James Svetec
Sarah: James Svetec is the co-author of Airbnb for Dummies, really cool. The expert mind behind the world's most popular Airbnb blog and top 1% performer on Airbnb. Founder of the BNB Mastery. So, James is going to take us through some of the steps of the basics of Airbnb’s and some tips, how to get started and the rental properties in some of his most recent deals as well.
Welcome James, and we're excited to hear all about what you've got for us today.
James: Yeah. Thanks so much. Welcome everyone looking forward to going through. And yeah, I guess my goal for this is basically just to share with you guys a little bit of my background, basically, and then just give some tips and some insights into investing into short-term rentals. Similar to what Sarah mentioned, I really liked doing a BRRRR strategy with a short term rental price. Because the cash flow is incredible. And you also get to build a bunch of equity through the renovation.
So, I'm going to walk you through my most recent project where I did that. And then also just share some of my insights on the market right now. Cause there's some really cool opportunities, right?
So, I just want to share about that to cap things off. So, my background is I actually started on Airbnb and short-term rental about five, six years ago and was focusing at the time on managing other people's properties in downtown Toronto on short term rental. And then grew a nice big portfolio doing it that way, grew to about 35 listings that we were managing.
And then got more involved in the education space around it. I got involved with the blog BNB and started a BNB mastery program where I now consult with about 500 management companies. Short-term rental management companies around the world.
And then as Sarah mentioned also co-authored Airbnb for Dummie. So, I've been in the space for pretty long time and have a great deal of experience with all kinds of different listings, which I found to be really helpful in getting into investing because now that I'm investing, it's just I found it really useful to be able to know a lot of the insights of what makes Airbnb really stand out.
And being able to see firsthand from working with my own listings and then a lot of my students' listings, which different opportunities there are and which properties tend to perform the best. A lot of those insights have been big contributing factors to why this most recent investment has gone as exceptionally well as it has.
So this is the most recent property right here. We purchased it up in the Kawartha Lakes area specifically in Buckhorn. And this property is a really good example of my first tip for anyone investing in short-term rental, is that the best properties are always an arbitrage opportunity.
And I, what I mean by that is not like rental arbitrage, that some people might've heard of when you're thinking about Airbnb. There's this really popular model of going and renting a property long-term and then flipping it on to Airbnb. That model is pretty subpar for a lot of different reasons on a lot of properties.
But the concept of finding a property that is undervalued on a certain market, but then is exceptionally valuable, is more valuable on short-term rental is a concept that I find applies extremely well to investing in short term rental properties. So what I mean by that with arbitrage, when you're investing in properties is trying to find properties that for whatever reason, The typical buyer, the kind of avatar buyer, the ideal person looking actually purchased that property values at less or far less than us buying it for short term rental as an investment property.
And so this property was a really good example because anyone that's familiar with the cottage country around the Toronto area will know the typical buyer up in this area is a pretty well-to-do Torontonian who wants to get a turnkey cottage where they can just go hang out, have a good time. So, for a number of reasons, this property did not fit that mold.
So, we were able to be in a market where we actually bought this property on the market, which is unbelievable because everything on market right now is going for like a hundred, 150. We’ve seen some even go for $500,000 over asking. And usually, it's a complete bidding war with it, with properties being sold in three to five days.
This property we bought about two months ago now, and then we just finished our renovations and just launched it three days ago. Now, we've been live for about 72 hours on Airbnb. And when we bought it, things were going crazy in the market. Rates were up like the market value of homes in this area were up like 35% year over year.
And this property in specific, we actually got for just over a hundred thousand dollars under asking price. And we got it with conditions. We were able to pick it up because this property had been sitting on the market for over 90 days. And so there's a couple of reasons why it was sitting and those reasons are what made it a really great arbitrage property.
So, the first of which was the fantastic blue carpet. This property was very dated. Like it had awful finishes. It had blue carpeting throughout, it needed a lot of work. So, it did not fit those typical turnkey criteria that a lot of the people buying properties in this particular area we're looking for.
It needed about $70,000 worth of renovation work to bring it up to where most people would want it to be as a cottage. And for that reason, not super desirable. Another one is that the sellers of the property actually just priced it too high. Usually, the strategy that realtors are deploying right now is to price the property low, to create a bidding war.
These sellers were trying to be a bit greedy and they didn't, they just bullied their realtor a little bit and made him price the property high. And it was so much higher than it should have been that it just scared people off. People looked at the market and said, everything's going for a hundred thousand dollars over the asking price.
I'm not even going to bother putting in an offer because it's not worth a hundred thousand dollars more than what they're listing it for. It's not even worth what they're listing it for. And so, by the time that we offered it after being on the market for 90 days, there were only two other offers that had ever been entered on the property in that 90 day period, because people were just too scared to even bother and didn't want to waste time.
The third reason, it made a really great arbitrage property. And the really great thing about this for us, by the way, with the renovation needs is it was almost all cosmetic. And so, the work that we did was able to really make a perfect BRRR property where we were able to put in money, really a ramp up and force the appreciation.
So, it was perfect for us for the exact same reason that it was awful for the typical person buying in this area. The other really great thing for us was that it's actually a lake view property. It's right by the lake and there's lake access down the road, which for Airbnb guests, that's perfect.
That's all they need because they don't have a dock there. They don't have boats. They're looking at a dock there, and as long as they get that cottage experience, they're just as happy. And, this property was selling at less of a premium to give you an example, to give you a comparison, a similar property, similar size, an hour further north of Toronto that was turnkey.And on the waterfront recently sold for just over a million.
After renovations we're in this property for just under $600,000. The difference there in terms of what we bought it for is massive. Like it's a $400,000 difference in price, but from running the analysis on both properties, I know that the actual potential income on both properties is pretty much neck and neck.
So, buying a property that is not on the water. Number one, you are paying a premium to be on the water. We also aren't paying a premium on our property taxes because property taxes for waterfront are quite a bit higher as well. And we get all the advantages of having that lake access and having that lake view that Airbnb guests want.
So, we did some really great renovations. We ramped the property up. We're going to do a cash out refinance like you typically do with the BRRR. And we did all of our renovations with the guest in mind. A couple of other tips I have before touching on the renovation one big one is that as a general rule of thumb, more bedrooms typically equal better ROI.
So, for the same reason that a lot of investors love to get into duplexes, triplexes, fourplexes, and multi-residential buildings, as opposed to a single family home. You know, that theory of you only have a duplex, you have two units, but one roof, you've got usually one furnace for that property.
You've got all of these different things. You only have one of them, so you're only paying for it one time, but you get the two units and that's why the unit cost ends up being lower. You can apply the same thinking to an Airbnb or short-term rental where the unit costs per bedroom is lower.
If you get more bedrooms, you only have one roof. You only have one foundation, only one furnace, but you've got more bedrooms and that's really advantageous on short-term rental for a couple of major reasons. One is that you open yourself up to way more demand because this place is a six-bedroom place.
Cause you've got three bedrooms upstairs, three bedrooms downstairs. It can accommodate groups of 1, 2, 3, 4, 5, 6, all the way up to 12 people or more. So, we have access to the entire amount of demand on a short-term rental market. As opposed to, if you have a one bedroom, you can only accommodate the people that are searching for one or two bedrooms. So, more demand, it means that you're going to be able to increase your rates and you'll be able to stay booked throughout the low season, because in the winter time, when there's not a lot of people traveling, we might only accommodate three or four people in this place. The other really great thing, especially in the high season for maximizing your rates is that a thousand dollars a night is a lot easier to justify when you can split the costs across 10 friends that are coming and staying in this place.
So, the highest rate that we've gotten so far for this property is $1,200 a night. We just launched it in a couple of 72 hours. And that $1,200 a night rate is really reasonable because they're coming with 10 people and it's equivalent to them paying for a cheap motel. If each one of them were going to each get their own room.
So, that's a really big one, as well as just making sure that you get properties with more bedrooms that tend to perform a lot better. And you ended up getting a better ROI. The other piece about renovations is just making sure that you do renovations with the guest in mind. So, a couple of things that we added strategically to this.
Actually, before touching on the other piece that I wanted to mention as well as data is massively important with short term rentals. Whenever I talk to you about investing in short-term rentals, the general concern or fear around it tends to be this idea that short-term rentals are really unpredictable that you can't predict them.
They're super volatile. That it's really risky. And the reality is that they are a lot more volatile. There is a lot more fluctuation from month to month, but unpredictable is not an accurate way to describe them. You can actually predict with relative certainty how well an Airbnb is going to do.
If you know how to know the right tools, there's tools, for example, AirDNA is a data source that you can use to actually pull the data from different listings in a particular area, and look at exactly how well other properties around you are performing. And you can use a spreadsheet like this one.
Don't worry about all the numbers in this. This is just here as a visual representation of why it's so important to run the numbers on Airbnb. So, before purchasing this property, the reason I don't think it's risky to buy short term rentals, if you're buying them right, is because we ran the numbers on this property and realized that the acceptable for us to get an acceptable return on this property, it needed to generate at least $50,000 a year in gross rental income.
That was our baseline. And we were able to see that looking back on 2018 and 2019 data before there was a spike in this area from the pandemic, because a lot of people want to get away to cottages. So, the numbers went up, but basically on the 2018, 2019 data, even if this property were only a four bedroom, we would safely easily be able to hit that $50,000 number.
So, we knew that there was a whole lot of room for room for error and room for things to not go as planned. And we would still be able to hit our numbers on the property overall. And mind you I'll show you how the property has been performing the first 72 hours. It's shocking even after having looked at the numbers and really done a lot of analysis. But yeah, you can run the numbers, look at actual data, you can run different kinds of worst-case, best-case scenarios and get a really good picture of how well the property is going to do and what levers you need to pull in order to make the property perform better by just having access to that data and learning how to use it properly.
The other piece is around the renovations and adding amenities. We really looked at this as, okay. There are two goals here, really. I like to break it down and look at it really simple. Like you want to maximize your income in the high season and you want to just basically maximize your income in the low season as well.
So, in the high season, it's a little bit different in the high season. It's really just about making your property really desired. And then pricing it accordingly. Honestly, you make a lot more money in the high season by understanding how to price listings properly, because pretty much everything is going to get booked.
It's not really a question if you're going to get booked. It's more so a question of if you're going to get booked for a good rate. And then in the low season, there's only 25%, 30% maybe of the available listings that are actually going to get booked. So, you have to make sure that you are one of the top 25%, most desirable listings in that.
Now, obviously this is area dependent. If you're in somewhere like California, you might see a lot more consistent demand throughout the year, but a lot of areas tend to have big seasonal fluctuations, Canada being one of them. So, we added many, for example, a hot tub when we've got a sauna coming in a couple of weeks here as well, that is going to do a great job.
Number one, making it really desirable for people so that we can charge that higher rate. But the biggest thing is for the low season, this makes it a really attractive property to get away to in the winter time. So, that was a big reason for that other thing we did. So, for example, just spending a couple hundred dollars on getting a kayak, getting a ping pong table, getting a couple of bikes in there.
Just give it more things to do, because from a perspective of guests, the person that's traveling here, the avatar group is generally going to be like a larger family or a group of friends. And what do they want to get away for a weekend of relaxation and fun and more than anything, especially right now, they do not want to be bored because everyone is bored out of their minds during COVID.
They want things to do. So, if we can give them more things to do while they're here, then they're going to be willing to pay a premium for that. So, having different options, like for example, the ping pong table, the bikes, the kayak. We also spent a couple, literally just a couple of hundred dollars and got a corn hole set, a spike ball set, and a botchie ball.
We spent some money on it and got some board games. We spent $400 to put a movie theater in the basement with where the projector and a soundbar that we bought used off Facebook marketplace. Those are all really small spends in the grand scheme of things. When you compare it to a $70,000 renovation spending like a couple of thousand dollars on the extra games and the home theater system is really a small drop in the bucket. But that's going to make a huge difference on the ROI that we're going to see. So, I like to call strategic amenities like that are going to be a huge factor in increasing your ROI. And then the last thing I want to share is that launch is so important, like really important.
This is how the property, I took this screenshot a couple hours ago, we're at 37 and a half thousand dollars in bookings on the platform. We actually have a wedding that's coming in as well. So, actually that booking, they booked off platform. They're a friend of ours. So, We booked over $40,000 and the listing has been live for 72 hours.
Like I invested in this property with a business partner of mine. Who's traditionally used to long-term rentals and this is his first short term rental property. And he's just blown away. Like every time I keep updating him, he just can't fathom that people are paying for a night, what he's used to getting in a month.
And you can see for 37 and a half thousand dollars in. It's all from June to August. So, we now have nine more months to get ourselves over that $50,000 mark. It's just crazy like it's going to reasonably do a hundred to $120,000 in gross income this year and surpass even my expectations for the property.
And that really comes back to the launch being so critically important. I can't stress it enough. How important the launches are. Just without getting into a lot of the weeds about how Airbnb's algorithm works and how all that kind of shakes out the easiest way that I like to explain it to people is that.
For obvious reasons. Airbnb is a company looking to grow. They need to make sure that new hosts coming onto the platform can still perform really well because the way that they, as a company, grow by having more new hosts come on and succeed. And if they want people to do that, they need to give those new hosts a little bit of a leg up when they first get started.
Because otherwise you are at a disadvantage being that you don't have reviews and you don't have a lot of lead time to get bookings in because typically, you're launching and you have availability right away. Whereas a lot of people look for accommodations, 30, 60, 90 days in advance. So, you've got that disadvantage when you start.
So, to make up for that, Airbnb gives you a bit of a leg up and they give you a big initial boost of traffic. And a lot of times I hear people saying, yeah, I got this big initial boost of traffic when I first got started. And then all of a sudden things started to really quiet down. And that's because Airbnb is still a company that's driven by profits and wants to make money.
So, the way that their algorithm is designed is such. They give you that initial boost of traffic, and then they have their algorithms measure how well you convert that traffic into bookings and ultimately into Airbnb service fees. So, in other ways to look at it, it's easy to look at it, they just basically measure for every single person who sees this listing, how much money do we make?
If that number is higher than they're going to promote your listing more. Long-term you're going to show up at the top of the search results. If that number is lower, if they show it to a thousand people and nobody books the place, or one person books the place, and they make a very small amount of service fees off that naturally, they're not going to prioritize showing that listing to other people.
Long-term they're going to show the listings that make them as a company, the most money. A lot of the time, the mistake that I'll see hosts and even professional management companies making is that they're very shortsighted. They go. I want to get the listing like up in live right away, because every single day I wait, I'm losing money.
So, a lot of times I'll see people go in there and take pictures with their iPhone and list it and just put a scrappy listing together really quickly and just launch it. And then they'll try to go back a week, two weeks, a month later and put in the professional photos, make those adjustments to make sure.
And that really hurts you long-term. You might be able to pick up one or two extra bookings. Cause you got lists a little bit earlier, but long-term you're, it's going to hurt your search ranking because when you get that initial launch, it's going to have a subpar listing. You're not going to get as many conversions and then long-term, it's going to really hurt your search ranking.
And this is true of all the different platforms I speak about Airbnb. It's the most popular one, but the algorithms all work generally in the same fashion where they prioritize making that company money. So, what you want to do. Like what we did, once we got the property up and ready for guests, it took an extra five days because we had to get a professional photographer to come in.
They had to take all the photos, send us the proof. And then we select which ones we want. They went, edited all the photos and then sent us back. That was a five-day turnaround, even at $500 a night. That's $2,500 in missed and missed potential bookings so that can sting a little bit.
If you don't think about the long-term and the long-term note, we were able to get a launch where in 72 hours, we booked up almost all of July, a big chunk of August. We've 37 and a half thousand dollars in bookings in the first 72 hours.
So, naturally our listing is one of the best converting listings on Airbnb in the area. And it's going to stay way up at the top of the search results going into the down season. That's going to come in the wintertime. So, we're going to more than make up for that $2,500 in potential missed bookings early on, just because of the fact that we waited, we launched it properly. We made sure it had the right headline, beautiful photos, really put a lot of work, a couple of hours of the work into putting that listing together and really optimizing it and dialing in.
And then promoted it heavily to make sure that we get those bookings. That's one other little hack for the lodge is that my girlfriend actually started an Instagram account. And by the time that we launched between the time that we purchased the property and the time that we launched, all she did was just curate some content of the Buckhorn area, things to do.
Did a couple of little stories with updates on the project, as it was coming along and amassed a following. I think it's around 200 people maybe, but out of just that small little Instagram following, especially right now, because the demand is so high, we actually got about four bookings and four bookings is like thousands of dollars for us.
So, that makes a really big difference. If you can do that as well, anything to make your launch more powerful. We'll pay off right then, but it'll also pay massive dividends down the road when you can consistently stay at the top of the search results. That's all my major tips, honestly for Airbnb. This project has gone really well. And yeah, those are my main tips for starting out.
Sarah: James, that was awesome. Thanks for these awesome tips that I've learned a ton. I'm definitely going to use them.
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