JF1185: Trading Long Term Tenants For Short Term Guests Through Airbnb with Sue Hoyuela
Sue has created a system for landlords to be able to easily switch from having tenants to having Airbnb guests. Many investors are having great success by renting with Airbnb, often times seeing 2-3 times the income they normally see by being a traditional landlord. Sue will break down her system for us and explain how anyone could switch to an Airbnb model, regardless of location. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Sue Hoyuela Background:
- Creator of the Airbnb Success Formula
- Teaches how to trade long-term tenants for short-term guests, eliminate evictions and double rental income
- Author, Speaker, and Real Estate Agent
- Based in Los Angeles, California
- Say hi to her at www.airbnbvacationrentalbusiness.com
- Best Ever Book: Financial Peace
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Sue Hoyuela. How are you doing, Sue?
Sue Hoyuela: Great! Thanks, Joe, for having me on today.
Joe Fairless: My pleasure, nice to have you on the show. We’re gonna be doing a bit of a change of pace with today’s episode. We’re going to be talking about Airbnb and how you’ve had success with Airbnb.
A little bit about Sue – she is the creator of the Airbnb Success Formula. She teaches how to trade long-term tenants for short-term guests and eliminate evictions and double the rental revenue. She is based in Los Angeles, California, and you can say hi to her at her website, which is in the show notes page.
With that being said, Sue, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Sue Hoyuela: Sure. Well, let’s see… I started doing Airbnb back in 2011. It was an exercise in trying to find a way to make an extra $100 to pay towards my debt, and since then I’ve used this amazing website to create financial freedom for my family. My passion is to share my success with the world, so I’ve created a system for Airbnb and breaking down short-term rentals into four phases and seven modules to systematize and automate an Airbnb business, so that real estate investors can really maximize their income and dial it in so they can outsource and even generate increased passive rental income from their current properties, or if they wanna build a business to invest in short-term rentals.
Joe Fairless: I’ve recently met with a local investor, and everytime I speak to someone who’s doing Airbnb, it’s like the cat that ate the canary; they almost feel guilty that they’re making so much money from these short-term rentals. They’re like “I can’t believe I’m buying…” — in this case, he bought a $20,000 house near downtown Cincinnati… It’s in Kentucky, but for anyone familiar with Cincinnati, it’s right next to Kentucky. So he bought it really close to downtown Cincinnati, he’s just doing Airbnb and he’s basically paying off the place in 6-8 months, and then it’s just straight cashflow.
I’ve interviewed a handful of people about this, and clearly there’s a lot of money to be made. Let’s approach it this way – maybe give a specific example with numbers of a property that you have, and comparing it for long-term versus short-term, and then maybe we can go into the phases and the modules just from an overview standpoint.
Sue Hoyuela: Okay, sure, I’d love to. Well, here’s an example – a friend of mine, Joelle, he had a two-bedroom two-bath house in Rosemead, California, and he was renting it to long-term tenants for $1,200/month. They were great tenants, paying on time, until one day they just stopped. He went through the eviction process, and then when the sheriff escorted them out, they didn’t go willingly, so they trashed the place.
As he was repairing everything, fixing it up and thinking “Hm, do I really wanna rent this to long-term tenants again?”, he approached me and he says “Hey, do you think this vacation rental thing will work?” Rosemead is not really the hotspot in L.A. for people on vacation, but that’s also the power of Airbnb – it kind of blows out that location-location-location thing, so you have a much wider radius.
So we fixed it up for an Airbnb and furnished it, and as soon as we posted it on Airbnb, we started getting bookings. We couldn’t believe people would flock to Rosemead, California, but his first month he made $3,600, so he tripled his rental income.
I call it the power of renting by the night, because for example, when I rented a room in my house, I could get $500/month for it, and that’s about $16/night. But when you rent it by the night to short-term vacationing guests for just, let’s say, $50/night, now you’re making $1,500 on that same room. So it’s about a 3-to-1 ratio; when you rent short-term you triple your rental income, which is what most people are finding.
Joe Fairless: You said that your friend Joelle fixed up the property for Airbnb and furnished it; can you elaborate on what “fixed it up for Airbnb and furnished it” means?
Sue Hoyuela: Fixing it up is an exercise in identifying who your ideal guest is going to be. You have to ask yourself “Who’s gonna wanna stay here?” Then once you are kind of in their shoes, then you’ll know exactly which amenities to add.
He and his white had a favorite bed and breakfast that they liked to stay in when they went to Big Bear up in the mountains, and they had had a wonderful time there, so they decided to kind of use the same things in this house as far like the type of bedding, the style, the colors… They put some postcards in a little box beside the bed for their guests, a little welcome bottle of wine when they checked in…
It cost them I would say on average about $1,000 per room to fix it up, because you do need to furnish the place… So I found that it averages out to about $1,000 per room, depending on the size of the house, to get it set up. Then you can do the math to figure out when you triple your rental income how quickly that’s gonna pay back, and then you’ll be in profit quite quickly.
Joe Fairless: We talked about tripling the rental income, and I imagine there are also more expenses on the Airbnb — you clearly get this question a lot… So there’s more expenses on the turnover than there would be if you have someone who’s living in the house for four years, because what I’ve noticed is that that’s where you get burned a lot, it’s when people move out, because you’ve gotta fix it up. So you have a 3-to-1 ratio for income increases… What’s the ratio for expense increases?
Sue Hoyuela: Well, you know, that’s what’s kind of mind-blowing. Yes, the landlord does need to put the utilities in their name when they’re gonna do it as a short-term rental, but you don’t have guests in there 30 days out of the month; there’s a lot of turnover. So you’re not really increasing your utility expenses that much. I would say maybe 6%. But one of the cool things too is that you can charge a cleaning fee and it’s separate from the nightly rate, so whatever the cleaning fee is that your maid or your cleaning service charges, you can collect that from the guests, so that expense becomes awash. So the increased costs aren’t really that high.
Also, if there is something that needs to be repaired, you know about it right away, so things don’t become big problems.
Joelle had another property that he was renting to long-term tenants and even had a property management company that was contracted to check it every six months, but after the tenants moved out after three years, there was a three-foot square hole in the ceiling that had been caused by a steady leak over the years that no one had told him about. Those types of things can’t happen in a vacation rental, so they don’t become big expenses.
Joe Fairless: Yeah, that’s a huge thing for tax purposes too, because if you repair something, then you can deduct it, but if you improve it, so if you replace it and put something new, then it’s not a deduction, at least from my interpretation of taxes based on what I can remember.
The management fee though, that’s gotta be higher.
Sue Hoyuela: Well, that’s interesting, too. There’s a lot of ways to go about managing it. One of the things that I’ve done in my course, the Airbnb Success Formula is create a system and use automation so that someone can actually manage it themselves in about two hours per week, but there’s other ways to outsource that as well. Airbnb provides something called a co-host, where you can assign someone to assist you with the daily management of the business, and you can set whatever percentage you want with that person you assign as your co-host. So it could be 1%, 2%, 20%, whatever you feel is fair.
Joe Fairless: What’s the industry standard?
Sue Hoyuela: I haven’t really found a standard in that sense. There’s also a lot of services out there now that are offering to manage it. There’s a website called Guesty, that puts the power in your hands if you wanna use more than just Airbnb, and kind of aggregate everything in one spot. They take between one and two percent.
There’s another service out there called Turnkey Vacation Rentals (TurnkeyVR). I believe they charge between 15% and 20%. Nowadays there’s just so many other places around; you can just look in your local Craigslist and find a vacation rental management service. They differ from property management; there are a few different nuances that go into vacation rentals, but if there’s a property management company set up to manage that, that’s very easy to just plug into their services and outsource that.
Joe Fairless: What’s the process for automating this system so that you spend two hours a week bringing in guests into your property?
Sue Hoyuela: Oh, awesome. Well, first of all, Airbnb has an app. By downloading that onto your cell phone, you basically have a business in your pocket. Then I’ve created standard response templates to the most commonly asked questions, so that it’s a matter of copying and pasting a response; that takes less than 30 seconds. The rest is just staying on top of my team, basically the cleaning, and making sure that they’re covering it and reporting back to me when the work is done. So I’m basically checking my phone from time to time from the beach, Cancun, wherever I’m at, and basically running the business from my cell phone in my pocket.
So I look at it like “Wow, I’m only working two hours a week. This is work, chain me to the wall.” [laughs]
Joe Fairless: So there’s the cleaning crew… And do you have anyone else from the management standpoint, or a logistical standpoint, that is on your team?
Sue Hoyuela: I have a property caretaker. One of my strategies is to have my properties within a five-mile radius, so that one person can easily access them. They’re my boots on the ground person that I can go to in case there’s something that needs to be taken care of. And they can pretty much just go out and handle changing a lightbulb, or unclogging a toilet, all that fun stuff. But a lot of times if you’re smart in hiring, your cleaning crew can also handle those services, so you can pretty much boil it down to just a cleaning team, if you like.
Joe Fairless: How much should we allocate for cleaning and for the property caretaker?
Sue Hoyuela: Well, the cleaning is awash…
Joe Fairless: Right, as you’re charging back to the person who’s renting.
Sue Hoyuela: Right. And you can also create a little cashflow from that, to have multiple streams of income.
Joe Fairless: Yeah, well how much do you pay, and what do you charge for cleaning?
Sue Hoyuela: It really depends on the size of the house and how long it’s going to take. I have individual rooms that I rent, so the cleaning people have to clean one bedroom and one bathroom, and I pay $20 for that. I also have whole house rentals; some are five bedrooms, three-bath, 3,000 square foot houses, so for those we pay $200… So it’s a combination of how long it’s going to take and how many people we’re going to need, always with the emphasis on being able to change over the house the same day, so that you don’t miss out on revenue, you don’t have to block a day to get it cleaned because it’s too big.
Joe Fairless: Oh, okay, got it. So they’re gonna need to know — they’ll have access to your schedule, perhaps even have access to your app, so that they know exactly when people are coming and going?
Sue Hoyuela: Yes, exactly… And it’s just a matter of communication. We set up systems and apps, like you were saying, everything over the internet, and with the cell phones. That’s the key. It’s so wonderful living in this day and age, and it makes everything so easy.
Joe Fairless: How specifically do you communicate the move in, move out dates of these short-term renters to your cleaning crew?
Sue Hoyuela: We have a shared schedule… There’s a website called Cozi, and you can export the Airbnb schedule to it and give access to your cleaning crew so that they can see when the check ins and check outs are going to be, and then we’re able to communicate who’s gonna cover this one and assigning everybody and all that good stuff.
Joe Fairless: Do you have one cleaning crew, or do you have multiple cleaning crews?
Sue Hoyuela: I just have one cleaning crew. I’ve learned to keep things close, so they’re all within range, and I’m being able to maintain them.
Joe Fairless: And was that a hard lesson learned?
Sue Hoyuela: Yes, actually… [laughs]
Joe Fairless: What happened?
Sue Hoyuela: Oh, my goodness… Well, I have to raise my right hand and let everybody know that I bought swamp land in Florida… That’s right, I’m a cliché. I bought into this “Woo-hoo! You don’t have to be near the property, you can buy it sight unseen and make a lot of money with real estate” back in the early days. So we bought a property in Florida, and it had a few problems, and we didn’t even look at the property beforehand, we just had complete trust that the people who vetted it said it was fine. Boy, were those some good hard-learned lessons to never repeat again… [laughter]
Now, if I’m going to do a property, I’m going to see it myself, I’m going to make sure it’s within a distance that I can actually go and see it within reason, so… Yeah.
Joe Fairless: So the property itself wasn’t a good one… But as far as the cleaning crew goes, did you have an issue coordinating that, or just the purchase was bad?
Sue Hoyuela: We were managing it through a property management company who was handling the cleaning… And it was just kind of funny, they would nickel and dime us every month for this and that little expense that all of the wonderful profits you were supposed to be making from rentals were somehow going into the profit manager’s pocket instead. So it’s really nice if you can kind of oversee what people are doing and have them closer to you.
Joe Fairless: Yeah, and you did a Freudian slip, you call him a profit manager… [laughs]
Sue Hoyuela: Oh, did I?
Joe Fairless: That’s exactly what they’re doing… On the cleaning crew examples, you said it depends how much you pay them, depending on one bedroom, one bath, $20; 3,000 square feet, $200… Let’s just go with those two examples. $20 to clean up one bedroom, one bath. How much would you charge the person who’s staying there?
Sue Hoyuela: Well, there’s so many things involved in that… You’re looking at the demographics of the guest who’s coming to stay, because if they’re staying in a private room in a shared house, they’re usually a budget traveler and you don’t want the cleaning fee to be higher than what they’re paying per night. So on that one I would go as high as $25 for the cleaning fee. For the five-bedroom three-bath, which is like a mini-mansion, it’s very high end, people are paying $250-$300/night to stay there, so I’m able to charge more for the cleaning, and it’s not going to deter anybody from booking the place.
Joe Fairless: What would you charge? If you had to pay $200, what would you charge there?
Sue Hoyuela: About $250.
Joe Fairless: Okay.
Sue Hoyuela: You have to keep in mind, Airbnb does take 3% from every booking that they get for you, so that does factor in as well. So you don’t keep $250, you keep $250 minus 3%.
Joe Fairless: How many Airbnb rentals do you have, and where are they located, roughly?
Sue Hoyuela: Well, I’ve been using four different business models to get properties under contract… So I currently have 11 properties under contract, and most of them are within a ten-mile radius of where I am, basically in St. Gabriel Valley, which is on the East Side of Los Angeles County. I’m definitely not in the heart of Hollywood or Santa Monica where the tourists want to be, but I’m finding that I’m still able to make quite a good profit out here in the suburbs.
I also offer reservation management services for busy landlords that want to get in on the lucrative short-term rental game but don’t have the time or inclination to get involved with the management, so I’ll partner with them. Some of those properties are farther out – Coachella Valley, Anaheim and… Where else? Yeah, I’ve got them spread out. [laughs]
Joe Fairless: Yeah, they’re sprinkled all over California. What exactly do you mean you’ve got four different business models to get properties under contract and you have 11 under contract?
Sue Hoyuela: The first business model is the bed and breakfast model. Airbnb is one of the few booking engines that will allow you to rent less than a whole house, and this is where it’s really fun, because you can take one house and break it up into multiple profit centers by renting individual private rooms, and even spaces. So I’ve rented the couch in my living room. I’ve turned the closet under my staircase into the “Harry Potter cupboard under the stairs” room.
Joe Fairless: Oh, my…
Sue Hoyuela: I’ve rented a tent in my backyard… I’ve tested the limits of this, of how creative can you get with space.
Joe Fairless: How much did you charge for a tent in your backyard?
Sue Hoyuela: We were making $700/month for it.
Joe Fairless: And you said “were”, so are you not any longer?
Sue Hoyuela: Right, it’s a seasonal thing, because in California you probably don’t wanna be in a tent in the backyard in the winter time… We’re getting ready to put it back up though as we’re moving into summer.
Joe Fairless: Okay.
Sue Hoyuela: So that was what I call the bed and breakfast model. The concept is the sum of the parts is worth more than the whole, because when I’m renting spaces in my house, I can generate maybe $6,000 to $10,000 per month, just by finding different spaces people will rent… My laundry room, or who knows…? Anywhere you can let somebody sleep. Give him a pillow and a blanket, and they’re set.
Then the whole house vacation rental model – of course, it’s the standard one, that most people are familiar with… So I’m renting a whole house.
The other two business models… I discovered that – this may blow people’s minds – timeshares are a fantastic investment. I pay $900/year in dues and I rent out my free week for $2,800. That’s like a 200%+ return on my investment, year after year.
Joe Fairless: You get paid to go on vacation.
Sue Hoyuela: Yeah! Timeshares are an amazing investment. I have a product called “Timeshares Goldmine” to help people turn their timeshares into a goldmine, because so many people are frustrated with them and they don’t realize that they’re sitting on a fantastic cashflow that will make other investors jealous.
And then the last one that I also refer to is reservation management – helping other people who wanna get in on the lucrative short-term rental game make that triple-the-rental-income. I refer to them as my “just send me a check” landlords. They don’t’ wanna be bothered, they just want the passive income, so we take care of the management for them and send them a check.
Joe Fairless: So when you said you have 11 properties under contract, does that mean that you have 11 properties that you own and you’re currently using the Airbnb model?
Sue Hoyuela: Well, one of the things that I got into early on was I realized that by purchasing properties I wasn’t going to be able to scale my business very quickly, because it takes a lot of capital… So I really focus on leverage. The only house I own is my own personal home – and the timeshares – and the rest I rent other people’s property, and that’s been a fantastic strategy.
For example, one property that we rented – we were the landlord’s best tenants, because it’s in our best interest and it’s our reputation on the line to maintain the property in pristine condition… And she loved us. We paid our rent early, it was no problem paying her the $2,500/month she wanted because we were cash-flowing $4,500/month. At the end though, she decided she wanted to sell the property, and she gave us a first pick at it. But we were able to say, “You know, we’ve seen a lot living in this property for the last three years, and it’s got some problems, the city’s coming down on it for unpermitted additions… No, thank you.” So we can give it back and move on to the next.
It’s a try-before-you-buy strategy also.
Joe Fairless: But when you say “under contract”, do you have it under a purchase and sale contract, or you are a renter and you’re renting it out via Airbnb, so you’re sub-leasing it and you’re just making the spread off the top?
Sue Hoyuela: Correct. That’s a very broad term, and I say that intentionally, because “under contract” could mean a purchase contract, or it could mean a lease contract, or it could be a sandwich lease, a master lease, it could be a timeshare deed that you own the property as a timeshare, or a reservation management contract… So the idea is to control the property. Once you have it under control, now you’re in business.
Joe Fairless: This is such an interesting business model… I’m really grateful that you’re on the show. Based on your experience, what is your best real estate investing advice ever for real estate investors?
Sue Hoyuela: Well, I just wanted to share with everybody especially the timeshares piece. A lot of people are suffering with the dues for something they’re not even using, and they’re not even realizing they’re sitting on a goldmine, so… To me, timeshares has been the biggest a-ha, and combined with renting it on Airbnb, that’s been an incredible revenue generator for me, so I just wanted to share that with your Best Ever listeners.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Sue Hoyuela: Okay…
Joe Fairless: [laughs] Deep breaths, and she’s ready. First though, a quick word from our best ever partners.
Joe Fairless: What’s the best ever book you’ve read?
Sue Hoyuela: Financial Peace, by Dave Ramsey. His seven baby steps changed my life.
Joe Fairless: Best ever transaction or deal that you’ve done, from a short-term rental standpoint?
Sue Hoyuela: I bought a timeshare for a dollar and made $1,200 a year off of it.
Joe Fairless: What’s a mistake you’ve made on one of these transactions?
Sue Hoyuela: Buying swamp land in Florida. [laughter] Not doing my due diligence, yeah.
Joe Fairless: What’s the best ever way you like to give back?
Sue Hoyuela: Well, I would love to give back to the Best Ever listeners; a lot of people who start doing Airbnb, they wanna know if it’s gonna work on their property, and I have a proforma analysis system that I wanted to give everybody. They can simply go to AirbnbVacationRentalBusiness.com and download it for free.
Joe Fairless: Great, that’s the link the show notes page, Best Ever listeners. In addition to that, what’s the best way the Best Ever listeners can get in touch with you? Or is that it…?
Sue Hoyuela: They can get in touch with me at my e-mail address also. It’s Sue@VacationRentalsInLA.net.
Joe Fairless: Excellent. Sue, thank you for being on the show. Thanks for educating us – or at least me – on the intricacies of vacation rentals, how you make money, the things to look out for, how to make a profit on certain expenses, like the cleaning expense… One thing I think I asked but I don’t remember if we got an answer for, and it’s my bad if we didn’t – property caretaker, how much should we allocate for that person, from an expense standpoint?
Sue Hoyuela: Well, can I kind of blow your mind for a second? [laughs]
Joe Fairless: Yeah, sure.
Sue Hoyuela: One of the things that we’ve set up with our property caretakers is that if they live in our properties, we will either give them a reduced rent or free rent in exchange for their services, so it really doesn’t come out as a cost, but it could actually be an income producer if you charge them a reduced rent… But it’s really up to you to work out whatever works best for each other. We’re always looking for a win/win situation.
Joe Fairless: I think the theme here is how resourceful and just crafty – and crafty in a good way – you’ve become at getting the most out of this process, with the four different business models that you have, how you’re in some cases renting a home from someone, and sub-leasing that out (I assume it’s all disclosed on the frontend) and then making a spread. I have friends in New York City who are doing that in West Village and they were making a killing. And I don’t know if they were properly disclosing what they were doing, but they’d make like four, five, six thousand dollars a month just out of a West Village apartment… So it’s a fascinating business.
Thanks for being on the show, thanks for talking about it. I hope you have a best ever day, and we’ll talk to you soon.
Sue Hoyuela: My pleasure. Thanks for having me. Have a great day!Follow Me: