Ethan is a real estate investor and Airbnb host in the Bay Area. In this episode, Ethan will teach us how to start an Airbnb rental arbitrage business and will share his strategies as well as his discoveries from being in the business for several years. If you’re interested in creating cash flowing units in the Bay Area you need to listen to this episode!
Ethan and his wife would rent out their home for a week through Airbnb whenever they went on vacation. The extra income they made from that was actually more than what they spent on their vacation. They also had properties in San Francisco and learned how to manage a property.
He read about other people who scaled their rental arbitrage business and realized he had the skills to put together a business that combines Airbnb, landlording, and property maintenance.
He started with a furnished, single-family home close to where he lives. It provided an easy transition as he was already familiar with the market. For two years, he added a unit per month. He now has 25 units.
Ethan started tapering off the hours he spent doing human resources consulting as he built up his rental arbitrage business. He was able to gradually transition over the span of a year.
Craigslist was a good source for mom-and-pop landlords who liked the value proposition of rental arbitrage. Ethan was able to leverage what made him look good as a tenant and maintenance manager to attract landlords to rent to him. He offered free property maintenance and would spend up to $200 to do minor repairs. For major repairs, he would find the best estimate for the job and would just charge the landlord. He basically provided the services of a property manager at no extra cost.
It’s crucial to know how to talk to landlords, have a compelling pitch, have a sense of what to look for a unit, come up with the capital to finance the unit and to furnish it quickly.
An unfurnished unit can cost you anywhere from $7,000 for a studio unit to $20,000 for a single-family home. This includes the first month’s rent, a one month security deposit, and the cost of buying furnishings.
Ethan buys most of his furnishings from Amazon. He already has a spreadsheet of the items he needs for every room, so he has an idea of how much he needs to spend. To avoid the hassle of assembling a unit, he would get his dressers from Craigslist. Adding a nice sofa bed is a must as it will increase your rental income.
Get professional photographs. They cost $150 and will show your property in the best possible light. Make sure to add some color to your unit through throw pillows, vases, and artwork to make it warm and cozy.
For listing descriptions, use a lot of emojis, use bullet points, and highlight the best features of the property. Ethan got all these tips from Danny Rusteen, former Airbnb employee and author of “Optimize YOUR Bnb”.
Ethan usually features either the living room or the bedroom as the first photographs of a property to show what’s best about it.
He also places a 55 inch TV in every living room and includes a Netflix subscription and a digital antenna. His monthly entertainment costs totals to $50 for the internet and $15 for Netflix.
Ethan offers nice, cozy accommodations that are affordable. Most of his Airbnbs are priced in the bottom 25th percentile of the market. This allows him to get 90% or more occupancy rates.
Vacancies would force him to spend more on overhead and in making his listing premium. He targets long-term business travelers. So his units meet the minimum criteria to be able to appeal to them such as having a work space, extra coat hangers, and accessibility to transportation.
Price it well and highlight that it’s a new listing. Put emphasis on the newness of the furnishings in the unit.
You can choose to tick the option to offer a 20% discount to the first three people to book your listing.
In the corporate housing market in the Bay Area, a good, appealing listing can get a booking within a month. Ethan usually gets 2 ½ -3 ½ weeks booked for his first month.
Summer is always the peak season for Airbnb. It lasts from mid-May to early September. Winter lasts from early November to early March and is typically a slow season.
The auto pricing of Airbnb is too low for Ethan, so he does manual pricing. Since he targets long-term renters, he doesn’t capitalize on three-day weekends or special events.
His prices don’t vary from week to week. Instead, he does his pricing on a macro level and prices his listing at close to break even in winter. He’d increase his prices once summer comes.
He targets monthly profits of at least $500 per door for studios or at least $1,000 for a full-size home.
His secret sauce is to find single-family homes with in-law units. Landlords renting at market price would lease out in-law units at $2,000 and Ethan would rent them out an average of $2,800. He was able to find a 3 bedroom, 2 bathroom with an in-law unit downstairs for $4,000 a month.The good margins he got from this property with an in-law unit made him see the potential of properties like that.
Ethan looks for the characteristics of a great unit rather than its location. Great units are those at or below market rent, that have easy parking, with a decent kitchen or kitchenette, and that have good electrical capacity.
Ethan has never had a landlord end his lease with them. Landlords enjoy the perks of having a great tenant paying every month who maintains their property very well and takes care of the maintenance for free.
Since Ethan takes on the risks, he makes sure the landlords know how this benefits them for the long-term.
Should the surrounding cities around San Francisco enact similar short-term rental laws regulating Airbnb properties, there would be a glut of corporate housing or Airbnb units looking for rentals of 30 days or more. Ethan would then have to shift his focus to generate revenues in other areas.
A workaround this would be to live in the property as the primary resident as you’d be allowed to do short-term rentals.
Broken heaters and mold are some of the problems that can happen. While Ethan compensates them for the issues that occurred, some guests end up demanding more with threats of writing a bad review.
One bad, 1-star review for an Airbnb Superhost would drag down their 4.8 star average making it difficult for them to make up for it.
First, find a decent market in your area. Understand where your target market is staying or working.
Look for properties that fit a basic criteria such as decent parking, good bathroom to bedroom ratio, and a nice kitchen.
Use Craigslist to look for properties. Highlight your strengths as a tenant such as a good credit score, high income, etc. There’s no need to mention about subletting the property.
Offer free property maintenance as a plus. Find out what their interests are and play to those.
Check out the patterns in your area. Copy what the highest rated units in your area are doing, how they’re writing their descriptions and how they’re taking photographs of the unit.
Talk to other people who do this and learn from them.
The risks are low, but the fear to act is high. Get a foundational amount of research and then dive in.
Ethans plans on fortifying his business by streamlining it and making it more efficient. He’s also planning on hiring a virtual assistant to handle guest communications.
He’ll be taking a look at the profitability of each unit to determine which should be shifted to longer-term rentals of 6 months or more.
He’s also looking to acquire a property in San Mateo county that can be converted to a multi-suite Airbnb with 8-12 studio units.
Clint Coons is one of the founders of Anderson Business Advisors, a firm that specializes in creating asset protection entities…
Justin is a real estate investor who has done almost 2000 deals across the nation and in this episode, he’ll…
David is a real estate investor and a real estate coach. He has been investing in properties for almost 20…
Andrew, a real estate investment developer, is the owner of IronGall Investments, an Austin, Texas-based real estate development company. They…
Chris is the President and CEO of Smart Growth Inc., a California-based real estate and development firm. They are focused…
Rafael is a real estate coach and an organizational psychologist based in Miracle Valley, Arizona. He owns several real estate…
View Comments
i dONT oWN thE tRIPLE dECKER bUT I WOULD rECOMMEND HIM ANY wAY thE dUDE LOOK LIKE wOODROW wILSON
i know hes on that trolley ding ding " , what a nice guy he gave me a nice place that had suits and ties because mine were wrinkled also there were some pans to cook stuff in and a fry- alator with chicken pot pie and ellios pizza
I signed a sublease rental agreement to occupy 1949 Golden Gate Ave, Apt C, San Francisco for a month. I found the place on Airbnb. To save the Airbnb fee (HUGE MISTAKE), I subleased the apartment through Ethan Cooke of BayPillow.
On May 19, 2020, I discovered mice (a widely known health hazard). I notified Ethan. He said he would call someone to get rid of the mice. I reached out to him two more times, and while each time he said he was on it, as of May 26, there was still no confirmation that an exterminator was coming. On May 27, I told him that it was clear he had no real intent of taking care of the problem and that I’d like a partial refund. I asked for less than 50% refund, which I felt was more than reasonable given that when you google Airbnb and mice, you’ll find numerous sources that say that Airbnb refunds between 50-100% of the total rental.
At that point, on May 27, Ethan told me that his refund policy considered the inconvenience of mice the same as the inconvenience of a broken microwave. Yes, you read that right. He suggested that living with a broken microwave is the same as living with mice. Mind you, there are state laws about housing with mice present (pretty sure there’s no law saying that a rental needs to have a microwave.) He goes on to say that he will provide a 20% discount per day (per day after discovery of the mice). He then states if it’s that big of a deal, I can move out early and he’ll refund the days I’m no longer there (how gracious of him). I consider moving out. Now, pre global pandemic, sure, relocating for the remaining 6 days is not a problem. However, having to relocate during COVID, I would need to stay somewhere else for 14 days (only way to ensure that, if I somehow caught COVID from surfaces at the new place, I’d recover in time before heading home). Therefore, I’d have to pay for 8 extra days out of pocket.
On May 28, an exterminator finally came. He said he found clear evidence that someone knew of the mice issue previously and yet the place was still rented to me (exterminator found a water bottle shoved into a hole in the cabinet toe-kick where the mice were coming from, topped off with paper towels that were now covered in mice feces). Turns out, I’d been living with mice this whole time! At that point, I tell Ethan that, given mice were a known presence prior to my entering the apartment, I’d like 1 / 3 of my rent returned. He tells me again if it’s such a big deal, I should just move out, or accept 20% per day since I discovered the mice. I tell him I will not accept that as remediation.
On June 2, my last day of my sublease, a woman knocked on my door at 2 p.m. She informed me she was there to clean the apartment since others were to move in at 4 p.m. that day. I told her that there were still mice in the apartment (oh yes, Ethan still did not have the mice taken care of now 2 weeks later). I also told her that I had a sublease, and at no point (no email, no text, nothing written in the contract) was I told that I needed to vacate before the end of day June 2. I call Ethan (no answer). I text Ethan and he said, “Oh, sorry, forgot to tell you that I’d like you out by 11 a.m. Can you vacate within 15 minutes” Sorry? I’m in the middle of working and I have a signed sublease contract that says June 2 (does not say 11 a.m. on June 2). Also, wait, you’re renting the place to new people when there are still mice here?!?