Airbnb Hosting: The Good, The Bad and The Profitable
Fri, Oct 11, 2024During the pandemic, I bought a vacation property in the Laurentians, as an escape for the family but also for short-term rental on Airbnb.
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 been operating the property for the 4 years, even from far away such as the other side of the world, 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
- 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 filter groups and make sure you host respectful families, but ultimately, you can expect having to continuously repair and replace amenities, from plumbing to electricity to furniture and decoration. Sometimes, I have a local handyman do this, but most of the time, I did all myself.
- Costs add up significantly. 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 very little positive cash flow. If you planned to get rich quick, forget about it!
- 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, Montréal has traffic jams all day long (and even at nights!), 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.
- Airbnb provides leads, but ideally you would want a base of loyal customers or at least a website that brings in customers regularly. I know marketing professionals who bought vacation properties and approached this as a marketing job and use the latest tactics with good success, but alas, I do not have time nor the expertise to do that.
- 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.
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. Trade tariffs and generous government benefits kickstarted inflation, interest rates went up, and now the average North American have their grocery bill, rent or cost of services higher than their earnings. This means the vacation property has been sitting empty and not expecting anyone yet for the winter season. With more trade tariffs planned, inflation will go up again. However I think this is only temporary and the situation should improve past 2025, with investing in a short-term rental chalet one of the best decisions.
Your Typical canadian Log cabin in the Quebec laurentians
is needed") Nature rules. The water erodes 2 feet of land every year so major work $$ is needed
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
Enjoying sun and fresh air
Marshmallow fun
It takes 16 hours of hard work to get the dock, decks, piles out of the water. Real Blood & sweat
“Paddling, swimming, and beach time
Bonus Modelization
Regular readers know I like mathematic equations. 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 is 0.8 and higher for outstanding chalets
- 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.
- 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.
It does sound a lot like work now, and I would not recommend it to most people. You need a family and a job that allows it. You need to be able to get your hands dirty, when needed. You need to have a good financial blanket in case it dries out and you have to pay expenses out of pocket for six months. Was it worth it though? Totally! As you can see from the pictures, me & my family enjoyed it and have priceless memories and life learnings that cannot be duplicated, and that goes above everything.