monthly stays.
Begun to explore additional channels outside of Airbnb, such as FurnishedFinder.com – which is a popular site for connecting with travelling nurses who are looking for temporary accommodations during their assignments.
Implemented and highlighted more intensive cleaning and sanitizing procedures throughout all of the properties.

What happened as a result is that we’ve quickly begun to fill up our listings with people who were looking for accommodations for 2 to 4 weeks or a bit longer.

Some guests are medical professionals. Others are students who have been kicked out of their dorms. A number were airline employees who were caught in limbo between cities.

Although the tourist and business travel market dried up, there were no shortage of people that have been displaced suddenly that needed a place to stay that was furnished, flexible and reasonably priced.

And then there are quite a few people who were local who looked to isolate themselves for one reason or another and just needed a safe, affordable place to stay for a couple of weeks.

Although the RevPAR (Revenue Per Available Room) went down quite a bit with these reservations, it was still a bit higher than with traditional long-term rentals and allowed us fill in our listings quickly.

As a result, our occupancy across all of the properties remained at above 90% through March and April and is on track to do the same in May. Between all of the properties, we’re able to stay above break even point even during the worst of it.

Support Your Team

We’ve provided our housekeepers in different cities with additional directions on how to sanitize the property daily and highlighted this in the listings to let the prospective guests know what’s being done.

We’ve also communicated to our housekeepers that we’ll continue to support them through this and instituted a floor pay. Whereas before, their pay was typically dependent on the number of turnovers or days worked, we’ve let them know that even as we have more longer term stays that reduce the need for daily turnovers, they’ll continue to get a fixed pay throughout this entire crises that’s about 80% of the regular amount.

This was key because these relationships are vital to the long-term success and the people on the other end are the most vulnerable to the crisis.

So while it may be tempting to cut their work as booking revenue comes down, I think it’s wise to provide everyone with stability until things begin to return to normal — if you expect to continue to operate in the short-term rental space.

What’s next?

It is our opinion that the consequences of this crisis will be felt for some time to come. Regardless of whether the government “lifts the lockdowns”, people will be hesitant to travel until the vaccine is widely available and adopted.

I think that under the best of circumstances, we’re looking at a year or so until this is more under control.

In the meantime, we’re likely to see economic pain continue to depress the hospitality industry and the real estate market.

That said, for folks investing in real estate, it represents an opportunity not seen since the financial crisis over a decade ago:

For one, real estate prices have been unsustainably high to the point where in many markets, it is nearly impossible to buy and cashflow a small multi-family property. Yes, short-term rentals made it possible to be profitable, but ideally, any multi-family property should also be underwritten to work as a long-term rental so you have a backup plan. For better or for worse, I think we’re going to see a significant impact on the real estate market in the coming months as the sellers begin to be more anxious to get cash out of the market and the buyers are more hesitant with using their depleted cash reserves.
We’ll likely see a significant number of short-term rental properties shut down or be converted to long-term options. Many existing hosts who were not able to adjust may decide that they don’t want to deal with it anymore and simply convert their listings to long-term rentals.

Paradoxically, this may actually lower the pricing on long-term rentals, as more inventory will come online. On the flip side, the lowered supply of short-term rentals may actually increase the average daily rates for the short-term rentals that remain on the market.

Personally, since the beginning, we’ve loved the idea of using real estate as a means towards getting to financial security. This hasn’t changed today.

What has changed is how we underwrite any new purchase, what sort of a discount we’d be looking for to offset the uncertainty, and the ability of a property to be able to function both as a short-term, mid-term and long-term rentals and remain profitable even if the revenue is depressed.

We’re also not in a rush – there’s no reason to be. While we may see some opportunities come up in the next few weeks, we will likely wait towards the second half of the year before beginning any additional acquisitions.

Then, we’ll likely expand beyond just urban markets to also focus more on traditional vacation markets. Especially over the next few years, we expect that people will remain hesitant about traveling abroad for their leisure and instead will seek out places they can go to domestically with their families for vacations.

We remain bullish on short-term rentals as a long-term investment strategy and will be spending the next few months on research, analysis and forming the strategy, so we can get everything in order for when we are ready to act.

To sum it up, once everything settles down, for those that are prepared, there will undoubtedly be significant opportunities to explore and act on.

Are you interested in buying real estate to rent out? What about becoming an Airbnb host?

About Boris & Susan

Boris & Susan are experienced Airbnb hosts and real estate investors hosting close to 10,000 guests per year around the country and managing their properties remotely while working full-time.

They write more about their experience, as well as help other people acquire, launch and automate their short-term rental properties at www.BuildYourBnb.com. Drop by to say hello or email them at hi@buildyourbnb.com with any questions you may have!