How to Make a 6-Figure Short Term Rental Airbnb Business with J. Martin (SF Bay Summit 2019)

As you may know, I attended the SF Bay Summit 2019 Real Estate Conference hosted by J. Martin. He held a seminar talking about how to make money on a short term rental Airbnb business. The business model is called rental arbitrage, where you’re renting a place and renting it out on Airbnb. Rather than owning a property and renting it out you’re essentially subleasing properties. If you profit a bit after you pay off the rent, this can be an interesting way to make passive income if you have your business operations automated.

The seminar became more of a Q&A, but it ended up being quite valuable. The information around building a team and outsourcing work was very useful (and applicable to many different business models). I wanted to share my notes on what he mentioned.

Disclaimer: While all attempts are made to present correct information, there is a chance I’ve written notes incorrectly! 

How to Make a 6-Figure Short Term Rental Airbnb Business with J. Martin

Background on J. Martin:

• J has 20 listings and earned $600k revenue in 2018. With most of the listings, the customer is paying (not corporate)
• 85% of his revenue comes from Airbnb. 90% of his revenue come from 20% of properties in the bay
• 250+ reviews on Airbnb
• 3+ years experience (beginner or expert?)

Many laws started to restrict subleasing.

• There were some laws passed against Airbnb that apply for subleasing 30 days and under.
• If you are subleasing 31+ days you’re not subject to those laws

Furnished rentals is an overall growing market. 1/3 bookings = completely new guests. The supply of furnished rentals is increasing. The demand is outstripping the supply. Changing from hotels

• Average stay is 57 days
• Many travel nurses
• Lot of business travelers
• Summer = many tech interns

The industry is pretty new:

• Watch out for cycle
• Hotel revenue is super volatile, Airbnb too.  Expense structure is fixed, revenue can be volatile

• Nurses usually are the most price sensitive (and students)
• Furnished rentals vs other methods is operationally more intense
• To be more recession proof, go directly to the customer for bookings. Figure out who are the employers to reach out directly to employer

How does Airbnb prioritize search?

• Typically Airbnb hosts leave the calendar on property open for 3 months. In this scenario, if someone wanted to book the property 2 months from now, it won’t show for people who are looking for 3 months of stay. It also won’t show for people who are searching for under 28 days if you put “only show for over 28 days of stay”

What does the customer care about?

• Quick response time. Must be within 24 hours.
• Not getting denied to stay there when sending request. Make it easy as possible. Instant booking is nice in that way.
• Airbnb verified photos
  • This will boost your property in search results
• Description, etc.

What do you do for slow seasons like Winter?

• Work the system. Make sure you have standard operating procedures (SOPs). Hire a bookkeeper. Have everything you do written down. J has 200 pages of SOPs. Get people to put things in the SOP any event that occurs and you don’t know what to do. That way there is an SOP for every situation and people know what to do in each scenario.

How do you make sure your team is working and getting things done correctly

• Make sure employees are motivated in relation to their situation – in growing, learning, whatever it may be
• Make sure team is following procedures
• J doesn’t really check on his team until there are problems occurring (his employees know that their job is to make sure J. doesn’t have to work)
• Usually there are issues when there is a lack of SOPs and training

Places to look for outsourcing

• Started with Upwork – more gig like
• Then used Outsourcely – more focused on monthly
• Now uses onlinejobs.ph (good English and low cost)
  • $3-4/hour
  • Pays his manager $10/hour. The manager maintains all the SOPs, trains and hires and fires people.

How do you find your cleaning crew?

• Create the SOP on how to find people.
  • Post on Craigslist.
  • Look at ratings.
  • Send a message and see how fast they respond.
  • How is their portfolio?
  • Do they answer the phone?
  • Ask for testimonials and ask the people who recommended the crew how well the cleaning was done. Create the feedback loop.
  • Anytime you hire – write down exactly what you want in that role.

What to look for with hiring managers/assistants:

• Make sure to check if they have good internet. Do a speed test at 2 PM PST, 3:17 PM PST, etc. Find out what is the upload and download speed. This is a quantifiable way to test.
• Use online tests – filter by people who have taken the test. Send typing tests
• Use Skype live

Sites to list your furnished rentals:

• Airbnb
• VRBO/Homewaway/Expedia
• Homesuite
• CHBO
• Personal site
• Furnished home
• Direct to user
• Facebook

How to market the Airbnb model to the landlord:

Frame your proposal in a way where you’re benefiting the landlord. Say something like “I’m going to manage your property for free, and I will take care of rent and take care of maintenance. If something goes wrong the city will throw me out.”

If tenant overstays their welcome?

J. has never had an issue with that – only once. If you have their employment contract, you can threaten to talk to their employer and things like that.

Pricing decisions

Create an SOP for comps. Price relative to the comps.

Conclusion

Rental arbitrage is an interesting way to make passive income, and I definitely think that you can make 6-7 figures (or more) with a short term rental Airbnb business. I made some friends in real estate meetups who started their first few furnished rentals and are already profiting $800/month. In the beginning, there is a lot more work involved when you haven’t created your team yet. But once you’ve gotten your operations set, you can scale up pretty easily if you’ve gotten it down.

I think it’s a great model, but I feel more interested in the buy and hold/fix and flip models of real estate. Rather than doing a rent to rent type of situation, I prefer actually owning property. I also don’t like the risk of having decently sized recurring expenses that aren’t going towards a property asset (in the form of mortgage). Taking out that loan can actually be considered much riskier in ways, but perhaps my view is that expenses would at least go towards an asset. For some reason I would much rather own the property than continue renting tons of properties.

I also realize the model depends a lot on the Airbnb marketplace (J. Martin gets 85% of his business through Airbnb), and I know someone who lost his Airbnb host account. I realize if this ever happened and I still had monthly expenses after signing a year lease on a property, it would be a bit worrisome.

Anyway, these are just my thoughts and who knows, maybe I’ll be convinced in the future to start my first furnished rental and find that it works for me!