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EXECUTION Building An AirBNB Empire In Chicago

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Sully1994

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Was inspired to start this thread by @IceCreamKid.

I am going to be renting out apartments in the Chicago area and turning them into AirBnb rentals. (And yes, I'm going to obtain explicit permission from the land lords to do so lol)

In this thread I will be documenting my process. Whether this turns out to be a success or a giant failure, everyone here will get to witness my journey. I will try to be as detailed as possible to keep this thread high value.

Any advice from those with experience in this area would be greatly appreciated!

I will be coming back to update this thread once I have conducted more research.

For now here are my preliminary thoughts-

Initial barriers:

I talked to my brother who owns 6 homes in Detroit. He told me that I would need to find landlords that would give me explicit permission to sublease the property. Since they are assuming all of the risk, he said he wouldn't be surprised if many of them would refuse to do it unless they saw a big cut of the profits.

keys to profitability: Constant Occupation. Low Expenses.
  • I looked at some studio Air B&B apartments in my area, and many of them are booked MONTHS in advance. This is a good sign. I'm not going to speculate on profit margins yet, because there's too many variables I have yet to calculate. I'll come back to this.
  • Mandatory expenses for each apartment = rent, utilities, renters insurance, and AirBNB payment processing fees. The place will also need a bed, sheets, pillows, towels and toilet paper for the bathroom, and perhaps a set of silverware and plates for the kitchen.
  • Optional expenses: Amenities like cable, wifi, etc. Overall, i'm not totally sure how decked out these places should be to constantly attract people. Should these apartments be filled with decorations ( giving it a "home" feel, or should they be basically empty like a hotel? Is a TV necessary? These are all questions I will have to answer.
As for picking apartment sizes to rent out, I'm not sure if it would be better to go with a studio, or Go with a 2, 3, or 4 bedroom place.

The question that needs to be answered is this:

When traveling, is it more common to do so alone ( studio) with a spouse ( studio) with a friend (two bed room) or with your friends ( 3 or 4 bedroom).

I have a feeling the answer depends on the jurisdiction of the rental. Certain places in the city most likely attract different types of people. e.g. friends going on a roadtrip vs. the traveling businessman.

I'll need to do some research and get better insight on this- with data on my part of the city if possible.

Well, this is going to be interesting.
 

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Ginotocino

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Hey @Sully1994
I will be starting the same thing in the next 2-3 months! I'm creating my business plan for it. I know one guy who did it and he is traveling the world. The business seems like it is very scalable and I'm thinking it's a good path to the Fast Lane. Someone can correct me if I'm wrong.

There is this website called AirDNA.co (not .com) that helps with analytics for Airbnb. This might help you.
 

biophase

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Was inspired to start this thread by @IceCreamKid.

I am going to be renting out apartments in the Chicago area and turning them into AirBnb rentals. (And yes, I'm going to obtain explicit permission from the land lords to do so lol)

In this thread I will be documenting my process. Whether this turns out to be a success or a giant failure, everyone here will get to witness my journey. I will try to be as detailed as possible to keep this thread high value.

Any advice from those with experience in this area would be greatly appreciated!

I will be coming back to update this thread once I have conducted more research.

For now here are my preliminary thoughts-

Initial barriers:

I talked to my brother who owns 6 homes in Detroit. He told me that I would need to find landlords that would give me explicit permission to sublease the property. Since they are assuming all of the risk, he said he wouldn't be surprised if many of them would refuse to do it unless they saw a big cut of the profits.

keys to profitability: Constant Occupation. Low Expenses.
  • I looked at some studio Air B&B apartments in my area, and many of them are booked MONTHS in advance. This is a good sign. I'm not going to speculate on profit margins yet, because there's too many variables I have yet to calculate. I'll come back to this.
  • Mandatory expenses for each apartment = rent, utilities, renters insurance, and AirBNB payment processing fees. The place will also need a bed, sheets, pillows, towels and toilet paper for the bathroom, and perhaps a set of silverware and plates for the kitchen.
  • Optional expenses: Amenities like cable, wifi, etc. Overall, i'm not totally sure how decked out these places should be to constantly attract people. Should these apartments be filled with decorations ( giving it a "home" feel, or should they be basically empty like a hotel? Is a TV necessary? These are all questions I will have to answer.
As for picking apartment sizes to rent out, I'm not sure if it would be better to go with a studio, or Go with a 2, 3, or 4 bedroom place.

The question that needs to be answered is this:

When traveling, is it more common to do so alone ( studio) with a spouse ( studio) with a friend (two bed room) or with your friends ( 3 or 4 bedroom).

I have a feeling the answer depends on the jurisdiction of the rental. Certain places in the city most likely attract different types of people. e.g. friends going on a roadtrip vs. the traveling businessman.

I'll need to do some research and get better insight on this- with data on my part of the city if possible.

Well, this is going to be interesting.

The answer is yes, you will definitely need Wifi, basic cable, a nice TV and decent furniture. Else you will get some poor reviews. It should NOT feel like a hotel, but a nice home.

You will need a cleaner to clean and replenish things like soap and shampoo in between renters. You also need to figure out how you are going to launder the towels and sheets if the apartments don't have a washer and dryer.

I will be starting the same thing in the next 2-3 months! I'm creating my business plan for it. I know one guy who did it and he is traveling the world. The business seems like it is very scalable and I'm thinking it's a good path to the Fast Lane. Someone can correct me if I'm wrong.

Not sure if this is fastlane. To me it's pretty risky in that you could establish a nice income and your landlord can just decide not to renew your lease.
 

ZCP

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Maybe you pitch it as 'rent to own' to the landlord and they get a cut of the 'above market rate' rent.......

Or be an Airbnb management company.....
 

JAVB

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I own 9 houses in Central Florida and rent them long term. I've thought about airbnbing them, but when I run the numbers and factor in the management hours, long term makes more sense to me and my preferences.

Your situation is different. You don't own the houses, so you would be taking a cut for the service of subletting ... That is interesting.

The main concern I have from your project is the numbers... I didn't see them in your post... It would be helpful to analize them.

How much would you rent for?
How much would you have to invest to make them Airbnb ready?
Then, what is the minimum occupancy rate to break even?
How long to recover the initial furniture investment ?

A little Excel analysis with projection would help us all understand your journey better. Good luck and thanks for sharing that here!

Sent from my Pixel 2 XL using Tapatalk
 

KLaw

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Not sure if this is fastlane. To me it's pretty risky in that you could establish a nice income and your landlord can just decide not to renew your lease.
Not sure I agree with your risk assessment. As long as you are providing the landlord with easy money, the risk is minimal.
 

JAJT

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Not sure I agree with your risk assessment. As long as you are providing the landlord with easy money, the risk is minimal.

Nonsense.

It's only minimal IF you find a landlord who is lazy and indifferent.

All it would take for this idea to go south is a landlord to turn around and decide his ambitious tenant is making too much and increases rents significantly, or decides they want to get into AirBnB themselves and kicks out the renter.

The only "no risk" part of this equation is for the landlord who can have someone else run market validation while they wait to decide whether or not they want a piece for themselves.
 

biophase

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Not sure I agree with your risk assessment. As long as you are providing the landlord with easy money, the risk is minimal.

No, you are providing the landlord with increased wear and tear on his furniture and appliances and an unstable tenant in his property. How is the landlord getting easy money? He's not getting any benefit unless he is charging the tenant more for rent. If it were me and I had to allow it, I would want a percentage of the Airbnb income right off the top.
 

Determined2012

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@Sully1994 what part of town are you looking for?

Hyde Park Chicago is a good spot for you. A lot of travelers and business people come to the area because of the ever expanding University of Chicago Hospital, and the University of Chicago college campus. Not to mention Harper Court brings in a ton of new traffic.

The Hyatt Place hotel there is always booked at $100+ a night.

Another good reason to pick this area is that there are a TON of studios, a lot that have been recently updated which might suit your needs. With a studio you wouldn't need tons of furniture, a futon couch would suffice....

I believe there is a certain formula people who do this use to decide numbers. I know why guy only does rentals for $1,000 or less... And he mainly gets his units by the airport.

Good luck, and can't wait to read your updates!
 

Kelly86

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Very interested to hear how you’re getting on with this idea Sully as I’ve thought about doing something like this before. Any updates?
 

Sully1994

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So, here's what I've gathered. Long story short, I would agree with @biophase and say it's not worth the risk (at least for Chicago).

In order to list your unit as a short term rental, you need to register it with the city. Interestingly, your landlord or HOA ( for condos) won't be notified of your registration. This appears to imply that you don't need to own the unit in order to rent it out on Air BNB.

26017

However, you first need to check if your unit is on Chicago's House Share prohibited buildings list. If it's on the prohibited buildings list, it will be taken down promptly and you will get fined by the city.

26018

There are definitely some barriers to scaling here.

#1 Normally, you can't rent out anything other than your primary residence. This applies to Single Family, Multi Family ( 1-4 units) and Multi Unit (5+).

#2 In order to get past this, you need
  • advance notice to adjoining neighbors
  • a recommendation from the affected alderman
  • an evaluation to ensure the use of the unit for short term rental purposes would not detrimentally impact the health, safety, or general welfare of surrounding property owners or the general public. Units in multi-unit buildings (i.e. 5+ units) would not be eligible for this process.
In general for multi units, Chicago law requires that at no more than a quarter of the units, or 6 - which ever is less- be used for short term housing.
So basically, if a few people had the same idea before you in your apartment building, you're SOL, even if you wanted to do it just as your primary residence.

As you can see, you are at the mercy of multiple parties here in order to do this successfully. On top of that, there is a 3 strike rule for guests violating city rules, and for more "egregious" offenses, a 1 strike rule and you're banned.

26019

By the way, the egregious offenses could happen pretty easily. Let's take drug trafficking for example.

Drug trafficking is defined as the following:

"Under the Illinois Controlled Substance Trafficking Act, 720 ILCS 570/401.1, it is illegal for individuals to transport controlled substances into the state of Illinois.".

That means if one of your guests brings in even the tiniest amount of the following drugs illegally, it's drug trafficking. The quantity of the substance and their punishment does not matter - the result will be the same for you.

26020

So, is it worth it to try to jump all the barriers and rent out a bunch of single family homes or duplex/ quadplexes on Air BNB? You're going to be at the mercy of a bunch of landlords ( who will all want a cut) and even worse, government officials.

Even before running any numbers, this seems to be way more trouble than it's worth.

Hope this helps!

(P.s sorry for the long as hell delay. At that time, I didn't feel I had enough information to make any sort of educated post, and figured sharing no information was better than sharing false information.

In other news, I'll be getting my real estate license in a few weeks. I do intend to pursue real estate in Chicago ( brokering and investing), but it will be in a different capacity than how this thread started.

P.S for anyone wanting to learn more about Real Estate investing, shout out to @JScott, who has written a few great books on the subject, and has amazing threads both here and on Bigger Pockets. J, thanks for everything you do :fistbump:
 

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JScott

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P.S for anyone wanting to learn more about Real Estate investing, shout out to @JScott, who has written a few great books on the subject, and has amazing threads both here and on Bigger Pockets. J, thanks for everything you do :fistbump:

Thank you so much for those kind words...I sincerely appreciate that.

And great write-up above!!!
 

Sully1994

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Any update on this?

Thanks for checking in! Have been doing a little brokering on the side in Chicago, will hopefully have more updates soon. Currently still working a day job, so that's where the majority of my time has been going as of late.
 

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