The Good, The Bad and The Profitable : my lessons with Airbnb

Fri, Oct 11, 2024

TLDR: What started as an exciting adventure in short-term rentals turned into a crash course in entrepreneurship, resilience, and family bonding.

During the pandemic, I bought a vacation property in the Laurentians for short-term rental on Airbnb and for priceless family moments

The chalet (official website) is waterfront on 2 acres, has the typical log home look that many vacationers look for, and while being secluded in nature, has many modern amenities such as a spa, fully furnished kitchen, 4K TV with hi-speed Internet, indoor & outdoor fire pits, a high-end aluminium & cedar dock with boats, and so on.

During the pandemic, it was always occupied, except for a few spots in fall or spring, and made between $70k and $100k yearly. Why not an exact number? This is due to missed opportunities, refunds, but I also had friends coming over who instead of paying contributed to the property’s upkeep or amenities.

In theory, $70k to $100k annual revenues means you could pay back the mortgage in a few years, so you will have a property generating “free” cash flow, as well as a waterfront property that friends & family could enjoy and have life memories. Doesn’t that sound amazing? Maybe one could buy a couple of vacation properties, retire early, and work 4 hours weekly doing some property mainteance and responding messages from wealthy customers.

That was the theory. I have operated the property for four years, and have hosted 300+ families. The theory clashes with reality:

• Operating a vacation property means a hard commitment. It is not a hobby, or a low-end job where you can call in sick. It is your responsibility to address issues as soon as possible, answer messages professionally even from disrespectful patrons, and go onsite at least once monthly. The only way out is selling the property, but until then, you have to consider this like taking care of a baby. What made it work for me was avoiding seeing this as a chore, but as a privileged escape that gives me balance, away from city life.
• There is constant property damage and theft from groups. Because I am not onsite between two groups, and also there are too many amenities, it is almost impossible to know who broke or stole something. The first times, I filed claims, and had one group left a 1-star review painting me as an irresponsible host, or had Airbnb stating I had to eat the costs. You can expect having to continuously repair and replace amenities, from plumbing to electricity to furniture and decoration. For me, I like to establish quickly a personal relationship and make sure the group is aware of the rules. So I thank them for the interest, but I also express firmly that rules are meant to be followed.
• Managing costs is a constant challenge, but it taught me resourcefulness and adaptability. From the $70k to $100k, a large percentage go to the cleaning team, handy man, property renovations (roof, plumbing, septic tank etc). Airbnb takes a large cut as well. Then there is an endless list of tools, propane gas, firewood, tens of cleaning supplies from Costco, dozens of towels and bed sheets, permits, fees, insurance. In the past few years, municipalities caught on the Airbnb craze and many saw it as an easy way to make money, doubling or tripling taxes for short-term rental properties. After adding all costs, you end up with little positive cash flow. Forget about getting rich quick! I did not put a lot of effort in controlling costs but I am sure most will find a way.
• Travel times add up. The first few years, it was fun to have a secluded property to go to. The views are picturesque, the highways are well maintained, and it was always a welcomed break from the city life. 5 years later, Montreal now has constant traffic jams even at night, there is constant road construction, and we also have weekend activities for the kids.
• It is hard to automate. I was thinking that with the right tools and continuous improvements, it could almost run by itself. It does not work like that. Workers have to be closely monitored, customers want high-end timely service, attention to detail is important. Neverthless, tools like Nest, smart devices, Pricelabs for dynamic pricing, Intuit for accounting helped automated boring tasks.
• Airbnb provides leads, but ideally you would want a base of loyal customers or at least a website that brings in customers regularly. I have a website but still need to CRM tools
• Constant fight with nature. The waterfront is eroding away, and every year, I chase away mice, wasps, beavers, and all sorts of wildlife. Every season has its own issues, flooding in spring, lawn and plants upkeep in summer, snowplowing in winter etc. This is something you either hate or love. 9 times out of 10, I love it 😁

The latest issue is that the middle class in Canada and North America is being squeezed. In many ways, the chalet is an escape for upper middle class and middle class families and couples to forget about their problems and enjoy some time off. They can do that if they save a few hundreds dollars every month. Inflation, rising interest rates, and economic pressures have left middle-class families struggling, affecting occupancy rates.

Your Typical canadian Log cabin in the Quebec laurentians

Erosion challenges: The water claims two feet of land annually, demanding significant upkeep

The chalet is a nice escape from busy city life

Endless trips to Costco, Ikea, Home Depot, Amazon for supplies.

Everyone learns how to do stuff

Deers, turkeys, beavers just outside

Marshmallow fun

“Paddling, swimming, and beach time

Bonus Modelization

Regular readers know mathematics to understand what is at play. This time, it is simple:

\[ \begin{aligned} P = R - C \end{aligned} \]

Where:

• P is yearly Profit
• R is total yearly revenue
• C is total yearly costs

Revenue Optimization

\[ \begin{aligned} R = N × OR × AR \end{aligned} \]

Where:

• N is number of rentable nights per year (365 - maintenance days). You want maintenance days to be as low as possible, but not as much as lowering the customer experience. Start at 15 days reserved for upkeep and work your way down.
• OR is average Occupancy Rate. It was 0.8 during the pandemic but can be as low as 0.2 in low season (spring/fall)
• AR is Average Nightly rate, $250 in low season and up to $700 in high season

Variables affecting revenue:

• Size: number of bedrooms and bathrooms is directly proportional to R
• Unicity: Revenue is divided if there are other properties with the same features
• Recency: Properties with modern amenities and design have higher revenues
• Presentation: Naming, Photography, Graphic Design, Copywriting should be done professionally.
• Location: Proximity to a high-volume turism center boost Revenues. This can be are a ski resort, a national park, a lake or a popular travel destination. The closer, the better.
• Amenities: Features like a hot tub, dock, bbq or boats increase AR.
• Marketing: Direct marketing, Social Media Leverage or repeat customers reducing dependence on Airbnb’s algorithm.
• Pricing Strategy: Dynamic pricing, discounts, per person pricing, additional services. For example, if you have 3 bedrooms but if a group only need 2 beds, you can close the third bedroom and reduce total cost.
• Seasonality: High demand in summer/winter vs. off-season occupancy.

Cost Optimization

\[ \begin{aligned} C = F + V \end{aligned} \]

Where:

• F is fixed costs (mortgage ~$24k/y, property taxes ~$5k/y, insurance ~$3k/y, permits $1k/y)
• V is variable costs (cleaning fees ($180+tx), utilities ~$3k/y, maintenance $10k/y including renovations, consumable $4k to 6k/y, Airbnb fees, online services)

Final Takeaways

• Owning and operating a vacation property is not for everyone. You need to have expert skills in at least one of these areas: marketing/sales, photography, customer service, operations including maintenance and cleaning. You also need a business plan on how you plan to tackle major issues. If there is no more running water, how are you going to fix it? Same for a broken amenity, mice, or a sick cleaning team.
• Make sure to buy a property with unique advantages, such as a ski-in, ski-out chalet, an exclusive water feature (waterfall, private lake), breathtaking view of the landscape, or unique architecture such as treehouse or a glass house. There are thousands of lakefront chalets, or properties with a spa, swimming pool or volleyball court, and you will have to compete fiercely if you get one of these, possibly driving prices down.
• Better yet, develop a unique story behind your Airbnb. Vacation properties with a genesis story and a community fare better than your average run-of-the-mill vacation property. Having a community with shared values also lowers thefts, maintenance and marketing costs, cancellations in exchange for time building the community through articles, media, events etc. I have started producing media and sharing what we do at the Chalet. Let’s see how it goes in 2025
• Have a plan to cut down costs. You might clean yourself. You could market your own website and leverage social media. You could build a property made of stainless steel so even toddlers or party goers cannot break anything.
• Have a plan to cut down on maintenance. In summer, I absolutely need to go to the property every 20 days otherwise there will dozens of broken amenities. The more amenities you have, the more maintenance is needed. Think hard how you can go around this.

Despite the challenges, this adventure has been nothing short of transformative. Hosting over 300 families, learning countless skills, and creating irreplaceable memories with my family has made it all worthwhile. If you’re ready for an adventure that tests and rewards you in equal measure, hosting a vacation property might just be for you!