This article originally appeared on Business Insider.
I’ve had an entrepreneurial spirit since I was a kid. Growing up I sold soda pop at my dad’s barber shop every summer, and in high school I offered beauty treatments like eyelash extensions and eyebrow waxing outside of my home. I’ve always done odd jobs.
My brother died when I was 16 and it was a big wake up call – it solidified for me that life is short and I didn’t want to have mine working 9 to 5 every day. I prefer to work for myself so I have more time for the people I love.
I graduated high school and decided against college: I wanted to try other ventures instead, like stock options trading and dropshipping. But when my partner and I decided to give Airbnb a try in May 2021, there was no turning back. We made over $375,000 in sales this year and our best month to date was last May when we made $58,120 in sales.
You don’t have to own an apartment to get started with Airbnb
One of McMillan’s listings, “The Sunrise Penthouse Master Bedroom” in downtown St. Louis Inayah McMillan
I think there’s a big misconception that to become an Airbnb host you need to have the ability to buy real estate: while you certainly have solid savings (I recommend at least $8,000-$15,000) or good credit should have, one does not have to own any real estate.
Using rental arbitrage, we rent all of our listings and then list them on Airbnb. As a disclaimer, you must ensure that rent arbitrage is legal in your area by checking your state’s government website, and you must first obtain approval from your landlord.
Start-up costs vary by location and size of home, but I typically allocate $8,000 to $15,000 to set up each new listing, which covers first and last month’s rent, security deposit, furnishings, and supplies. In the beginning we had saved most of the money, but I also used some personal credit. Now that we have converted our business to an LLC, we use business credit when needed.
Our regular monthly expenses consist of rent, utilities, cleaning services and automation tools. Our lower-priced offerings, like our one bed and one bath properties, typically cost around $1,500 in monthly expenses and bring in between $2,500 and $3,000 per month – net up to $1,500 per month.
Our largest offering, with four beds and two baths, costs about $3,500 per month and brings in about $7,500-$10,000, which means we can make up to $6,500 in monthly profit.
To decide what to charge for a night, I recommend dynamic pricing automation (we use PriceLabs), which sets prices based on the price of similar listings, the time of year, overall demand, and so on.
I strongly recommend getting an LLC
When we rented our first unit in May 2021, we signed the lease in our own name and a few months later we formed an LLC – this was key to scaling my Airbnb business.
One of McMillan’s listings, “Beaming Carriage Home” in Central West End, St. Louis. Inayah McMillan
After that, in November, we signed a lease for another property. And in 2022, our portfolio has really expanded; We signed two in January, two more in March, two more in May and our two most recent properties were signed this past June. That makes a total of 11 listings – 5 houses and 6 apartment units – with a few that are registered as Airbnbs but not yet active.
Once you have an LLC, you can use corporate leases. They’re essentially the same as personal leases, but renting under our corporate name allowed us to sign 4 properties at once – something landlords wouldn’t normally allow. If I could go back, I would have registered my Airbnb business as an LLC from the start.
An LLC also offers tax advantages (we can write off business expenses like rent, utilities, transportation, supplies, etc.), and it makes a big difference when it comes to rent arbitrage — it allows you to present yourself as a business instead of an individual what looks much more professional.
The process was not difficult or very expensive. I used InkFile, an LLC building website that charges nothing but your state fee, which varies. Although my listings are in Missouri I live in Nevada so it came out about $500.
Automation software is the key to scaling
“Beaming Carriage Home” in central West End, St. Louis
Another thing that sets me apart is a private booking website. When I contact landlords, I usually email them asking if they accept corporate leases and direct them to my website. It gives them a professional pitch online showing what my business offers, who we are as a company and how we can help them as short term renters. Most of the time I get more nos than yeses, but it’s a numbers game so I get as many as I can.
When we started, we managed most of the operations manually. But to scale, automation tools are crucial. These apps have enabled me to invest significantly less time in my business each week:
- PriceLabs: sets prices based on the price of similar listings, time of year, aggregate demand, and other factors
- Yale August Smart Locks: automates our check-in process so guests and cleaners have their own unique codes
- NoiseAware: Monitors noise levels to ensure guests aren’t making noise and disturbing the neighbors
- Hospitality: Automates all messages to guests and cleaning staff
- Nest Doorbells: Ensures our guests have checked in securely
Now my business is almost entirely passive, so I only work about an hour or two a week and devote that time to responding to guests who have a specific request that can’t be handled with an automated message, or reviewing a specific property .
When I want to rent a new property, I first do extensive research with AirDNA and Airbnb. AirDNA shows you estimates for a specific location’s average rates, occupancy levels, and annual revenue, as well as top-performing ZIP codes or cities. We also look at other similarly sized Airbnbs in the area and see what their nightly rates are.
After reviewing the numbers and predicting my expected costs and profits, I look at the ratios and decide if it’s worth going ahead. When it comes to scaling, running the actual Airbnb is easy — it really depends on how much time and capital we have to set it up.
The market has not slowed down my business
Although the market is very uncertain at the moment, I haven’t felt any extraordinary drop in business. November through February is typically our slower season so our revenue has declined somewhat but for the most part we have remained fully booked fairly consistently.
It’s incredibly important to choose properties with your client base in mind. We are business travelers – we have a healthy mix of one bedroom apartments and larger units and we have chosen locations close to universities and hospitals. This target group will usually be on the road all year round, even during a recession.