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Podcast - Into the Airbnb

Airbnb Rental Arbitrage at Dallas, Texas.

Today’s guest is DeShan. He does Airbnb rental arbitrage on four listings near Dallas in Texas with his one business partner. He started last year September with one property, and on track to add one rental property every month. His first two properties made $2,100 to $3,000 profits every month – initial investment needed was around $6-8,000 for renovating those two properties. During this coronavirus situation, more than 70% of nights are booked in the next 30 days.  

Summary

Listing Details https://www.airbnb.co.uk/rooms/42950598
2BD 2BA
Dallas, Texas
Vacation Rental Career Working with private investors
First listing started in 1st Sept 2019
Second listing started in mid-Nov 2019
Third listing started in Jan 2020
Setup cost / lease 

Starting cost is around 3-4k for renovation (2bed 2bath) + 1-month amount of rent for the deposit (1.4k)

A typical lease is 12 – 18 months (Got 1-month free month) 

Coronavirus situation handling Aggressively lowered price
Changed title to “Need a social distance? Stay with us”
Emphasizing on how the house is sanitized and deep cleaned
Made cancellation policy flexible
Messaged previous guests and offered them the discount
When getting cancellation requests, he tried convincing them to keep the reservation by moving the booking to a later date. 
Pricing / Occupancy Rate

50% discount for monthly booking
The sweet spot of a number of nights booked is 1-2 weeks

Occupancy rate is around 87%

1st property Profit/month $600-$1000
rent 1850
utility 200
cleaning 200
2nd property Profit/month 1,500 – 2,000
rent 2,350
utilities 500
cleaning 300-500
Software stack (Edited)  Hostfully for a guestbook
Turnoverbnb to arrange cleaning

Full Interview Transcript

Jaeseok  

How did you start it from your first one to now? Looking for the fifth one? Tell me about the story about how you made it.

DeShan  

Yeah, so, um, we got into that Bnbformula program and started implementing it in like August of last year. So, we started learning about it all. And then we started doing our research and looking for a property. And then once we went through all the course material, and we found a property, we contacted a few homeowners and we found a house where the owner was okay with the idea, was interested in the idea. So, what we actually do is we do rental arbitrage. And in order for us to continue to grow, we work with private money investors, 

DeShan

So we have, we have people that we’ve networked with, or Facebook and personal relations that have worked with us and given us some capital to acquire these properties and furnish them and everything. And that’s really the business model that we’re currently running in and will probably continue to run over the period of our business.

Jaeseok  

You started your first one around last year August, is that correct?

DeShan  

Yes, we started it at the very end of August. But we didn’t list it until the first of September. So we really started like the first of September.

Jaeseok  

Right, and how long did it take for you to get the second listing?

DeShan  

So we got our first listing started on September and then our second listing, we finished in the middle of November. 

Jaeseok

Right. And the third one?

DeShan

The third one we started in January. 

DeShan

Yeah. So I was saying that our goal was to start a property every month. 

DeShan

And so we were a little bit behind on that. However, I think that our growth has been pretty good so far. And we are going to continue to acquire properties as we’re doing our fifth one next week and everything, so definitely got off to a good start. And we’re just looking forward to continue to grow

Jaeseok 

And how much does it usually take to start a new two-bedroom house in Dallas area to run on Airbnb.

DeShan  

So it really depends on the kind of property that it is, the size of the property… I know you said two bedrooms, but even the square footage of the property can make a big difference.

DeShan

Um, one thing that we’ve probably found, are trying to stick to, is for a two-bedroom, let’s say like two bathrooms, we’ll try to spend anywhere from like three to four thousand on furnishing. That’s usually kind of like our budget. And then it depends on the style of property that we’re doing because our business is called “Different”. And so every property that we have is different than the last one that we did. So each style kind of comes at a different price. But I would say on average is around three to four thousand. 

Jaeseok

What’s the typical amount of deposit that you need to put in to secure the house?

DeShan  

Yeah, so the deposit here is always the same as whatever the rent is. So for an example, one of our properties, the rent is 2,350. So that’s how much the security deposit was also. But typically, what we do is we try to get a front-end lease concession. So we try to get at least the first month free, and a lot of times, we might just sign a longer lease in order to get that first month free. And that’s what we usually try to go for when we’re setting up a property. But we don’t always get that, especially if you’re working with like an apartment complex or management company. So… 

Jaeseok

How long is your contract? For the house usually? 

DeShan

Yeah, so it varies if we’re able to no longer lease, yeah, we’ll do that. So for an example, we have one property, we signed a 13-month lease, and we were able to get one month free up front. And then another property, we signed an 18-month lease, and that allowed us to get one three-month upfront. So if we’re able to get that concession, we’ll usually sign longer than a year. But if we don’t get a concession, then we typically just stay at a year. 

Jaeseok

Right, understood. You have 21 days occupied in the next 30 days for the listing that you showed. That’s about a 70% occupancy rate right now, which is pretty good, considering all those cancellations happening. What’s your strategy?

DeShan  

Yeah, so I’m in a lot of the Airbnb Facebook groups, and so what I typically do, like once or twice everyday and kind of just either get my advice on questions or see what other people are doing. Recently, there have been quite a few people that have posted some advice about what to do. And pretty much everyone saying kind of the same thing. And so what we’ve done is the number one thing that you can do is lower your rates. So we’ve definitely tried to stay aggressive on our rates and be lower than our competition. And that’s probably the first thing that we did. And then after that, we optimized our title and our descriptions to cater to the situations that have happened recently. As you can see from the title that you are reading from our listing about social distancing. 

Jaeseok

Yep. 

DeShan

And then, in our description, we talked about how our cleaners are making sure that every property is deep-cleaned after every guest. We have a picture in our main photo reel that talks about the house being clean and sanitized after every guest, just to ensure that the people that are looking to book are comfortable in that regard. And another thing that we’ve done is made our cancellation policy flexible because Airbnb has given more search ranking to listings that have that. We were originally strict, so at this time, in addition to the Airbnb, extenuating circumstances policy that they’ve they’ve had, we already know that even if we have a strict cancellation policy, Airbnb has shown that they’ll basically go around that. So there’s really no reason to have a strict policy at the moment. I would say those couple of things are the most important. And I guess another bonus thing that we’ve done is, we went back and messaged all of our previous guests, giving them a discount for themselves and for their friends and family if they wanted to make a reservation with us, and we’d give them a 20% off discount. And then for guests who tried to cancel or were asking about cancellation, what we did is we spoke to them and told them all the facts about the virus and tried to kind of ease their tensions that they’ve seen all throughout the media and everything. And basically try to convince them to keep their reservation in place, but just move it to a later date. And also adding on, giving them an extra free night, in addition to keeping the reservation in place. So those are the things that we’ve kind of been doing that allowed us to either keep bookings or get new bookings. And it’s been working pretty well for us. So…

Jaeseok  

I see. Yeah, that’s pretty impressive how proactively you took those actions to ensure that you have good bookings. And so you mentioned that you lowered your price. Now I’m seeing $79 per night? How much was it before all those cancellations happened?

DeShan  

So the listing that I sent you is actually a brand new listing. And so what we do with brand new listings is we try to, when we first list them, we try to be lower than the competition by about 20%. And so taking that into account, and the fact of all the virus stuff that’s going around, we had to be trying to be as aggressive as possible with our pricing. So when, when all of the virus stuff starts to go away and we start to go back to all of the normal bookings and everything, we found that at our area, other hosts have been charging anywhere from $100 weekday to around $125-150 on the weekend. So that’s probably going to be our goal moving forward. But right now, as I said, because of everything that’s happening, and the fact that it’s a brand new listing, we have it at that price. And we also have a dynamic pricing strategy. So the closer we get to a day, if it’s open, the more we’ll lower the rate. So it depends on how far out the booking is, as well. 

Jaeseok

How do you do the dynamic pricing? Do you use any tools? 

DeShan

I actually do it manually, myself. So what I’ll do every morning is I’ll check all of the calendars and try to see what’s going on in the past couple of days and try to reference that across the next few days. So what I usually do is, I’ll look to about 72 hours into the future. And if there are any days that haven’t been booked yet, then I’ll start lowering the price pretty aggressively. And what that usually does is it keeps us able to get bookings at the highest price possible. Mainly because as you get closer to that day, there’s a lot of other hosts that get booked. And so inventory starts to drop. And once inventory drops but there’s still a demand, that allows us to get those higher bookings closer out and also maximize as much profit as we can.

Jaeseok  

Right. So using that strategy, how much of the occupancy rate have you achieved since last year in September?

DeShan  

So I haven’t checked recently, the last time I did check, I believe that our average occupancy was about 87%. 

DeShan

So we’re doing pretty well. The listing that you saw, and that I shared with you, as I mentioned is a brand new listing. And so we actually started that one last week. And so the first day that it could be booked, was actually last Saturday. And since then, we’ve been fully occupied. 

DeShan

…and will be fully occupied for the rest of this month. So since that one’s been available, it’s at 100 occupancy since today, so…

Jaeseok  

And how much are you paying for the rent for this property?

DeShan  

So that property, the rent is actually 1400 per month. It’s a two-bedroom, two bathroom apartment in a smaller apartment complex. 

DeShan

But with that one we actually got a pretty good deal where we didn’t have to pay a security deposit. We didn’t have to pay for the first month’s rent. And so because of that very low. And in that area, it’s an area that’s in transition, so there’s a lot of construction being done in it.

Deshan

But it’s in a really good area, so it’s close to a lot of good spots that are in Dallas.

Jaeseok  

So you’re giving a 50% discount to people who are booking monthly, right? Are you going to continue doing this after all those coronavirus things?

DeShan  

Yeah, so what we’ve noticed recently is because of all of the travel restrictions, especially in our area, we’ve gotten more regional guests or people who were passing through here, but have been stuck here. So a lot of our reservations recently have been longer. I would say probably about a week or so.  

But with our current pricing strategy, we will be trying to get guests for monthly stays or more than a week’s stay. But that is something also that we have to keep in our mind with our pricing strategy because if our calendar is wide open, mainly if it’s open 30 days, and we lower our prices too much, guests would have the opportunity to basically get the property at a very low price. So we do have that in place, though. And I have in the back of my mind when I’m lowering prices, and just making sure that we have that covered in the back end for sure.

Jaeseok  

Right. So can you describe the ideal future bookings that you have? Ideal as in, number of nights that people booked? How would you describe it? Do you get what I mean?

DeShan

Yeah, so for us, I would say that the ideal number of nights would probably be…The longer the better, but probably under a month. We’ve haven’t had too many guests that have stayed that long, but we did have one specific guest that did stay that long and they didn’t take great care of the property. They didn’t destroy it. But there were some items that were broken. And the cleaning after that period of time did take a lot longer than usual. So I would say that we’d like to have guests stay as long as a week to two weeks or so.  Mainly because of the fewer amount of turnovers that we have to do, the more we can keep more profit in our pocket. So that’s usually what we strive to do. But the actual thing that happens is, we’ll probably have guests that stay about four nights, four to seven nights on average. 

Jaeseok

When I looked into your price, if someone book for three to seven days, it was $67 per night. But you mentioned that you’re going to increase the price by 20%. So that is going to be around $80 per night. And if you can achieve 87-90% occupancy rate, that’s gonna be around 2.1k income per month. Is it something realistic for you?

DeShan  

Yeah. So right now, with everything going on, our main goal is to stay occupied. So with that, we know that we’re not going to profit as much as we’d like. But in the end, the occupancy matters more than the actual profit, as long as we’re able to cover expenses. Because right now, the main thing that most hosts are worried about is paying off all of their expenses. So as long as you can make enough to cover the expenses, and you can make sure that’s not a problem over the period of time that all of the events that are happening right now, then that’s probably our main concern. And so because of that, our profit is kind of like on the back end, if we can make a good amount of profit for each property, that’s pretty much a bonus. But as long as we can cover all of our expenses, that’s probably our number one priority.

Jaeseok  

Right, I see. I think it’s hard to talk about the fourth property because this one is quite recent, but the previous ones, when you achieve almost 90% of occupancy rate, what was your net profit?

DeShan  

I would say, quick numbers are on average, our first property is in a different location than Dallas. So it doesn’t perform as well as our properties in Dallas, that’s one of the reasons why we decided to get properties in Dallas. But our first property, that one on average, we make around $600-1,000 in profit monthly. And that’s obviously gone down a little bit, because of the seasonality and the events that have happened, but that’s what it is. And I would say our expenses are our rent, which is 1850. And then our utilities come out to be like $200. Most of our expenses come out to be like to $200 to about like $400 when you add in the cleanings. So that’s what it is for our first property. Then our second property has been doing a lot better. That one usually gets us between like 1500 to 2000 for profit.

Jaeseok

1500-2000? Alright.

DeShan  

Yeah, for profit, monthly, and then the expenses on that one is rent, which is 2350. And then our utilities which come out to be somewhere around 500. And then our cleaning fees, which probably add on another 3-500 as well, depending on how many guests we have that month. So, those are the main overview of the statistics for those first few properties that we have.

Jaeseok

Right. That means for like your second property, you’re earning above $5,000 per month. Is that right estimation?

DeShan

Yeah, that sounds about right.