The Hidden Costs of Quitting Airbnb (My True Story)

Well, I thought taking my property off the short term rental platforms like Airbnb was going to save me a lot of headaches and actually make me more money. And I know that sounds crazy because I've been teaching about how short term rentals earn way more money than long term rentals. But things have changed. So I threw in the towel, took one of my properties off the platforms. And I can't say that I'm really happy with the decision that I made. I want to give you all the details, break down exactly what happened. Stay tuned.

Well, welcome back to the Short Term Rental this podcast. I'm really happy you're here again. And I've got a real life story for you today about a property that I converted back to a long term rental after years of running it as a short term rental. I originally purchased this property, gosh, I want to say, in 2021, and this is a five unit apartment building, but there was one guest house that was separate from the main building. So I thought, you know what, I'm going to operate this as a short term rental because I already had operations set up in and I already had a lot of other successful short term rentals in the market where I knew firsthand how much those properties were making. This is in a really nice neighborhood, but the unit was very small. It's a studio, it's probably only 500 square feet. It wasn't renting for a lot on the long term side. And so I thought I'll convert it to a short term rental and I could probably earn at least double, if not a little bit more. It didn't cost me a whole lot to set up this property. I mean it wasn't very big. So we're talking, talking a bed, bed frame, a couch, some kitchenware, a TV. I probably didn't spend realistically more than about $5,000 to get this property started. And I ran the property for a couple years, but then I started to run into a few challenges and I'm going to break those down. They are not just financial challenges, but also some management challenges. And I know I've been teaching on this podcast on this show for years and years about management. So you might be thinking, Tim, how the heck are having issues with management after managing tens of thousands of guests with your team? Well, there's a couple little caveats with this property, so let me share the details. The first one I mentioned that this property was a guest house on the same property, the same lot as another four unit building. And so we have some Long term tenants. And then we had short term guests staying at the unit behind. And that ultimately was one of the conflicts. The long term guests did not like the short term guests coming to the property. There was also a bit of a tight parking situation. All the parking is in the rear of this building. The guest house had designated parking, the tenants had designated parking. But as we know, guests don't always read all of the instructions perfectly, even though we send them at the ideal times and we make them very, very clear. There were a couple parking issues where the guests were parking in the long term tenant space. And after this happened a few times, the long term tenants started to get a little annoyed, which is total, totally understandable. They've been living there in peace for a long time, then all of a sudden they've got travelers coming in and out of their property. Now I do have other properties where it's mixed, where I have long term tenants and I have short term guests. And yes, it is not ideal. And yes, times have changed. Years ago, short term rental guests using Airbnb or vrbo, their expectations were a little bit lower than they are today. And so with higher expectations today, every little thing counts. And even though advertise this property really well to say, hey, this is a guest house on a property where there are other long term tenants, still a few conflicts that came up. And to add to the management challenges, I'm actually not managing these long term tenants myself. And I know that sounds crazy because we manage lots and lots of short term guests, but really it's just because I had a property managing some of my other long term rentals and I had other more important things that I wanted to handle. And she's done a good job. So she's just continue to manage all my long term rentals. But you can imagine all of these tenants going to her and saying, hey Dusty, Dusty happens to be your name. We don't like these short term guests coming here, there's some parking issues, so on and so on. And so Dusty's reaching out to us and saying, hey, our long term tenants don't like the fact that your guests are parking here. And then from our side it was actually a little bit of the reverse where we had guest complaints that saying, hey, these long term tenants are sort of bothering me. You know, they've come over to tell me about my car, whatever it happens to be. And so there was a little bit of conflict there and unfortunately that showed up in the reviews. So we basically have two different management teams going on here, right? We have the long term management team and then we have our short term rental management team. And there was just a little bit of butting heads going on there. And so I sat down and I thought about it, I looked at the numbers, I said, you know what, let me check out the numbers, let me see how this thing's doing. And if, if it's somewhere kind of in between there where I don't think I'm going to be losing a lot of money, then I'll just go back to a long term rental. So let me break down the numbers on this and then in hindsight I'll let you know what I would have done differently. So this property, as I mentioned, it was a really small studio. And when I bought the building, the five units, they're not rented for a lot. This is in Memphis, Tennessee, so rents are just not high in general. This isn't a really nice neighborhood. And this unit was rented for maybe around $900 or something like that. And so having other small short term rentals in the area, knowing that some of them were rented for 2, 2500, $3000 a month, I thought this is a great opportunity for me to double my income with this property. And also a test case to see whether or not I should convert the other four units into short term rentals. So I started that was back in 2022. Last year it did about $18,000. So had it expectations it would have been around $24,000. A couple reasons for that. The supply in this market has grown tremendously. So there have literally been hundreds of units added in and around this neighborhood which without demand growing means your price is down. So that was a very big impact. And so earning $18,000 in a year, we subtract out the utilities, the Internet and the cleaning fees. Maybe this property was earning around an extra $500 a month versus the long term rental. So anywho, with those two things together with not a big amount of money on the table and a little bit of management conflict, I decided let's go ahead and just take out the furniture. I've already got amazing photos. Let's list it for rent. This property should get at least a thousand and fifty dollars a month and I won't be earning that much less than I was as a short term rental. So we made the plan, I reached out to D, we took out the furniture, we got all ready to go and a month went by and no one had rented it yet. And then another month went by and again, this is renting in Coming up on the winter season, which isn't traditionally a great time in this market to rent a long term rental. So it ultimately took a little over two months to rent this property. And I didn't unfortunately get 1050 for this small little studio. It went all the way down to $850 a month. So if we look at this on an annual basis, knowing that was vacant for two months, basically to get 10 months of rent at 8:50, $8,500 versus the 18,000 I was getting, yes, I have some expenses there, but after backing out my expenses, I'm really on track to earn like basically half of what I was as a short term rental. Yes, I don't have any headaches anymore. And yes, the tenants in the main building are happy now, which is important. They're basically paying four times as much rent as this one individual studio. So that is a big consideration. You might be thinking, Tim, why didn't just make it a midterm rental first? And I know I've talked a lot about midterm rentals on this show and I have a lot of midterm rentals and we also manage quite a few midterm rentals out there. But the final answer is just I didn't really want to deal with it. You know, I got a lot going on and I didn't want any more management conflicts, so just said, oh, this is the easiest way, let's do this. So in hindsight, looking back, do I regret it? No, I don't. Because I can always go back and rent this as a short term rental again. When the numbers in the market improve, we know we can find that pretty easily. If we just go to air DNA, we look at the amount of supply change and then we look at the difference between the average daily rate and the average occupancy, of course, for the same type of property. And if we see that increasing, if we see our revpar or the total revenue for these properties going up, well, then maybe I will have more incentive to put this property back as a short term rental. And if I were to put it back as a short term rental, there's some pretty easy things that I could have done to make it easier on management. One, there were some parking issues. I could have just painted parking lines in there, put in some parking signs, made it a lot more clear than it currently is. That would have gone a long way for the guests, that would have gone a long way for the tenants. And then we could have just had another conversation with the tenants, just to talk with them and understand what it was about the guests coming that they didn't like knowing that this was a separate unit. Right. It's not someone actually checking into the same building. And I'm sure that we could have worked something out there. So in hindsight, do I regret doing this? No, because I don't have the headaches now. But will I be earning thousands of dollars less than I was? Yes, I will be. And we've talked about this before in the past, but it's very possible that this long term tenant may only stay in the property for a year. We hope that they stay there for a long time and Desi does a great job managing the long term tenants. But let's say that they move out in a year. Well then I have those turn costs and maybe the property sits vacant for another couple months. So we really have consider these things. If you have a property out there where you're thinking about maybe pulling it back as a long term rental, well, just think about the numbers twice what you expect to rent it for and how quickly you expect to rent it. Those might be different than the reality. I'd also encourage you just spend a little bit of time to see if whatever issues you're having you could resolve pretty easily. I hope these insights help you a little bit if you're going through this decision process. And until next time, I hope you have a fabulous week.

Sam.