How-to Airbnb Investing: How to Generate a Profit From Real Estate Investor Dave Menapace

EMCAP Lending sat down with Dave Menapace, a seasoned Airbnb investor & property manager, Airbnb consultant, best-selling author, and host of the popular investing podcast Hassle-Free RE, to get the inside scoop on Airbnb investing – from tips to generating a profit to the best markets to invest in – keep reading to find out!

What’s your experience working in real estate/ Airbnb investing?

I began my journey in real estate as an investor when in 2019, my wife and I bought our first investment property that we’d vacation at and also rent out on Airbnb. Since then, we’ve continued to invest as we bought 5 long-term rentals in Georgia and Tennessee, followed by another vacation rental near Sunday River in Maine. I’m also a realtor in Massachusetts. I founded a vacation rental management company that manages luxury vacation rentals across New England and the Midwest. We were also fortunate enough to contribute to a best-selling book called Hospitable Host 2, a collection of chapters written by Airbnb owners worldwide!

What steps must someone take to get into flipping/ Airbnb investing as a side hustle?

I have a few recommendations: First, get educated on the various types of real estate investing. Start by trying to shadow an experienced investor. Listen to podcasts, read books, and network. Second, take one action step every single day towards your goal. Stay persistent, and don’t stop. Lastly, stay focused. Don’t continuously change markets or strategies just because you’re not finding deals. Stay persistent even if it doesn’t seem like there is a path forward. Those that fail in this industry always seem to lack focus.

How do rising interest rates and the current market affect short-term rental investors? Should investors still invest or hold off until rates improve?

For experienced investors, rising interest rates have created massive opportunities as there is less competition compared to the last few years. What I will say is that you need to NAIL it when it comes to design and amenities. You need a good amount of cash reserves, and you need a solid start-up budget. That said, if you make the necessary updates and invest in the right amenities from the start, you’ll have no problem hitting (or exceeding) your revenue targets. If you just try to skate by with a bleak budget and are over-leveraged, this will be a losing battle from the start.

Is it better to invest in overly-saturated markets and pay top dollar for a property in cities like Manhattan or Miami or invest in up-and-coming markets that are less popular but more affordable?

For short-term rentals, I only invest in well-known vacation markets, and yes, they are very saturated. That said, saturation hits markets differently. For example, on Cape Cod, there is TONS of saturation at the 3-bedroom mark – mainly because they were very affordable the last few years. Now, lots of those owners are throwing their houses up on Airbnb. In that market, there’s less saturation in the 2-bedroom and 4-bedroom spaces. You NEED to know how to avoid saturation within a given market. You do this typically by offering more (and better) amenities than most of the other homes in the market and selecting bedroom counts greater than the saturation points.

Are there any Airbnb markets to avoid?

Yes – there are LOTS of Airbnb markets to avoid. I stay away from urban markets with tighter regulations…for example, in the last 3 years, thousands flocked to Scottsdale, AZ, as they had a wonderful Airbnb market – now Airbnb’s are outlawed there. I stick to markets where the local economy is heavily reliant on tourism and travel. Do your research and work with realtors and/or property managers that know and understand the market you’re interested in.

What do you look for when choosing a market to invest in?

As mentioned before, I always look for markets that are heavily reliant on the income brought by tourism and travel. These markets are usually more favorable and accepting of Airbnb.

If you could provide 5 of your biggest tips to become successful at Airbnb investing, what would they be?

1. Get educated
2. Decide if the house will be a pure investment or if you’d like to use it yourself.
3. Get really clear on your goals for the house.
4. Stick to a market where the barrier of entry is reasonable – for example, in the Great Smokey Mountains, the top luxury properties now have indoor pools. In Maine, the barrier to entry is usually only a hot tub, sauna, and views.
5. Buy nice or buy twice – you need to invest in good furniture and design – otherwise, you could have an amazing house, but you’ll never get the returns that you were hoping for.

What’s a realistic profit someone can expect to make investing in a short-term rental?

This is highly dependent on the market, how well you design the home, the amenities you provide, and how good of an operator you are… these days, I’ll only buy a deal if I see a Cash on Cash return of 25% or more. Typically, for every $500k that the house is worth, I need to be able to make $100k… if it’s $1,000,000, I want to know that I can make $200K a year on it. Typically, you have to invest in great amenities and design to hit these numbers – these deals are never turnkey.

What are the pros and cons of Airbnb investing?

The pros are that you’ll get much higher returns than any other form of real estate investing. Con’s –  it is not passive. If you aren’t willing to learn how to be an amazing operator and harness the technologies to do so, then partner with somebody who can.

Are there any renovations to consider when flipping houses and listing them as Airbnb rentals?

Yes – interestingly enough – you’ll want to build in an owner’s closet and cleaners’ closet. These are important storage areas that a traditional rental doesn’t need. The rest is market specific – in the mountains – cut in more windows to give your property more views. Views bring in high revenue and will add value to the home in the event of a future sale. While considering renovations, you’ll also want to key in on amenities that will help boost your top-line revenue. That could mean building a movie theater. Or maybe it’s adding on a sauna. With Airbnb, you’re allowed to be over the top. I’ve even seen golf simulators, putting greens, firepoles, slides…you name it. These cool and fun amenities will help you make more money.

What’s one of the most important things you’ve learned throughout your experience investing in short-term rental properties?

That you have to be able to embrace reinvesting in your property. You need to keep thinking about what more you can do to wow your guests. Maybe it’s adding a pool; maybe it’s adding a movie theater; maybe it’s something else. Continue to invest in your property, and your ROI will skyrocket each year. That is how you can increase revenue by 10%-30% year over year….and it’s a tax write-off. After you’ve made all these updates, get a cost segregation study and enjoy massive tax write-offs that can also be applied against your W2 taxes…more on this topic in episodes 10 and 11 of the Hassle-Free RE podcast.

Where do you see the future of Airbnb investing? Where do you think the Airbnb investment market will be 5 years from now?

I think we are poised for some massive changes in the industry. The game will continue to level up. Guests will get accustomed to nicer and nicer accommodations. I don’t see any massive saturation of Airbnb’s in the nicer luxury space – only in the “budget vacation” space, and I do foresee this trend continuing. Regarding Airbnb, I think many hosts on the platform will begin competing with Airbnb directly (I know we have), and we’ve worked hard to build up our direct booking websites. With artificial intelligence becoming mainstream, it should be easier and easier for “shoppers” to find your vacation rental off the Airbnb platform. Be prepared for this if you’re an Airbnb host or owner. There will be a day when Airbnb is no longer the “name brand” for short-term rentals….be prepared for that. From an investor perspective, we are personally starting to key in on boutique hotels as they are usually exempt from some of the regulations that single-family home Airbnb’s are under. They are also easier to force appreciation on as you can apply strong operational systems and amazing design to quickly increase the cap rate and value of the asset. I see many investors jumping into this commercial type of asset over the next few years and would welcome the opportunity to partner with other interested investors!

About Dave Menapace