I Bought a House With Money I Made From Airbnb

I spoke to “Jackson White” (nee Anonymous) a year ago about his experience renting out his San Francisco apartment on Airbnb. He was charging $200/night and paying $1,900/mo. in rent, staying with his girlfriend whenever the apartment was rented out. We spoke again this week about the status of his rental. Turns out he’s become a bit of an Airbnb real estate tycoon.

LS: Hi Jackson. Give me an update. Are you still renting your apartment?

JW: I still have my original apartment in the city. It’s a full-time rental now—my girlfriend and I live together permanently now, in the East Bay actually.

LS: Priced out of the city!

JW: I mean, yeah, but we live in a big house with a yard and a guest room. We couldn’t have had that in San Francisco at any time, really.

LS: So what do you charge for your apartment now?

JW: I’m charging $250 a night now. It comes in between $5,000 and $6,000 a month, in reality.

LS: When we spoke last, you were flying under the radar of your landlord because your lease said no sublets. Does your landlord know now? After a year, he must?

JW: He knows, but we don’t talk about it. It’s sort of an unspoken understanding now. So long as there’s no issues, he doesn’t have an issue.

LS: Were you really stressed about him finding out?

JW: No. I’ve had friends whose landlords found out they do this, too. They simply say, “Don’t do it anymore.” It’s pretty rare to have someone freak out over renting it out, and I knew that.

LS: How did he find out?

JW: He came by to fix something when someone was staying there. He didn’t ask any questions of the people who answered the door, but that’s happened a couple times since then, all with lovely people. Airbnb is largely a self-policed community. There are a couple of exceptions, sure, but a psychopath could move in next to you anyway. Landlords largely don’t care so long as you have good credit and pay rent. That’s all they check. I do more background checks than they do.

LS: Wait, what kind of checks do you do?

JW: You talk to them on the phone, see reviews that other hosts have left them. You have their Facebook info, and Airbnb keeps all their credit card info and their identity has been verified by sending in scans of government IDs. Your worst case scenario is getting a group of young kids in there who make too much noise. But my walls are sound proof.

LS: What about neighbors? Have you had any complaints about people coming and going?

JW: It’s a big building—the layout offers a lot of anonymity. I haven’t had any complaints. One of my neighbors even cleans the place for me, so I’m kind of hands off. Getting paid for that helped him pay his rent for a couple months.

LS: So tell me about the money. What are you doing with it, where does it go?

JW: I set up a business account and all of the money gets deposited in there. I saved every penny and a few months ago I bought a house with the money I saved. It’s outside of the city in area with a lot of tourists.

LS: You bought a house with your Airbnb money. Wow. Did you buy the house to live in?

JW: Nope! Maybe one day. But I bought it as an investment property, to rent on Airbnb. All above the board. Legally. I’ll make more per night, for only a little bit more per monthly payment. Except this is not throwing money away in rent. It’s building equity.

LS: How much money did you save?

JW: $50,000—all of which I used as my down payment.

LS: Was this just from renting out your apartment? I remember you also had talked about renting another apartment just to rent out.

JW: Yeah. We picked one up, and had it for six months, but it wasn’t making money like we wanted, so we broke the lease. We only made about $5K or $6K total off that. It was a 300 square-foot studio and we were paying $2,100 a month for it. The market was really just too high already. To rent my apartment now, you’d pay nearly $3,500. It almost doesn’t make sense at that point.

LS: Have your feelings changed at all about whether renting out your apartment is morally ok?

JW: I don’t lose sleep over it, if that’s what you’re asking. Other than the profit, the biggest take away has been meeting a lot of really cool people and making friends all over the world. The truth is, these are cool world travelers, or a couple on their honeymoon and just people excited to see the city. That’s what this community is all about. It’s not perfect.

I looked at buying in the city, and it’s appealing, but I’m not willing to take a risk with $500K on the line.

LS: What do you mean risk?

JW: Yeah. There’s a risk with this. And in the city I’d be buying a place in a building with a HOA [homeowner's association]. So even if I bought outright, I’m still spending $1,000 a month in fees. And those are financing a group that actually police the place I would own. If you get caught, you get a warning, but get caught again and you get fined.

LS: Was the plan to buy all along?

JW: Yeah, once we saw how much we were bringing in. At first we did go on vacation—we spent about $3,000 on that. But after that, it was all saving for the house.

LS: So all of the money went in savings? Really?

JW: I make enough at my job that I didn’t need the extra money. It sped up the saving process. Since I moved in with my girlfriend, rent now comes out of the money that we earn. It’s all structured that way for tax reasons, which we have completely in line.

LS: Are your friends jealous?

JW: Oh … I’m sure they are. I don’t go around flaunting it though.

LS: I mean, I’m jealous. It seems like free money, which, I know it’s a job to arrange and think about it. But it, yeah. It feels like free money, which makes me feel pouty.

JW: Oh yeah. It is free money. I’m essentially talking to a couple people a month, and they are giving me thousands of dollars. Time invested:income is insane. I make $5 to $6K a month and work about 3 or 4 hours a month for it. And once I get the new place up and running, I’m expecting that to more than double. And it’ll be legal.

LS: You said that earlier. Is renting your current apartment on Airbnb no longer legal?

JW: It’s not that it was illegal. It’s a gray area. Should I be doing it? It depends on whom you ask. Neighbors know and don’t care. Landlord is aware of it. I pay all taxes on it that I need to. But the lease says “no subletting.” Who’s the victim? The city?

LS: Well higher rents mean people are priced out of the city.

JW: And pricing people out? Complain about the exceptional job market and the tech companies overpaying graduates for that. Airbnb is great for local economies. It’s hardly the reason it’s driving rent up.

LS: So what’s next for you?

JW: We’re furnishing this house right now so we can get it up and listed on Airbnb and other vacation rental sites. We’ll save everything we make from it. The idea is to get another one. And do the same thing. And another.

LS: Are you worried about being not being able to rent those houses out? What if the laws change?

JW: It’s a big fight both ways. At the crux of it, you have hotel chains spending big money trying to keep these companies from growing. Cities like Seoul, and Berlin have made it straight up legal. Along with Amsterdam. If people are renting, I see the conflict. But if you own a place, I don’t see any reason why you shouldn’t be able to rent a room, or rent it out if you can. But, at the same time, if you rent and you can mitigate that conflict the way I have, and it’s a victimless crime, and I’m doing well financially … is it really because people are just jealous they are mad? The way I see it, if you had a chance to rent your place out, have it pay your rent, and have all your debt paid off in eight months or so, and you get a little extra cash every month … but there’s a little risk in it. You wouldn’t at least consider it? At the same time, meeting some pretty awesome people from around the world? Is there anyone who wouldn’t at least THINK about it? I was lucky to have a situation that allowed me to take the risk and do it. It worked out. And hopefully it will continue to work out.

 

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39 Comments / Post A Comment

travlinggirl (#4,335)

This is f-cking genius.

Anonymous1330 (#4,943)

@Muriel You’re a genius.

OllyOlly (#669)

I can’t even bring myself to try renting my apartment for the one week a year I go on vacation, but good for you.

liznieve (#37)

Do you pay taxes on that income? How does that work?

Anonymous1330 (#4,943)

@liznieve I have a business set up. I get a 1099 from AirBnB at the beginning of the year and it’s all reported to the IRS. Because it’s also a business, I get a lot of tax write offs.

minijen (#656)

@Anonymous1330 – Are you following code re: hospitality licenses, though? In my state, it’s legal to do this, if you own your own home, you just have to get a specific licenses from the state/county/city and pay taxes to each.

Adouble (#4,640)

I am curious about the claim that the neighbors don’t care. Has he talked to any of them, other than the one he is paying off? I lived in a building that someone was using for AirBnB, and it was annoying and sort of made it feel less safe. However, since the person they were subletting from was never around, it was hard to complain.

Anonymous1330 (#4,943)

@Adouble It’s not just the one making money. I’ve had other neighbors go out and get dinner with people who have stayed there. There are about 6 other units on my floor.

Titania (#489)

@Anonymous1330 I loathe the person who Air BnB’s in our building and if they were ever around I would like to lock them in a closet filled with all the accumulated cigarette butts that their Eurotrash visitors have left outside my door until they suffocated. So. Maybe some people get dinner with your guests. Maybe some people hate your guts!

guenna77 (#856)

seems like a lucky situation. it’s luck that the landlord doesn’t care. it’s luck that the neighbors don’t care. it’s luck that he hasn’t had any bad renters.

honestly though, i’m very surprised that the landlord or owner is okay with this, if only for liability reasons. there are more considerations than the rent being ontime. if one of this guy’s ‘tenants’ falls down the stairs and hurts themselves, and sues the owners of the property, he could be in super-hot water.

Anonymous1330 (#4,943)

@guenna77 Sometimes I like to live on the edge though. I call it “The Danger Zone”. This is as close as I’ll ever get to flying a mig jet and fighting the Russians.

guenna77 (#856)

@Anonymous1330 i’m too liability-shy to ever open myself up to that kind of risk. i don’t even let my friends stay in my place when i’m not there.

francesfrances (#1,522)

AMAZING.

I was heading this direction (on a smaller scale) with Dog Vacay, taking care of people’s dogs in my apartment while building up a savings account. But then I moved to a less dog-friendly apartment and got busier. Next time I move, I’ll start again. It’s a lot of work sometimes, but other times it’s just getting paid to watch Netflix at home with an adorable dog, or have a running companion. This type of stuff an awesome way to boost income without the stress of a 2nd job.

RachelG8489 (#1,297)

I’m going to take an unpopular stance here and say that I think this is a dick move. I have no problem with Airbnb in general – want to rent out your spare room or your whole place while you’re out of town, go ahead!

But the housing market is incredibly tight in San Francisco, and that apartment that is being rented out to tourists & travelers full time could instead belong to someone who is actually going to live in it, and contribute to the neighborhood and the city. It’s the same problem I have with all the people who rent/buy pied a terres in NYC – our housing market sucks, vacancy rates are incredibly low, and residents of that city could use that housing stock. It won’t change how freaking expensive rent is in our cities, but it will at least help with the hell of 1% vacancy rates.

Fig. 1 (#632)

@RachelG8489 As someone who rented an apartment for a week (from the landlord) when we went to Montreal, I’m inclined to agree, though also torn. Hotels are expensive, and I prefer having a kitchen and doing my own meals sometimes. I also live in a city where rents are at an all-time high due to economic immigration; I couldn’t afford to live by myself here on my wage and yet nobody would want to come here for short fun stays and pay to live in my apartment either.

If you take the definition of asshole-ness – “if everyone behaved the way X is doing, would society be able to function?” – Air Bnb is less defensible. However, I’m also not sure how much of my reaction is my subconscious immediately kicking in with “Wahhh, not fair” to the implicit “I got mine” attitude.

Tourism is inherently strewn with problematic practices and assumptions, with the biggies being appropriation of land and resources, to say nothing of culture. I guess what I’m trying to say is that there is a huge market for short-term furnished rentals at a lower price point than executive suites, and I’d prefer there to be a legal, ethical option. But until then, I won’t rule out renting an apartment in the rare event I travel to a major centre.

tl;dr: this practise makes me itchy and I don’t condone it but I’ve done it (legally) and can understand why others do. Like stealing American Netflix here in Canada.

Adouble (#4,640)

I think a lot of people actually agree with this stance, if I’m remembering the first article’s comments correctly. And I agree with you too. However, I have been won over by Anonymous1330′s charm offensive. “The Danger Zone” got me. I am not as strong-willed as I have been led to believe.

RachelG8489 (#1,297)

@Fig. 1 I’m totally with you on wishing that there were more short-term rentals with kitchens! I’d definitely prefer to travel that way, and while I haven’t used Airbnb yet I also haven’t traveled anywhere that I didn’t have a couch to crash on recently.

Basically, I would be really happy if it were clearly legal to rent out your own primary residence for short-term stuff, maybe with time limitations per month?, but still illegal to utilize a property zoned for residential housing as a commercial property/hotel.

Fear Biter (#981)

@RachelG8489 I’m not certain it actually is an unpopular stance, but even if it is, I’m going to double down on this. It’s more than a dick move. Contrary to what “Jackson White” asserts in the interview, it’s not a gray area. It’s illegal. So far, SF doesn’t give enough shits to do anything about it, but it’s either a violation of the rental code, or a violation of the city tax code.
If his business model is short-term rentals, akin to what a hotel offers, then he owes hotel taxes to the city on every transaction. My guess is when he says he pays all the taxes he owes, he’s talking about income tax on profits, not the hotel tax. I’m fairly confident about this, because the Air BnB model doesn’t have a way for “sellers” to collect that tax baked into the transactional side of things. On the other hand, if his business model is longer-term rentals – the more traditional subletting scenario – then that is a straight up violation of the rental code, which prohibits subletting for profit.

Sorry this comment is so long. I’m an SF native who is dealing with some fairly shitty fallout from our current housing crisis, so this interview gave me a rage stroke.

e (#734)

@RachelG8489 I feel pretty knee jerk about it myself. Renting your primary residence some of the time, or a guest house that’s empty now attached to your primary residence most of the time is one thing. But re-renting a place you rent, or buying a place to become a short term rental, because you found someone else to move in with, is…its a moral problem. It may not be a crime against the market or whatever, but if I rent out my rent controlled unit in a building, where all these young couples and older people making middle class incomes live to make extra cash because I have the luxury of living with my boyfriend, and lets say in so doing I leave the city, thus taking my sales tax and local support elsewhere, thus preventing some other young bootstrapped couple from being able to access a safe and affordable home, and screwing the city over on the income tax en I’d consider it wrong. You are blocking the entry of contributing city residents to turn a quick buck on non residents. I don’t care if it’s legal or not, it’s just…wrong.

pernickety (#2,057)

@e
So just to respond to a few points — (1) since the “business” is in SF, he is probably paying some sort of SF tax on his receipts; (2) the tourists who rent the apartment will be eating in the neighborhood, shopping in the neighborhood, and generally paying the SF sales taxes (and arguably people on vacation spend more than someone who is not).

@Fear Biter Yeah I care less about the violation of the tenancy laws, because if his landlord and neighbors know, eh. But yes somewhere along the line, AirBnBers should be paying the transient occupancy tax, which amounts to something like $1.8 million a year that SF probably isn’t getting.

And yeah, having friends unable to find places to live in this city because of low occupancy rates, I also find this dickish. Renting it out while you still live there? Great. Brilliant! Maintaining a lease just to make a profit on it when you don’t use it at all? Pretty dick. Even though you seem like a nice guy.

@frumious bandersnatch I do want to make clear I love Air BnB as a concept! I think it’s wonderful and way better to stay in apartments than hotels. But I don’t want it to be falsely low-priced because landlords/tenant-landlords are switching long-term rentals into AirBnBs and not paying city taxes/complying with the law. And yeah aside from the legality I think the ethics of some of the renters are suspect.

Anonymous1330 (#4,943)

@pernickety There’s a great study about the local impact of AirBnB for a cities economy. Something to the tube of 130 million dollars spent in Paris, and nearly 60 million addition dollars spent in San Francisco just from people staying in AirBnBs. Also, just to be clear, I pay the TOT for SF and will do so for my next place as well. It’s between 12% and 13%. It’s a significant amount. Although at the next place I plan to build that in to the price I charge for staying.

Anonymous1330 (#4,943)

@frumious bandersnatch I’ve heard the issue about holding onto a place. And it’s near impossible to get a place in SF that you can afford. But putting the blame on the shoulders of AirBnb isn’t quite fair. There are millions of reasons why rent is sky high in SF. The least of which is AirBnB. SF is probably the 2nd most desirable city to live in over SF, and geographically it’s limited to the 7×7.

To make clear I do occasionally use my apartment, and I plan on taking it back eventually. I love the city and want to live there. In the meantime, I’ve been able to use this unowned asset to help me purchase a house, which will be a 2nd income for myself.

@Anonymous1330 Yes, I definitely don’t blame the rent problems on Air BnB, though it does contribute. Just given the situation, I was uncomfortable with using an apartment like that. More of an ethics-y thing than a practical thing. But I’m glad to hear it’s not just a moneymaker, and I do understand not wanting to give up a lease once you have it if you want to live in the city again.

ETA: And glad to hear that you’re paying the TOT!

JanieS (#1,826)

@RachelG8489 No, this person is a horrible, spoiled, unethical entitled asshole.

Anonymous1330 (#4,943)

@JanieS I blame my parents mostly.

SusannaF (#4,976)

@Anonymous1330 Dude, if you scroll down to another post of mine, you’ll see that you’re wrong about Air BnB being legal in Berlin.

Double_J (#4,964)

Not to downplay what the subject of the article has been able to do but it’s not really exactly revolutionary…landlords and renters have been around since property ownership began.

Anybody who has the means to obtain a second home (or who has a place to live relatively rent-free while their actual home is being rented) can give it a shot. All you really need to do is find a place with a low enough rent to to make a return from short-term renters in an area that draws enough interest to guarantee a high enough occupancy level.

Much easier said than done – it requires a ton of luck, some upfront funding, and foresight into up and coming neighbor hoods (e.g., pre-gentrification areas).

Of course, before jumping into this one also has to consider – if you can afford to get a second home for rental purposes only, might it make just as much sense to not get that home and to stash the money away into savings instead? It takes a lot of risk and headaches out of the equation.

Absolut (#4,966)

It doesn’t make sense to me why the landlord would not have a problem with only getting $1900 in rent for a place that would fetch $3500 in the open market when there’s an easy way to kick the renter out (for obvious violation of the lease agreement). I know of several people who have been kicked out of their rent controlled units for renting them out on AirBnb without the landlord’s permission.

gettinirie (#5,684)

@Absolut BINGO!! this story sounds awesome until you think about the obvious point that @Absolut makes. No way in haites a landlord is going to be “cool” with $1600 a month of lost rental income (forget about the fact that he really could be making $5-6k himself if he wanted to deal with short term renters on air bnb) What if you owned a small apartment say 2-4 units and lived in the building. Would you be cool with random strangers coming and going that you haven’t screened putting way more wear and tear on your place (hotel guests trash places alot more than an apartment tenant that has to live there for 1 year lease) Either this guy is lying or his landlord is just so independently wealthy that he has no problem losing $1600 in income per month…guess that’s possible…

ianmac47 (#4,971)

I like when people outside of New York complain about rent pricing them out of “the city” as if 1. they have a city 2. they have a rent problem.

SusannaF (#4,976)

This guy is completely wrong about Air BnB in Berlin. The authorities are actually going after people who do just what he does. And the Air BnB factor has pushed up the rents in parts of the city.

http://www.spiegel.de/international/business/berlin-to-penalize-short-term-rental-companies-like-airbnb-in-fall-a-916416.html

honey cowl (#1,510)

Yuck.

smartypants (#4,986)

All of these rental plays (AirBnB, car ones et.c) are simply arbitrage plays vs. regulations. And they really shouldn’t be allowed. Here’s the ways in which AirBnB is only profitable becuase it flouts things like:

* If you are renting a room from a business (think hotel) it is inspected to make sure it has things like clearly marked fire exits, proper egress, etc. Regulation: 1, AirBnB: 0

* If you are an urban planner you zone neighborhoods based on the types of uses we as a society have agreed upon. Don’t want hotels with transients appearing magically next to your house? That’s why we have certain kinds of zoning. Regulation:1, AirBnB: 0

etc. The list goes on and on. It’s silly that smart people can’t see the entire system and instead focus on: “look an extra $1,00 for me!!!”

Herman (#5,133)

There is a new real estate marketplace for investmemts propertys, name “Estateya”, helps users to shre investments propertys with friends and calculae investment returns from Renting or Flipping the propery.

jo (#5,253)

you and your landlord have “an unspoken agreement”??? —I would never be ok with a tenant subletting an apartment they rent from me on airbnb —that’s making income off of my property—essentially stealing. This is wrong and I don’t think that there are many landlords who are “cool” with it. That’s why we put “no subletting” in our leases to begin with……a written agreement.

jo (#5,253)

Oh don’t worry about that….the landlord is cool with it….it’s in the second clause of their “unspoken agreement”

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