How to Rent Your Austin Home as a Vacation Rental for ACL and SXSW
How to Make Tons of Money Renting Your Home for ACL
Have you ever wondered how you can make A TON of money during ACL?!💰 We're coming to you live today to tell you how, with Lauren Yoder and Ryan Rodenbeck. Lauren is our resident short-term rental expert and specializes in helping her clients create streams of passive income using their homes. So, if you want the full scoop on how you can use your home to make money as a short-term rental for SXSW, stay tuned!
Lauren Yoder is one of our top producing agents in Austin, having started her career in 2015, she closed over $5M in her first year at Spyglass Realty. Her specialties include buyer representation, seller representation, and investment property. Lauren has a particular love of transforming owner-occupied homes or duplexes into income producing homes that help supplement the mortgage for the owners. See our interview below with Lauren about how she helps clients buy a home or duplex and transform it into a vacation rental to be used for Airbnb and to rent out for festivals such as SXSW and the Austin City Limits Festival.
RYAN: Have you ever wondered how you can make a ton of money renting out your home or a part of your home for South by Southwest or any other festivals we have in Austin? Today we’re going to go over that step by step with our guest, Lauren Yoder. Be back in just a second.
So I’m here with Lauren. Lauren is one of my ace agents, and she has carved out a niche for herself in the vacation rental preparation business, if you will. Basically what she does is help investors, consumers, homeowners – Lauren, why don’t you tell us what you do?
LAUREN: Sure. I’m Lauren, everybody. I’m with Spyglass Realty. I’m one of the agents here, local residence short-term rental expert, I guess you could say.
Over the past couple years I’ve worked through a lot of transactions with first-time homebuyers, investors, people that are just interested in taking advantage of the sharing economy and having a little more financial freedom by making their house or investment property really work for them.
I’ve helped people all the way from finding a property to designing a space to convert into a guest suite, if you want to go completely separate, all the way through to bringing in the contractor team, getting you set up on Airbnb, helping you navigate the local ordinances, and all of that stuff.
RYAN: Great. Let’s step back and take it one step at a time. I think the first part is your acquisition. Tell us about how you get your clients qualified, how you manage expectations. What’s the first part of that?
LAUREN: Sure. Obviously the first step is going to be chatting with a lender and making sure you’re qualified and ready to buy. The price points in Austin, you probably need to make sure you’re ready to spend at least $300,000 to $400,000 to find a property in a good location with enough square footage, all of the things that are going to make it easier down the road to convert that suite.
Once we get you prequalified with a lender, we have to make sure that the rental income itself is not being used in a way to help you qualify.
RYAN: I just want to say with regard to that, a lot of times when you’re buying investment property – what we’re talking about here is doing this for your own home. If you’re buying an investment property as a duplex, a lender will allow you to use I believe up to 75% of the income to help you qualify for more. This isn’t that, though. This doesn’t work that way, right?
LAUREN: Exactly. Lenders really don’t count Airbnb income until you’ve already had it for an entire year and it’s going to show up on your tax return. So it’s a little different in that sense.
Once you’re ready to hit the ground running, the other thing I really recommend clients to be comfortable with is making sure you’re probably going to have a range of about $5,000 to $10,000 left over after that purchase – making sure you have enough for your down payment, making sure you have enough for all your loan closing costs, and still have that money left over so that you can not only convert the space, but also furnish it.
RYAN: Yeah, and just to be clear here, Lauren, you’ve done this for – this is how I started with you. You’ve done this for your own home, right?
RYAN: You physically converted part of the home with a separate entrance so that a guest can come in and stay that way. What we’re talking about here is buying a home that maybe you’re qualified for, that you can afford, but you don’t really want to pay that much.
You want to try to save some money or supplement, in many cases, the entire cost of your monthly mortgage – which I think is really smart thinking here. Lauren’s done that with several people in the past couple years, starting with yourself.
RYAN: So we went through the first part of it. Tell us about the second part. It’s the purchase?
LAUREN: Yeah, basically once we have you prequal’d, we’re going to need to identify the property that you want to purchase. What I think are the two key factors here are your location (obviously the closer you are to downtown, the more you’re going to get to charge in your rental rates), but also the idea of thinking about your location from a guest’s viewpoint.
Is this person going to feel safe walking from their car to your guest space at night by themselves? Location is one of the things that people can review you on on Airbnb, so it’s really smart to think about that in the forefront.
Then also deciding, is this floorplan going to work for converting a suite in my house? For example, with my home, one side of the house had two bedrooms and a bath; the other side of the house had the master suite. That was where I was able to close off the master suite from the inside, add an exterior door, and suddenly I had 225 square feet of space that was completely separate and ready to be rented out.
RYAN: I want to dive a little bit deeper into location, because when vacation rental first came out several years ago, it was all about being close to downtown. What I’ve noticed in the past several years in Austin is there’s all these little spots that are popping up that have breweries and wineries. The brewery business has exploded, and they’re really all over. St. Elmo area.
LAUREN: We just had some open up in the Water Mill area over by 183. A little further out there, but there’s just stuff popping up all over Austin all the time.
RYAN: When you’re looking to try to qualify a location for a client that’s looking to use their house, are those the types of things you look at?
LAUREN: Oh, absolutely. Having stuff that’s within a short 5-minute drive is drastically going to help you with your reviews. People really like getting local recommendations from hosts; I think that’s part of why people really enjoy Airbnb, is sort of that authentic experience of talking to a local and getting to see what they like.
For example, people were really excited when I told them, “Hey, a brewery opened up. It’s less than 5 minutes away and it’s brand new. You should check it out.” Having stuff like that nearby is great.
Even, honestly, up in north Austin, that’s near the tech companies. They have a lot of people coming in and out needing short-term places. So there’s different parts of Austin that really work for different reasons.
RYAN: And I imagine there’s a lot of places that don’t work. I’m thinking about like Bastrop, where you don’t have breweries or things like that. What are the don’ts that you would say as far as location? Do you have anything in mind?
LAUREN: Definitely the more rural areas, I think you’re going to see a much lower occupancy rate. I think the areas that really see a lot of excitement and people coming into town are obviously close to Austin, but there’s a huge scene out in Hill Country. Lots of weddings happen in the spring and the fall, and you have tons of people coming from all over the country.
I’ve even seen people that own five or six properties out in Hill Country, and that’s their lifestyle. They manage these Airbnbs and host really good experiences for people. I think it’s a pretty cool lifestyle to take advantage of.
RYAN: Yeah. I was thinking like the area – Fischey Road. Road probably be really good. You’re halfway to Hill Country, you have all the breweries and distilleries over there, and you’re only 30 minutes from Austin. It’s a good place you could go with your kids. You could bring your kids to the distillery, bring your kids to the breweries. That would probably be a prime location.
LAUREN: Definitely. The other thing to keep in mind is the city of Austin regulates short-term rentals pretty heavily, and as you move westward you actually get out of their jurisdiction.
RYAN: That’s a great point.
LAUREN: Which is really helpful, especially from an investment standpoint – which isn’t exactly what we’re talking about today, but those are the areas you don’t necessarily have to homeowner occupied.
RYAN: Gotcha. Let’s go with the final thing, the post-close transformation. Walk us through that.
LAUREN: Sure. Before we even get to that, basically once we identify a property, we go through a contract period and we have our auction period.
That’s the point where I really dive in with my client and make sure that the cost of whatever renovations we need to do, they’re comfortable with. We work through designing the space a little bit and a rough furniture budget, and then lastly, I do projections about what I think they’re actually going to be bringing in in terms of rental income. So make sure that it all makes sense before you’re committed to purchasing the property.
RYAN: For your part of it, do you sometimes bring contractors in and get estimates for that?
LAUREN: Yeah, absolutely. While we’re in inspection period, we not only get the home inspected, but I have a trusted network of contractors that I’ve worked many, many jobs with. Finding good contractors in Austin is getting harder and harder to do.
But yeah, I bring somebody in, we get a bid. We make sure everybody’s comfortable with the budget and you’re not breaking the bank, because that’s the last thing you want to do.
RYAN: First you qualify your location. Then you qualify the property based on inspections, if there’s anything that may be a deal killer. And then finally, in your due diligence process, you’re actually giving the buyer an idea of what it would cost to finally transform this thing into what they need to.
LAUREN: Exactly. I’ve actually created a rent calculator for projecting what your Airbnb rents are going to look like. It’s a little bit different than regular rent because we have other things to think about. You’ve got weekday rates versus weekend rates. You’ve got your cleaning fee. You’ve got an extra guest fee. You’ve got festival time, which obviously you’re going to command a higher base rate during those times.
I created this calculator that helps us plug in whatever that bottom base rate is, and then it automatically tells me for festival time, we’re going to charge 200% of that. So it calculates what you’re going to be looking at on an annual basis as a rough return.
RYAN: Very smart. That’s one good thing to remember. You’ve got your base rate and you’ve got your festival rate, and there are a ton of festivals in Austin. Lots of different events. Over the years it’s grown to sometimes two a month or more.
LAUREN: Oh yeah, it’s pretty crazy. To also piggyback off that, too, you have some holidays that really help you bring in the rates. New Year’s Eve is great. Christmas, not so much. I find people are really leaving Austin a little bit more during Christmas.
But there are other things like that during the year that affect your rate, so this calculator that I’ve designed takes all of those things into consideration. Once again, it’s a rough estimate, but it’s certainly much closer than I think a lot of other people would be able to project for you.
RYAN: Let me ask you this, because I have a vacation rental and I want to see if my experience is typical. Summer is a bad time, right?
LAUREN: It’s a little bit slower, I think. Something else that I like to do for my clients is I know how to work some of the backend Airbnb algorithms, and that’s some privileged information that I won’t be sharing on this Facebook live. But if you work with me, I’m happy to share that information.
It actually helps you boost your rental rates. A client of mine let me know that her January was down, and I was like, “Oh, did I ever tell you about this particular thing?” I hadn’t, and she started implementing this strategy and she immediately saw a boost in her bookings.
So there’s definitely a lot of things that you can do to be a more successful Airbnb host as well.
RYAN: As your broker, on a one-on-one basis off camera, am I privy to that information?
LAUREN: I’ll let you know. [laughs]
RYAN: Okay, good. [laughs] So are we through the whole acquisition part of it?
LAUREN: Yeah, the due diligence, I would say. And then obviously we move into the post-close transformation.
RYAN: Right, that’s the final part, the post-close transformation. I’m just going to let you take it from here.
LAUREN: Obviously we have done a lot of the design ideas and worked through all of that during the auction period, because once again, we want to make sure you’re comfortable with everything before you’re committed to purchasing a property.
But as the rest of the contract period goes down, I’m going to make sure that we are scheduling contractors and getting everything ready so that when you close, we’re not losing time. At the end of the day, time is money. So we’ll get the contractors all set up.
While they’re working on your suite – and I can help manage that if need be, but they’re really great people, so I don’t even think I would need to – then we can work on that furniture. Basically what I like to do with my clients is I guide them on, are we using some preexisting furniture? Are we buying all brand-new? What does this look like?
Something I think is really, really important that a lot of people don’t think about is the details of the space. For example, I furnished mine with some vintage stuff and some kind of quirky, fun stuff, and I get compliments all the time about how the space was designed – which I also think helps drive those rental rates.
So spending a little extra on the forefront to get some uniquely designed items really helps, and then also really paying attention to your linen quality. I know it sounds silly, but the best thing is to make sure that those towels, those sheets, they’re really soft. People enjoy using them. That’s another thing that I think is really important.
RYAN: Let me ask you this. When we’re talking about this process in particular, what you’re striving for is basically helping someone take a single-family residence and then carve out one part of the room. How does the design work with keeping a separation between you and the guest? That’s fascinating to me.
LAUREN: While we’re looking for the property, I do like to try to make sure, like I said, the floorplan is conducive to this. You don’t want to spend a ton of money modifying the home; you just want to maybe put up one wall and add an exterior door. That’s what I had done and have done for other clients.
How can we convert this space? Where’s the existing plumbing, if we’re needing to add a bathroom – thinking through those details. Basically it’s pretty simple to make sure that the space is separate and private for your guest, but accessible to you as well so that they feel that they’re well taken care of.
RYAN: Do you always have a separate entrance? How does that work?
LAUREN: That’s a homeowner flavor. For me personally, I wouldn’t feel comfortable sharing my kitchen or sharing my living room or sharing my bathroom with guests that are coming and going. So for me, I really wanted it to be separate.
If someone’s open to that, obviously your renovation budget is going to be pretty low because you can just rent out a spare room in your space.
RYAN: When you’re searching for properties on Airbnb, as I’ve done many times, you’ve got that you’re viewing a private room or the whole house. If you can make a separation with some kind of locked door or whatever, you can put whole apartments, but specify in the description that it’s a closed-off section of the house.
RYAN: That makes a huge difference, because when you’re looking on Airbnb, you really don’t want to share a room.
I think the beauty behind what Lauren’s done for herself and for her clients is she’s able to take a house, partition it off, be able to advertise that as their own apartment per se, but then also be real honest in the description of it. Because you don’t want to mislead anybody; that’ll turn into negative reviews, and you don’t want to do that.
Tell me about – you don’t have a full kitchen there. You have like a microwave, a sink if you can, that type of thing?
LAUREN: What I did for my place, and another client has done this, when you’re just doing a guest suite within the actual home – because I’ve also had some clients that we bought a place that had a completely separate secondary structure with a full kitchen and a full bath. So that was obviously pretty easy.
But for me, I found that a kitchenette works just fine. I have available to guests a stackable washer/dryer, a mini fridge, a Keurig coffee machine, and a microwave. Then I also keep compostable flatware and plates and bowls available so that they can basically heat up leftovers or make a quick cup of coffee. But it’s not a kitchen. It’s not something that they’re going to be cooking a full meal in.
I also like that from the standpoint that it doesn’t get as dirty. The only sink available is the bathroom sink. I don’t want people washing dishes in that, so that’s why I provide the compostable stuff. It’s a really easy way for people to be able to bring home leftovers. You don’t feel like you have to waste those dollars when you only ate half your meal when you were out, and you can use the rest tomorrow for lunch.
So I find that the kitchenette works great with just those few basic items.
RYAN: You said about the Keurig – in our vacation rental we have the coffee machines, which I would think would be enough, but I actually got less than 5-star reviews, like 4, for not having a Keurig. I’m like, come on. But you know, whatever.
What’s the next step in the post-closing transformation?
LAUREN: We’ve got the renovation going, that’s happening, we’re working on our furniture. The next piece of the puzzle obviously is getting the proper permit for it. The city of Austin does regulate short-term rentals pretty heavily, and there’s three types.
There’s Type 1, which is homeowner occupied; there’s Type 2, which is non-homeowner occupied in a duplex or single-family; and then there’s Type 3, which is more of a commercial or multifamily space, so condos or townhouses.
Type 2 permits in the city of Austin are pretty much impossible to get at this point. The city actually limits by census track how many can operate in a given area, and as far as I know, pretty much everything’s close to capped.
RYAN: There’s a moratorium in existence too, right?
LAUREN: Actually, I don’t know if the moratorium is still in existence. But basically because I think they finally figured out how to regulate these different types, the regulations are essentially a moratorium, if that makes sense.
RYAN: Yeah. Type 1 is the one we’re going for, because it’s your own home, and they’re not as regulated on renting a portion out of your home.
LAUREN: Exactly. The homeowner occupied short-term rental permits are the ones that are still being issued, and in a much easier capacity. There aren’t as many things to make sure that you have.
Within the homeowner occupied permits, there are three different types there. There’s the primary, which is if you live in your home and you’re renting out a portion of it or you’ve got a shared room, or if you’re a homeowner and you’re like “hey, I’m getting out of town for South By; I’m going to rent out my entire house.” That’s primary.
Then you’ve got your secondary, and that’s going to be your fully detached units. You’re still on premise, even though somebody’s in the other space.
The last one is just the shared space ones.
RYAN: Gotcha. So the second one of Type 1 is your auxiliary dwelling unit. That’s if you’ve got a separate detached unit, cottage, whatever you want to call it. ADU (auxiliary dwelling unit), that’s a word we hear in Austin all the time.
When you’re doing this for yourself or for clients, which license do you get of the Type 1 license?
LAUREN: The primary, if we’re talking about doing the suite conversion. The primary in the Type 1. The application process is not horribly hard, but there is some documentation that you have to make sure to gather before you submit your permit.
Basically, it’s just shy of $500 to apply. Part of that is the permit fee itself, and then I think $50 of it is like the “notification fee.” Just tacking on all the fees. But basically it costs about $500 and then the yearly renewal is closer to about $300.
There’s a few things that you have to gather, one of which is your insurance. You have to make sure you tell your homeowners insurance company, “hey, this is what I’m doing on my property.” You want to make sure that your liability is covered.
The second thing is you have to get a certificate of occupancy. You can get those through Development Services down at the city of Austin. If there isn’t a CO already issued for your home, you can have a third-party STR inspection. You’ll have to do one of those two.
They’re just looking for basic safety stuff. Is there a smoke detector? Is there a fire extinguisher? Is there egress so that people can escape in the case of a fire? It’s nothing overly scrutinizing, but it’s just to make sure that the space is safe.
RYAN: Let’s talk about taxes here. Airbnb last year started collecting hotel taxes for the city, even for people that do not have permits, right?
LAUREN: Actually, they’re collecting it for the state. In the state of Texas – and this is the last piece of the puzzle – your proof of paying or being ready to pay those hotel and occupancy taxes.
Essentially in the state of Texas, we have a combined 15% hotel and occupancy tax. 6% goes to the state of Texas. That’s what Airbnb actually collects. That’s collected through the app, whereas the city of Austin (9%) is not collected through the app.
So you need to either think about that in your rental rate, knowing that you’re going to be paying that out to the city of Austin, or you have to request that fund separately from the guest.
RYAN: When you’re talking about putting it on – and I know my answer to this, but I want to see if you have the same one – Airbnb, HomeAway, or VRBO?
LAUREN: If you’re doing a guest suite, I say Airbnb all day long. I actually tried putting my guest suite on VRBO and I wasn’t really getting much off of it. Then I found having to balance a couple different booking calendars just wasn’t worth what I was bringing in off that site.
I think VRBO is much more an entire home out in like Travis. It’s a little bit more of the complete vacation home package versus something like this, where I get couples coming in for a long weekend that just want a nice place to crash.
RYAN: I’ve got actually a Type 2 license on my duplex.
RYAN: Yeah, I think we were the last ones in the area. But we were managing both calendars at one time, and we’d get 95% Airbnb. Then finally HomeAway is about to kick us off because every now and I have to cancel it, and they’re like “you’re in danger of being suspended.” We don’t even care. We get like three a year.
Our Airbnb is completely full. For some reason I think Airbnb is winning the fight. It’s sad because the local Austin company was HomeAway, but people aren’t using it.
Is there anything more to the final process there?
LAUREN: No, that’s really it. Like I said, the renewal is around $300 bucks a year. I think it’s a little bit less than that, and you have to renew on a yearly basis.
But once you have your permit in place, it’s pretty simple. As long as you make sure that you put in a complete permit application, you’re more than likely going to be approved and not even really hear from the city much.
RYAN: This has been very informative. Lauren, where can anyone watching this find you?
LAUREN: I’ve got a Facebook page for my real estate business. I’m on Instagram, Lauren Yoder ATX.
RYAN: Tina’s going to put this in there as we go.
LAUREN: Yeah, Tina’s putting it in the comments as we go. You can always find me on spyglassrealty.com on the agent page. I’m up pretty close to the top. I’d love to hear any feedback or any questions that somebody has. I’m happy to consult about this sort of stuff if you’re just thinking about the possibilities.
I think the sharing economy is something that especially the millennial, new home, first-time buyer wave can really take advantage of and live a financially free life.
RYAN: Absolutely. Lauren is one of my top agents here at Spyglass. We really appreciate having you here. Just so you know, we are actually relaunching our site, I believe today. It’s going to have a whole new, fresh look. I’m very excited about that. So check that out.
Next week we’ve got a very special guest. We’re going to be going over the tax implications of the new tax plan and maybe some tidbits about how real estate agents are affected by the new tax plan. So join us next Thursday at 2 p.m. Check out our website. We have more information in the chat.
There will also be further information, if you’re watching this on YouTube, there’ll be further information as we get this on YouTube. You can find out more information about how to really get this process started. And we will see you next week. Thanks for joining.