Airbnb Investment: Unexpected Costs to Consider

What’s up guys, in today’s video, we’re gonna be talking about some of the unexpected costs that come along with buying and setting up and getting running a short term rental property or otherwise known as an Airbnb. So if you’ve ever bought an Airbnb before, you’ve probably come across some of these things and thought, wow, I really wish I’d taken account for that expense that I was going to incur when I originally ran the analysis. And so having done it a couple of times, we’ve set up analysis spreadsheets, which again, you can download in the description down below that have slots that you remember to account for all these different expenses. But I wanted to take some time to run through these and also give some additional context to some of these expenses. So that if you’re looking to buy a short term rental property, you make sure that you don’t overlook these expenses, and an uptight for cash. So just start with the first potentially unexpected expense, you’re going to come up with grants, and when you buy any property is gonna be your closing costs, your closing costs are typically going to be several $1,000. They’re gonna include some of the legal fees and other expenses with actually closing the sale of a home. And so you need to make sure that you actually have that money in cash ready to purchase the property. So the big thing here is that a lot of people when they’re initially trying to figure out how much home they can afford, they think well, how much money do I have set in savings, and that is basically my 20%. For my downpayment, well, you actually need to have more of that more than that amount set aside in cash more than just the 20%, just to close on the home, that’s going to be for your closing costs. And then you should actually have some additional money soon thereafter, for some of the other expenses I’m going to mention that are going to be incurred before, and really during the operation of the actual property as a short term rental. So for starters, make sure you properly calculate your closing costs and have that money ready to go for when you close on the property. Because the last thing you want is to be scrambling at the time of closing to try to get those funds together. The next one is going to be land transfer tax, which would be potentially applicable really depends on where you’re located. But in some places like Canada and a lot of areas in Canada, you’re going to be dealing with land transfer tax on the sale of any property. So that means that anytime that land transfers from one owner to another, that’s a taxable event. Yay, taxes. And so that means that you’re going to have to pay taxes whenever you buy a property. So again, there’s really handy website, we’ve got it linked in our analysis spreadsheet that you can go to it’s called rate hog.ca. And you can calculate what the closing costs or sorry, the land transfer tax are going to be on a given property, it depends on the location of the property and the purchase price for the property. Now, the next one is going to be renovation. And obviously, most people know that if they’re going to be doing renovation on the property, they should be accounting for that and budgeting out that as an expense. But I also want to remind you that even if you think you’re not going to be doing renovations on the property, there’s a few curveballs that could potentially come your way, make sure you get number one a home inspection prior to purchasing the property so that you can see around the corner, you can see if there are going to be any renovations that are needed. Anything that’s getting really old, anything that you might have overlooked yourself, a property inspector is going to know the structure and have a home inside and out. And they’re going to be able to point out little things that you might otherwise overlook both big and small. I actually recently had a home inspection done, where the home inspector pointed out some structural issues in the home that were going to be really substantial in terms of cost to fix those had I not done that I would have been faced with 10s of 1000s of dollars of unexpected expenses down the road. The other thing you want to account for outside of that inspection is just any little minor cosmetic renovations you’re going to want to do. Now some of these things you can do yourself other things you want to hire someone for. And so it can be as simple as just replacing an old an old appliance, it’s going to only be a couple $100 maybe changing the colour and a couple of the rooms doing some freshening up of the paint job, you should expect at least a few 100 to a couple $1,000 In renovation expenses on any property unless it’s super turnkey. So just make sure that you’re accounting for that. And then next is really just all the little things when it comes to actually furnishing your property. There’s all kinds of little things that I think a lot of people overlook. And you can see that when you stay at certain Airbnbs you can see that those things didn’t really get thought of. And so these are things like having night tables beside the beds and having lamps on those night tables and having phone chargers beside those on those night tables. You know, having things like a paper towel holder having things like you know, little coffee tables, and you know, pots and pans and proper utensils, there’s all kinds of little things. If you want an exhaustive list again, we’ve got trains like the description down below, we have exhaustive list of every single item that you need. But the reality is there’s hundreds of different little things that you need to get a properly property properly, a property properly set up to use as a short term rental. And so you want to make sure that you have all of those things and that you’re budgeting for all those things because those little things do tend to add up to a couple $1,000 When it comes to actually furnishing the property. Hey guys, I just want to take a quick break here to say that for those of you watching, who want to build cashflow, and long term wealth by purchasing Airbnb ease and short term rental properties, there’s a link in the description right down below for a free training that will walk you through my exact strategy for investing successfully in Airbnb. Now, if you’re not ready to actually buy properties, and you want to get started managing other people’s properties on Airbnb the same way I got started and build a full time income managing other people’s properties, there’s actually another free training linked in the description down below as well, that’ll be a really great fit for you. So whether you want to invest in short term rental properties, and actually build amazing cash flow and long term wealth by acquiring the assets, buying the properties themselves, or you’re looking to earn a full time income, managing other people’s properties on Airbnb, we’ve got some awesome trainings that are linked in the description down below, that’ll definitely help you out. When you sign up for the trainings, we’re also going to send you a few other tools and resources completely for free just to help you get started. Again, the links to sign up are in the description down below. And both trainings and all the tools are completely free. So make sure to register for the trainings, links in the description down below. The next thing and this is something that I see people talking about all the time that you’re just gonna have to accept, in part as a reality of running a short term rental is the additional electricity, there’s going to be an added hydro bill, it’s going to be a more expensive electricity bill, anytime you operate a short term rental compared to a long term rental or compared to the property sitting vacant, obviously. And so you just have to realise that short term rental guests, they’re not necessarily going to care about your electricity bill the same way a long term renter would, they’re going to do things like cranking up the AC because it’s hot outside, they’re going to crank the heat when they first get in because they’re cold things are gonna happen where they’re going to crank that up and down. Now I’ve got other videos where we go into detail about how you can mitigate these expenses with things like a Nest learning thermostat that will learn and adjust automatically when people are in or out of the house. And you can set it on schedules control it remotely, there’s all kinds of things you can do to make your electricity bill lower and make things more efficient. But the reality is there is going to be a slightly higher electricity bill when you’re running a short term rental compared to the other uses for the property. So you need to account for that, the next thing is going to be a little bit more expensive is going to be your insurance. This is a total must it’s an absolute non negotiable for me, you need to have a home insurance policy that specifically gives you coverage for short term rental use. If you don’t you run the risk of not having insurance coverage when you need it. And so yes, you do get a million dollars in liability and coverage. And now I think actually over $3 million in liability coverage from Airbnb. And depending on the other platforms you’re listening on, you get really great liability protection. But that coverage ends when the guest leaves the property. So if the guest doesn’t actually cause the damage at the property, and that platform is not going to cover you. Now the challenging part is that typically you’d rely on your home insurance policy that you have with your policy provider in order to cover you whenever the guest isn’t there or the guest isn’t the cause of the incident. But the challenging part is that a lot of insurance policies, most of them, in fact, will basically exclude you from coverage if you’re using the property as a short term rental. So you have to go and specifically seek out an insurance policy that is going to give you coverage for use as a short term rental to make sure that you’re fully covered. So that’s going to be additional expense there, you’re looking at probably about $3,000 a year depends on the area depends on the property. But that’s kind of the rough guidelines, it’s typically about twice the cost of a traditional home insurance policy. Now the next thing you want to make sure that you take care of and you account for is your yard maintenance. Again, this is one that really often gets overlooked, but it can easily run about $100 a month just to make sure that the yard is mowed, that the snow is removed in the wintertime if you’re in a more rural area, you may not have municipal road clearing. So you may need to pay something to your neighbours or something like that. To clear the road. I know a few of the properties that we have, we pay road dues every single year to a person on the street to make sure the road gets cleared. The next one after yard maintenance would be the account balance. This is one that I brought up a couple of times on this channel here and one that you really don’t want to overlook because if you overlook this, then it’s going to put you in a really tight spot financially, you want to make sure that you have an account balance in your bank account of you know, it really depends. Most people do this as a percentage of operating. I personally recommend doing this as a percentage of revenue a couple percent to 3% of your annual revenue expectation is what you should have in your account at bare minimum at all time. Realistically, you should have a bit more than that, especially if you’re in a really seasonal area. You want to make sure that going into the low season. You’ve got enough to weather the low season and coming into high season. Don’t pull out all your money right away. Keep some of it in the bank account so that you can have it tucked away for low season. If you’re not going to be breaking even in low season and you’re making most of your profit or all of your profit in the high seas. Then just make sure that by the time you’re done renovating and setting your property up, that your bank balance isn’t at zero, you’re not totally overdrawn, because at that point, if something unexpected does come up, like for example, you need to replace some roof or you need to replace an AC unit or something like that, then you’re just not going to have the funds to do that. And there’s nothing worse than having a property that you can’t welcome guests into, you can’t actually make money off of it because it needs some big repair. And now suddenly, you’re in between a rock and a hard place where you can’t afford the repair. But you can’t afford to hold the property and not take that take care of that maintenance and not have it generating revenue for you. Even worse would be to have that maintenance not taken care of and then try to have guests in the property only to get terrible reviews have your listing tank, there’s just it’s just really a waterfall effect of really negative consequences. So you want to make sure you have that money set aside for any of those unexpected expect expenses, you want to make sure you just expect the unexpected. The last one that I find a lot of people overlook his accounting, you probably don’t want to do your own bookkeeping and accounting at the end of the year. I know I sure don’t. So you want to just make sure you budget for a proper account. The other great thing about real estate is that there’s a lot of tax advantages that come along with real estate. So you probably want to make sure that you have a professional accountant who can help you to mitigate as much of your tax as possible, and use some of the tax advantages that come along with owning that real estate. So again, just make sure that you account for your accountant when you’re budgeting things out. Usually I like to budget about $1,000 per year for a property for the accounting. And that’s going to be covering the accounting and bookkeeping, bookkeeping for the property for the whole year. That’s typically plenty. If you have any other unexpected expenses that you can think of this certainly wasn’t an exhaustive list of every expense. These are some of the expenses that I know are most commonly overlooked when it comes to buying short term rentals. But if you have any that you think I missed, let me know in the comment section down below. If this video was helpful for you, and it helped you to plan ahead more effectively than you know make sure to drop a like on the video hit that like button it really does help me out tremendously. And again, if you enjoy this video also just make sure that you consider subscribing to the channel when you hit that subscribe button. You’ll get notified when we post two new videos every single week on this channel helping you to succeed with Airbnb and short term rentals. And like I mentioned before as well make sure you check out the links in the description down below. We’ve got a an ROI calculation spreadsheet that you’re gonna get for FREE when you sign up for the training. And that’s going to have categorization of all these different expenses you make sure you don’t overlook any of them. Again, thanks so much for checking this video out and I’ll see you in the next