Not everyone who gets involved in the real-estate sharing economy to reap some good investment dollars wants to buy a house. Seem like an oxymoron? Yes, but it’s possible, according to real-estate expert Juan Alvarez, a broker with eXp Realty in Naples, Fla.
With his business model—which he has used himself multiple times, a savvy investor instead leases a property from a home owner, sublets it and voila! Cash comes in.
But the scenario begs an important question: Why would a home owner yield the responsibility for their property and perhaps more important cede potential profits? Because the work required takes time if done properly and may involve some sweat equity such as small repairs, cleaning, painting, shopping for essentials such as sheets and towels and so on. In addition, some home owners may move but want to hang on to their property, so you’re helping them keep it occupied and safe.
And from his own experience and years as a real-estate professional, Alvarez knows that such a proposition requires some actions on the part of the investor to ensure success. Following are nine things that he considers essential:
Do good research regarding a specific community, village, town or city’s rules for short- and long-term rentals. Some are passing stricter regulations such as no rentals for fewer than 30 days. Others may not allow subleases. There’s also a need for research about rules that condo and rental buildings and home owner associations (HOAs) may have, since many have also passed similar guidelines. The prime impetus causing these changes is concern from neighbors about a parade of strangers moving in and out, which makes some concerned about their own and their homes’ safety. No matter what a home owner says, it’s best if you double check yourself—to be sure you’re up to date.
Ask your home owner about their home owner’s insurance. Not all carriers permit rentals and particularly short-term ones. So, find out and have some proof again in writing so you don’t have any legal or financial snafus.
Analyze the realistic likelihood of finding a subletter and for enough times throughout the year. So much in this case depends on the specific listing, its condition, location, features and amenities. Someone coming to southern Florida may want to be near a beach or have a swimming pool, for instance. Others may focus on wanting at least two bedrooms, two bathrooms, a view and an outdoor space. And some may want proximity to a downtown shopping center or a university for classes or an annual event such as a jazz festival. Each location often has a downside, too, that should be weighed. In Florida, it can be the difficulty of finding renters during the summer when it’s hot there.
Qualify the renter carefully and share house rules. Act like this is your house and don’t have anyone stay whom you wouldn’t want in your house. Develop your list of rules such as no young children, no pets, no parties, no red wine drinking.
Perform good hypothetical calculations regarding the numbers of how much each property can be subleased for in both number of days and money, based on the competition and what expenses you must cover. Often, it’s smart to have seasonal rates and raise prices come holidays and winter in Florida and lower them in summer. Also, factor in the vacancy ratio—or dead time when you are not likely to have renters and the property sits vacant. In the end, the goal is to have enough net profit to make the transaction financially worthwhile. In fact, this may be the toughest step and what Alvarez calls the property’s “DNA data analytics.” And, of course, you can have countless hypotheticals but only once you post the listing, will you know how realistic your calculations were.
Market the listing aggressively. Posting high-quality, professional-style photos of all rooms with good straight-on angles and detailed descriptions are essential to start. Then, you’ll need to post the information on various real-estate sharing sites such as Airbnb, VRBO and HomeAway. If you find a candidate through one of those sites, the company will take a share of your profits but it’s often worthwhile to find renters.
Know that practice makes perfect. Think as if you’re a hotelier who furnishes hundreds of rooms for a great first impression. Some rules to guide you: Don’t add too much personal stuff such as photos. Make any art big and colorful which is the current trend. Be sure furnishings are comfortable whether a queen-size bed with mattress or a couch and any chairs. Be sure there are enough tables, some rugs, plates and dishes, an iron or steamer, and other home-related essentials. Don’t think you have to buy the most expensive furnishings, however, but you do want nice and sturdy, Alvarez says. Buy generically when in doubt such as white linens and towels rather than patterns or bold colors. And don’t think that every house—if you’re doing more than one must be different. Make them the same, he says, to have an economy of scale. Also, be sure to compile a good list of competent, dependable service people, including someone to clean and be on call for repairs. Fortunately, he has found that most short-term renters don’t use appliances so much, so they won’t get excessive wear and tear. “Most want to be out and about doing something,” he says.
Strive for a great experience that visitors remember. That’s the name of the game in today’s new sharing economy. Some nice extra touches like fresh flowers, fresh fruit, some current books and magazines and maybe a city guide for the area will help create good memories. And if you can quickly generate some good reviews online, you’ll do well and can always raise the rents later, Alvarez says. “You want people to remember the house and what you did so they write glowing reviews and return,” he says.
Build your portfolio slowly. Only when you are generating good steady revenue for your first, listing, should you consider doing another. “Less than 2 percent of the owners or landlords renting have more than one property listed on Airbnb,” says Alvarez.
Broker Juan Alvarez likes to share a hypothetical to explain how to perform a good analysis and decide whether different properties work to rent: In this case, the rent for the home might be $4,000 and the expenses such as water, electricity, Internet and cable might total $690, plus an Airbnb fee of $174. Therefore, the total expenses are $4,864. The income, however, is $5,802, which is based on charging $215 for weekdays and $250 for weekends with an occupancy ratio of 85 percent. Obviously certain months have more days and others fewer. The net profit ends up being is $938, a nice income stream for not much work, he says.