How To Start A Property Business In Short Term Rentals
How It Began
My introduction to short term rentals, or serviced accommodation as it’s known in the UK, was not planned. I had no idea it would lead to the empire that I have built over the years since starting my first Airbnb rental in 2019.
My journey actually started by solving a problem, and the problem arose as I agreed to a deal on a flat in the middle of Newcastle upon Tyne. I spent a bit of money refurbishing the property and I planned to let it out to a tenant on a normal AST.
The problem was, after five or so viewings, I just had no interest in the property. I thought I’d spend some money to refurbish it to a higher standard and it just wasn’t attracting any interest.
During a frustrating week of paying another payment on the property, I realised I was losing money on another mad venture that everyone told me not to get involved with. I started to doubt myself and think, ‘have I done this again? Have I blown a lot of money?’
The First Turning Point
By chance, I met a good friend for coffee and he was telling me about his property portfolio. He had several units on an Airbnb strategy. Inquisitive, I dug into this a bit more and asked him some good questions. Good questions get good answers and that is how you look forward in life.
After finding out how much he was making per night and briefly how the operations worked, I headed straight to IKEA and kitted out my first Airbnb unit within the next 12 hours.
With the photos I had taken on my iPhone uploaded to my Airbnb profile, I crossed my fingers and hoped that I had not just invested more money into a failing business model.
But to my delight, I got a booking within the first hour of listing (albeit the worst booking I probably could’ve ever had and a very valuable lesson learned on day one!)
The Second Turning Point
The booking was a one-night booking for £50 for the Great North Run weekend. To put it into context, this property is about 30 yards from the marathon start line.
Learning from this lesson, the same property generated £750 in profit for that weekend the following year.
The bookings continued to roll in over the following days, totalling in excess of £3,500 and this was the moment I got hooked. Every time a booking showed a profit on my phone I said to my wife, ‘another one! Another one!’
The Real Turning Point
While it was early days, I could feel that this was the turning point. It made all the hard work leading up to this point – all the viewings, all the courses and education I put into it – worth it. Compared to what I know now, I still had a long way to go but, as entrepreneurs, we solve problems and we figure things out. Sometimes this is the best way to learn and that’s exactly what I had to do as the next problem came around very quickly.
Problem number two arose as I left the property without a team in place to be able to operate it during the turnover. Sure enough, I got a booking for the next day to check out the day after.
The entrepreneurial problem solver in me rose again and I found a solution to get the property turned over, and also give a guest an amazing experience to protect my first review. I know now how important those first reviews are to your future revenue, after setting up hundreds of properties and managing tens of thousands of guests.
I ran with this property for only another month before making the decision that this was the way I was going to go forward. I subsequently jumped headfirst into finding more properties to run on this amazing strategy and here we are now in 2022 with an international portfolio of Airbnb properties.
The lesson learned from this was first and foremost: always back yourself, even when your own mind is telling you not to. Always figure a problem out and never quit.
My Lesson And Advice
What can you learn from this and how can you get started in the holiday homes industry?
My number one bit of advice to anyone wanting to get started in this business now is to ensure you wrap good people around you from the beginning.
What do I mean by that?
Get educated and have a support network to bounce questions off.
How To Gain Knowledge In The Right Way
Knowledge is power, I am sure you have heard that before but it couldn’t be truer. You are going to need help, even if you think you have superpowers; trust me you can’t do this alone.
I tried and I put myself in hospital, I managed to set up and run 21 properties in my first 7 months and I ended up in Newcastle RVI with a split head and burnout. Let me tell you that wasn’t fun!
Find a good mentor (paid or unpaid), join active support networks on Facebook and WhatsApp and ask good questions. As I always say, “ask good questions, get good answers”.
Find a good legal and accountancy team who can advise you every step of the way from your initial setup all the way through to your operational contracts and beyond. If you explain your vision and what you are trying to achieve they can set you up correctly from the start so it doesn’t cost you time and money later down the line.
One way or another you are going to pay for it and I have found paying for professional advice is a much nicer experience than learning from making mistakes and losing money because you didn’t get the advice and guidance.
Ensure that you know how to analyse an Area and a specific Property to ensure it will be profitable.
You can easily buy a deal from a deal sourcer in this industry and I have seen so many people get badly burnt, paying in excess of £10,000 for one property including their fees.
Who is to blame? The deal sourcer or the investor when it doesn’t work out? Which the majority don’t by the way.
The reason why is because the deal sourcers don’t know how to run a short term rental or serviced accommodation business and they just guess the numbers. Yes, they can source a property deal, who can’t, but they don’t run short term rental businesses. They have no idea about the operational costs, the wastage, the staff requirements as you grow, the software behind the scenes and everything else you only really know when you get experience hosting guests in this industry.
Whether you’re buying a deal or deal sourcing your own property deals you must be able to accurately pull the numbers together. What are the nightly rates going to be through the week and on a weekend, what is the occupancy likely to be over 12 months, how much will the business rates and utilities cost you and don’t forget the VAT and corporation tax (country depending) liability.
It amazes me no one calculates these into their figures. Yes at the beginning you won’t be liable for VAT however you’re planning to scale right, so you will hit the VAT threshold and then you will be liable. Then what, you give that property back because you didn’t factor those costs into your analysis and now it doesn’t make a profit.
There is an abundance of great sites out there to help such as Airdna and even Airbnb and google maps which are free. When you investigate the data and see what is going on in those areas with other properties you can get a good idea of what you can expect if you run property on those models in those same areas.
Last but not least… don’t chase the shiny penny
Make sure you understand what you need to operate a successful business that suits your lifestyle. A short term rental, holiday homes or serviced apartments business is far from passive property investing so make sure you know what you are getting into first.
When I set up in Dubai I had loads of messages from people wanting me to teach them how to run a holiday homes business in Dubai. Chasing the shiny penny without knowing how to run an STR business on their doorstep first.
You should 100% have the vision to scale internationally like I have, however, master your skills and gain the experience on your doorstep first. There is no way I would have made a success out of the international locations had I started there first, you are going to need to be on the ground from day one and probably for the first few years of your business. After that you can start to leverage other people and manage them from a distance, this is when you can expand out of your local area and internationally if you wish.
The shiny penny syndrome also filters down to deals on your doorstep, not just international hotspots. This is one of the biggest reasons people get sucked in by property deal sourcers and get burnt. They sell them the dream based on unfactual figures that never come to fruition once the operations start. The investor does limited to no due diligence and they take the deal on because all they can think about is the “easy” “guaranteed” money the property deal sourcer has told them they will make.
Emotion clouds their judgement and they make bad decisions.
Get educated, make good decisions, and don’t chase the “too good to be true deals” and you will be successful in this industry.
-Ryan K Luke
Founder of Luke Capital Group
Creator of Luke Stays Franchise
Founder of Room 22 Property Club
Author of How To… Property
Head Coach in the Franchise Vault