Finding A Profitable Airbnb Property

This article is the first part of The Journey to Superhost series.

How did we set about finding a profitable Airbnb property? If you’ve read our about page, you probably know that we started out owning no property at all. In this series, we break down how we went from working two full-time jobs to finding a profitable Airbnb property and growing it to four properties. These properties all generate (mostly) passive income and give us a lot more financial freedom. Becoming an Airbnb Superhost was the first significant indicator that our strategy was working and our risk had paid off.

Why We Started

Before we became Airbnb investors, we both had full-time jobs that paid pretty well, but not well enough to afford to buy our own property. We live in a city where housing is extremely expensive, so even just renting a one bedroom apartment had us struggling to save additional income. We had a baby on the way, and I knew that if we didn’t do something fast we’d be stuck in apartments forever, slaves to our 9 to 5 jobs. I was always a huge believer in investing and had recently read Rich Dad Poor Dad, by Robert T. Kiyosaki, and a plethora of books on real estate. I knew the long term value of real estate, and I was committed to finding a real estate investment before this baby arrived. With just 6 months left to go, we found the perfect investment.

Two Hours From Home

We were on a trip a couple of hours from home at a mountain resort town when inspiration struck. It happened that were staying in an Airbnb property, and noticed that this town was full of tourists, all here to ski and enjoy the snow. Both of us loved it so much and wondered how much the houses in town cost. Just out of curiosity, we browsed Redfin for local listings and I was shocked to see affordable houses! It was pretty obvious that the prices we paid to stay in our Airbnb property were very high relative to the local property costs. At first, we dismissed the idea pretty quickly. Buying a house two hours from where we lived? That’s just crazy. We talked about it more and more and decided that maybe it was worth looking into.

Before Starting the Search

Back home, I went online to find a lender. LendingTree was extremely fast and helpful during this process. In many cases, real estate agents might not want to give you their time if you aren’t pre-approved for a loan yet. So, I wanted to be prepared and have a good sense of my buying power before wasting any time looking at houses that were out of reach. A proof of funds document from your lender (or bank/financial advisor for cash purchases) can be helpful in jump-starting your property search.

Finding the Right Airbnb Property

The next weekend we drove out to the mountain town, but this time it was for business. The Redfin realtor we matched with showed us seven different properties. We were totally new to the game, so all we were doing was trying to assess what the best rental features would be for an Airbnb property. We thought about the kind of things we could convey in our listing photos. One house stood out because it was priced similarly to the others, but offered an open floor plan, two fireplaces, and 3 decks. This town was a place people went to escape urban living, so outdoor gathering areas were a must-have.  We made an offer at the asking price, because we didn’t know any better and wanted the house.

Holy %$!#, We’re In Escrow!

Everyone said we were nuts for making such a major decision right before having a baby. We didn’t listen, for a few reasons. It was a great market for vacation rentals, and we’d be able to contribute some money towards the mortgage if the rentals couldn’t cover it. Our basic financials were healthy, we had an emergency fund, no credit debt, and secure jobs. This didn’t stop us from being scared or having our doubts. But we pushed forward with the purchase of our first Airbnb property.

What We Learned With Our First Airbnb Property

So far in the journey, we have made a lot of choices that seemed like big risks. What we did right was recognize an opportunity based on a few simple factors. Relatively low real estate costs and high nightly Airbnb prices were an indicator of opportunity. Along the way, we learned we could probably have offered a little under asking and still gotten the house, but that wasn’t a huge mistake. We now know how to negotiate when buying new houses in this rental market. We’re up to 4, and each negotiation has been easier and resulted in a better deal.

Be Aware of Local Laws & Taxes

We also had no idea that the city we were buying in had a Transient Occupancy Tax of over 10%! It also required us to get a permit to rent the house out, and a long list of safety requirements. We also had to pass an inspection before we could rent the house. It’s imperative that you do a lot of research into local laws before making a purchase. Some cities outlaw all short term rentals.

Don’t Guess on Market Analysis

When it came to assessing the market, we were operating on a hunch and our own estimates. We did our own searches on Airbnb and looked at average nightly rates. We took note of the properties with the most reviews and where they were located. We’ve since found a much more precise, and data-driven approach to finding markets to invest in.