HOW TO MAKE THE MOST MONEY ON AIRBNB

Whether you want to buy a property or rent a property may change actually because of this section We're going to talk about the difference between owning and renting properties and really what that cash difference is the cost to get in what your profit will be at the end of the deal. My goal here is to be much more fair to the ownership side and actually talk about the real numbers for owning a property so that you can make a solid decision. I have over 100 properties on Airbnb making millions of dollars per year automated. As a result, I’msuper biased into what I do which is renting apartments. In this section, I’m going to give you three scenarios: buying a cool house to Airbnb, renting your cool house to Airbnb, and then renting apartments. We're going to lay all three out there and look at the numbers so you can figure out which one you want to do. You can do any of them and they're all great ideas, but some have advantages and some have disadvantages in key areas.

About Airbnb

First let's get you up on some basics. Airbnb is a platform where you can rent out a property to someone who's wanting to stay a very short period of time. It's not exclusively short-term, we have people on Airbnbwho do rent multi-month almost like a tenant, but the main difference though is what it takes to get into aproperty to live there. It’s very simple, you just sign up for Airbnb, make a membership. You pay ahead of time for your first month to stay there or your first three days however long you're booking for. You make an agreement with someone who has a house or an apartment or a place to stay, and they allow you to stay because you booked on Airbnb. It's a peer-to-peer software where people who are traveling or want to live somewhere can find someone who has a property to stay in. Properties are most commonly furnished and have all bills and utilities paid. As a guest, you just show up with your luggage and drop your luggage into your home. That's really what makes Airbnb so special: is it's essentially allowing homeowners to compete with hotels for people who just operate on the Airbnb platform. It makes anybody an instant furnishedproperty landlord. Even corporate housing you could call it.

Airbnb was initially designed just for people to put air mattresses in their living rooms. People who were staying at conventions in San Francisco would have a place to sleep. The idea was really low level but the vision just kind of exploded once the potential was realized. Airbnb is much different than it was originally intended and now it's got over six million listings on the platform. You can buy a property own it and rent it out on Airbnb and you will make more money per property if you own it. You can get into properties by renting them from other landlords and getting permission and you'll spend less money to get in. When you look at a return on investment for each dollar put in how much money you get back out now the argument is who wins? The owner who makes more like profit per property, or the renter who got in for cheaper because return on investment is how much money you get back per dollar?

There are some key advantages of owning that that people who buy properties as a basic strategy will always talk about. I’ve always talked about renting properties and they'll say you've forgotten about a few things.One they're talking about debt pay down a lot which is where when you leverage a property you let's say you buy a $400,000 property you're going to have a mortgage and that mortgage you're going to make a payment on that mortgage every month. A tenant will normally pay that pay down that mortgage for you if you put on an Airbnb you're going to make a ton more money so you're naturally also going to be paying down your mortgage with your Airbnb income. You just have a lot more cash on top of it but you're still getting the debt pay down side.

When someone who rents a property picks up a property they're paying the rent to keep zero dollars of that money. They only keep this stuff on top right so landlords will tell you that debt pay down is a big factor. This does make sense in down markets where people aren't making any money on Airbnb like there's not just nota lot of profit. If you ended up in a scenario like that owning the property is great because all that money that a renter would have paid and then ultimately just did maybe slightly better than break even on Airbnb, the owner would have made their debt pay down at least so  homeowners are more protected with debt pay down paying down their mortgage. They're making money sooner than someone who rents. There's appreciation on a house. Homes increase in value. If you look at statistics, millennials and generation z whythey're not buying property right now it's because the amount of money it takes to buy a property now. Time to money labor-wise is so much higher than it was back when boomers were buying properties when they were younger. Homes are just worth more money than they were before and will continue that trend we believe at a rate of about 3.5 to 3.8 per year on average. That's the average rate of appreciation, so if you own a piece of property even if there's nobody in it paying you any money that property will go up almost four percent per year in value. Making four percent on your invested capital is great and they'll also argue that this four percent appreciation is really cool because you didn't have to buy the property outright if you get a mortgage. 

Let's say you put 20% down because it's an investment loan on a $400,00 house, you put $80,000 down.You will make 4% on $400,000 which is actually more like $16,000 a year that you're making on top of the AirBnb revenue. You get all the upside that a lot of homeowners will argue and lastly they'll argue that you gettax write-offs which is nice, you can depreciate your home over time. You get every year for 30 years you get to depreciate about a third of the product like about like three percent of the property's value because you can depreciate it over 30 years unless we get into another complex talk a bit called a segregate cost segregation study where you can depreciate faster. We're not going to talk about that here but there are hacks to take properties especially corporate real estate and just depreciate the just the tons of it the properties value right away which is super cool.

These are the main values like that up that up homeowners will approach when buying a property whether or not the Airbnb so now let's take those numbers and add Airbnb on top of it see we're talking about getting multiple properties here and not committing mortgage fraud. The practice of three percent down loan to get a house on an Airbnb at full-time is actually a crime so we're not actually going to talk about that we're going to talk about legitimate investment strategies. This means using like a conventional like investment vehicle to buy a property and then have it as a as a rental property but on Airbnb. That means 20% down loan on a four hundred thousand dollar house is eighty thousand dollars. In Dallas property that size because we're looking at properties that could maybe make twelve or fifteen thousand a month on Airbnb, in Dallas that'll roughly be a four hundred thousand dollar house. 

In like key areas the four bedroom houses is probably what we're looking for so that four bedroom house that can sleep enough people to make fifteen thousand dollars a month. This will cost you $80,000 to get into plus you're going to pay about $20,000 in furniture because the size of the house. You're going to be in for a $100,000 on the home in order to have a house that can generate $15,000 a month in revenue. Then you'll bepaying your mortgage off and stuff like that.

Looking at publicly available data on the average cost of a mortgage and the average appreciation on properties what we find here is that a mortgage you'll keep about 38 or 40% of all the money you ever pay in the mortgage over 30 years. We're going to use the average of south because honestly the first few years that you pay a mortgage off you're getting almost no debt pay down. The first few years but it's really unfair tohomeowners because over 30 years, the back end gets gets a lot of debt paid down. What I’m going to do is I’m going to do this average  because if we do this on like literal amortization math like debt pay down on the first three years of a property is almost negligible. If we just factor in like say what your mortgage is and you get to keep 40 of your average mortgage payment for 30 years as debt pay down then that's a fair flat number. This is it this is actually a handicap to the owners I know I’m being unfair in a way by giving them ablue sky scenario that's not actually true so your mortgage will get you  if you get 40% of whatever your mortgage payment is on this $400,000 house  you've got a $320,000 mortgage. You're actually going to keep about $7,500 per year in debt pay down if you keep that like 40-ish percent. Then, on appreciation side on a house that's worth $400,000, you're getting about $16,000 a year in appreciation so now you're making$24,000 just to own the home that's debt pay down.

If someone pays your mortgage for you and that is your you know appreciation for percentage per year, that’sgreat. For a $100,000, you've got $23,000 flat plus whatever else you can make on Airbnb. Let’s say that house does $150,000 your first year on Airbnb. You invested $20,000 into furniture and stuff like that but we're not going to really look at that we're just going to look at all that stuff is not getting it back out of the business. You're going to pay a mortgage that is probably somewhere around $2,000ish per month. We've got to deduct that which is make sure  your net on that makes you about $125,000 a year plus you're going tohave cleaning costs every month let's say your cleaning costs are about $1,500 a month. That's another $15,00 eighteen so you're at $107,000-$108,000 per year plus utilities. Let's say your average utility bill is$400 per month. You know electric gas stuff like that so it's another $5,000ish. You had $102,000 minus say $2,000 a month in supplies so you actually are at netting $100,000 dollars on your $150,000. But then let'sadd your $23,000 in profit from debt pay down and appreciation. For that one house that does $150,000 a year you are now making about $120-$125,000 a year net profit. That's actually pretty damn good on a house. Why would you not buy a house to Airbnb?

With that said if you get an FHA loan with very little money down on a really cool house, you can wait a year,and then put it on Airbnb. You can do that legally that's fine you just have to wait a year before you turn it into investment property full-time. There is a little loop there so if you want to do my way and then buy properties with FHA’s live in it for a year, and then slowly keep adding properties with very little down payments to your portfolio that's something to look at. We're also not talking about that in this section.

Now let's look at renting that same property the cost to rent a property like this let's say your rent payment is$3,000 a month for this property where the mortgage payment would say like just over $2,000. That rent at $3,000 a month and it makes $150,000 a year. You're going to pay first months last month's in security deposit let's look at it like that. That's normal. I typically get this negotiated down but that's a different story.For an average person, you're going to spend $9,000 in rent and security deposit to get in. Then the same $20,000 in furniture. It's going to cost you $29,000 dollars to get into the property instead of $100,000. You make that same $150,000 a year but you have to deduct all the same costs. So that $150,000 that you made, you're going to deduct your rents so you're right deducting $36,000. Now you're down $114,000. That $1,500 a month in cleaning and now you're at $96,000 in profit. Same utilities which was like $7,000, youre at $89,000 and then cost of supplies you're at $87,000. You've made $87,000 net on this instead of $126,000net is what the owner makes.

We compare that the owner made what is that like 40-ish thousand dollars more so the owner made 50 percent more on the property, but their cost to get in that includes their debt pay down and their appreciation. The owner paid a $100,000 to get into that property and they made $40,000 forty thousand more right where the other person put $30,000 in and they made you know $40,000, maybe $80,000. Let's just take the same scenario and make it so they invested equal amounts of money the owner who bought one for $100,000. The person who rents spending $29,000 to get in can pick up three and have invested $87,000. That's as close as we can get without going over.

The person who picks up three properties arbitrage same business model, they net $86,000. I think is what we said are $87,000 per property. Same person makes over $250,000 in net profit from renting where the owner makes $126,000 from owning and that's all the advantages of ownership including appreciation and debt paydown. The person who rented now is making double for spending $13,000 less on the front end.

The things that are also variables for the renter is the landlord may not renew your lease right after a year or two or three however long your lease was. The landlord may not renew you and that means you have to move and get a new property. That means that that $13,000 that you have saved  over the course of say ten years will be used on for like on moving furniture around in downtime. Maybe so there could be some washout on that, but arguably when you look at the math just side by side not including tax deductions yet the renter makes twice as much money for if they're investing less than the owner. They make twice as much money which is pretty significant. The landlord owners will say that you can get depreciation over time and that one thing here is that landlord who invested that $80,000 down plus the $20,000 in furniture you can deduct immediately the twenty thousand in furniture because it is accelerated depreciation.

Accelerated appreciation just so you understand is where you can take a four-year deduction for furniture and just take it immediately you have to still own that furniture for four years that's the only caveat. You can deduct it all immediately which can be very helpful. You can deduct $20,000 and then that $80,000 payment into the house is 20% value of the house you can start deducting 3% of the house per year. The problem is on that $80,000. You're only able to deduct 3% of $400,000 which is $12,000. There's actually $68,000 ofmoney you put into the building that you cannot even deduct yet, which is rough. Then you can deduct $12,000 per year. Over the course of three years, for example, you're deducting on your $80,000, only $36,000. You still have forty something thousand dollars you invested that you paid taxes on over three years that you're still trying to deduct to get some of that premi back.

When you do arbitrage the three houses that you got you write off that $60,000 in furniture right away all your rent payments first year are deductible and then the security deposit the $9,000 is locked away. That's the only thing that you cannot write off is because it's not money that's technically gone. I don't have a hack for writing off a security deposit right now. You could write it off maybe as lost income because you did make a payment to someone it's no longer in your possession, and then you can realize that income later if you ever get that security deposit back. That could actually still be a write-off so arguably almost 100 of the rentalarbitrage business is deductible right away. You don't have to be cash taxes on any of that money as it comes in.

The third scenario is if you do apartments. This is what I like to do and this is an important differentiator here because your business isn't only houses. For all of my students, our specialty is apartments, so this is a very valid part of the business model. My business is automated, so the cost of operations includes Hayley and everybody that runs my business in these numbers. It cost me five thousand dollars per door to get into a property because the way we negotiate. We negotiate no first month's rent, sometimes no second month'srent. We negotiate no or little security deposit so our cost to get in we give a building less than a thousand dollars for the building themselves. To get into a door right now first months last month security that's not our move. From there, we buy our furniture just the same and we spend about $4,000ish on furniture. If we pickup a studio apartment, we're spending about $5,000 to get in. If we pick up a one bedroom, we're spendingabout $5,500. We're going to use $5,000 and we might even pad it a little bit just to be more fair. For that same 

$100,00 that you guys are budgeted to invest into homes I could pick up 20 doors.

We have 20 doors for $100,000 and we have to ramp. We'll pick up five doors, then two weeks later we'll pick up five more doors, two weeks later we'll pick up five more doors because it takes time to set these things up. Another value of this whole rental arbitrage is as we make money. As we make another $5,000 another 

$10,000, we can actually reinvest that money over and over again and snowball all that money into the business. We don't just stop at 20 doors in our example but for the sake of being fair for the argument we will The 20 doors for $100,000, Haley just ran the numbers on Dallas and we make $700 per month per door per property. That's $14,000 a month in net income after paying her cost of supplies, housekeeping, everything. $14,000 times 12  is $168,000 of income that we make on ours. The person that rented three properties actually in this case is making more than my move which is to rent 20 doors fully automated. That's kind of fun that houses will make more money than apartments, but for me the reason why I like apartments is it's more scalable it's more modular. It's just more easy to run. 

There's another piece here that matters a part of our profit comes from cost of deduction from economies of scale. We hire our housekeepers by the hour we pay them $12 to $14 an hour and that's part of how we achieve our profitability. Haley gets paid a great salary and we've got a few different salaried positions in the city of Dallas. This is just Dallas numbers. If I was still running the business we might make a thousand dollars per property or something like that. If I wasn't paying or maybe $850 per property. If I wasn't paying all these people, but i'd be working my tail off just to be just to be honest. If you take my model and grow with it every time you get an extra $5-$10,000 and like I said we make $700 net income cash in our pocket per property. That's about thirty $35,000-$38,000 a month because Haley in Dallas has 55 properties that she runs. Fifty five properties we can pick up another six or seven properties every single month be with the cash that we have and just continue to scale and snowball. Haley can get to 70, 80, 90, 100 doors within the next six four to six months without any issues at all. If she wants her portfolio that big she can and we can just continue to grow.

The main disadvantage of owning is how long it takes to get to that second property because the 20% down is a lot of money. In order to get to your second property the arbitrage with the houses I think is a great middle ground because you can still get in for another $20,000 in furniture and your first month's last security deposit all that stuff. For every $30,000 you do, you can pick up a house that can do $12,000-$15,000 a month, make $150,000 a year on a nice big happy house, and you can keep just doing more and more ofthose. Logistically, it gets a little harder to scale big houses because it is harder to clean them they are larger properties. It's harder to be modular with hiring your own housekeeping staff so you will constantly be using third-party cleaning companies. This is something you're going to be stuck with but that's okay. Then if you do ever decide to pepper in studios or you know one bedroom apartments like me you can start hiring your own housekeepers and start to start to take advantage of the actual ability to scale your business and automate your business. If you want to automate your business completely, I really do think that studios is the best way to go. One bedroom apartments is the best way to go because you can create more uniformity in the business end of the day. I am not making as much money per property as I could because instead of having 110 apartments, I could have 30 houses right now and that would be probably better for my bottom line because houses are why people really come to Airbnb.

I’m competing with hotels with my studios and houses are not competing with hotels. That's something to consider as well as you build this out but either path will make you a lot more money than being a landlord. In my properties, we make $168,000 on our properties compared to the landlords $124,000. My model fully automated is a little bit better than a landlord working on his own one Airbnb. Can you believe that it's kind of wild that a landlord actually makes that much money compared to my business model? It's just not automated for that person. If a landlord wants to automate this is another thing that we can bring to the table.

If a landlord wants to automate they can get what's called a co-host. A co-host will run all of the business for them but the downside of a landlord having a co-host is they have to pay like 20 or 25 percent of theirrevenue after cost of cleaning so that $150,000 a month that they made the cost of cleaning was $1,500 a month. You deduct that $18,000, so they've got a $132,000 that they've made. They've gotta give $26-32,000to landlord to a co-host. That landlord instead of having that $132,000 after housekeeping, they've only got a$100,000 after housekeeping. The manager is getting paid, he still has to pay his mortgage. All the costs ofthe mortgages and all the costs of insurance electricity utilities everything else. Now if the landlord hires a co-host actually makes just as much if not slightly less than the arbitrage person. If a landlord wants to automate a house on Airbnb and they pay a co-host, they'll make less money than if you an arbitrage person. If that's who you become picked up their own property and ran it for yourself you'd make more money running it foryourself but, you're still doing the business. You can eventually still scale it but landlords co-hosting a property is the worst way to Airbnb landlord's doing it themselves is the second no. It's still the third best way because dollar for dollar arbitrage beats in any other scenario and that includes debt pay down and appreciation. I just cannot find an argument where owning beats being an arbitrage person. In my opinion, it'sthe best way to go but if you just aren't about building a business and you're just looking for a way to get extra money out of our property then yeah owning and then putting it on Airbnb might be your best bet.You’re just looking for extra cash on a house you already have maybe right  or you're just not looking to scale a business like I said so cheers good morning.