One prominent non-bank lender wrote twice as many jumbo loans between May and June as it had from April to May…
How To Become An Indemand Luxury Short-Term Rental Host
Chad Waterhouse, the head of design and leasing for Elite Luxury Homes, faced a challenge: His job was to turn a dark, unfashionable and outdated Beverly Hills house into a showcase someone would pay up to $200,000 a month to rent short term.
Investors had purchased the house for $15.94 million in 2017. They didn’t want to spend millions more, yet the nearly 12,000-square-foot estate needed a new modern kitchen, marble floors, more bedrooms, luxurious rugs, chic décor and lots of art, plus landscaping.
It was time to dig into a bag of tricks Mr. Waterhouse and chief executive Martin Beaurivage have developed as part of Elite’s business of converting houses into ultraluxury short-stay rentals.
The short-term rental revolution ignited by do-it-yourself platforms including Airbnb and Vrbo is going upscale. In June, Airbnb rolled out Airbnb Luxe, which has over 2,000 properties that cost an average of $1,500 a night. In April, Marriott introduced Homes & Villas by Marriott International, upscale short-term rentals that can be paid for in cash or Marriott points. A host of new, smaller companies with an array of business models have also started marketing luxury properties.
With so many new ways to promote upscale short-term rentals, it is tempting for luxury homeowners to think about jumping in, wherever local law permits. We talked to homeowners, real-estate investors, property managers, short-term-rental company executives and hospitality players about what a home must offer to bag big nightly fares. Here’s their wisdom about what it takes:
MASTER THE BASICS…
Many prerequisites for success are no surprise: Great locations, ample square footage, and upscale finishes are must-haves for this market. Service is also key; many of these properties come with on-call agents and concierge service.
Mr. Mueller, a retired technology executive, started his own luxury short-term rental company, Denver-based Cuvée. He also short-term rents his own homes, including a San José del Cabo, Mexico, home he built for $5.5 million a decade ago. He rents it today for between $3,000 and $10,000 a night, earning annual revenues of $400,000 to $450,000. Another house on Hawaii, which he built for roughly $6 million eight years ago, gets $12,000 a night in peak season; it reaps up to $650,000 a year. A third in Beaver Creek, Colo., cost $6.4 million, charges up to $13,000 a night, and brings in up to $550,000 a year.
But just having a great home isn’t enough, Mr. Mueller said. High-rolling renters have high sensitivity to out-of-date décor, electronics and dishware. He recently realized the granite in his Hawaii kitchen was fashionable several years ago, he said. He’s changing it to white quartzite.
The single most profitable alteration to any house: Turn rooms into bedrooms. Not everyone paying thousands a night is ultrarich; more often, it is an extended family or group of friends looking to save money by not booking hotel rooms, said Joe Liebke, chief executive of Villaway in Los Angeles. The easiest way to boost income—some platforms say by 20% to 30% per night—is to take a home office or den, furnish it with bedroom furniture, build a closet or add an armoire, and add it to the bedroom count.
There are two pieces of décor that short-term rentals have to get right, Mr. Liebke said. “Is there a comfortable sectional sofa, where, if the house sleeps 10 people, also fits eight to 10 people? Is there a big dining table where everyone in the house can eat together?” he said. People go on vacations together because they want to gather, so group spaces are essential, he said.
A Beverly Hills Home Brings in the Bacon…
The property, which is managed by Elite Luxury Homes, earns roughly $125,000 a month on the short-term rental market.
Chad Waterhouse, who redesigned the home to ready it for the short-term rental market. The grounds and a guesthouse, which was converted into an extra bedroom. Adding bedrooms is key to justifying a high rental rate, said Elite’s chief executive Martin Beaurivage.
FURNISH FOR VACATION, NOT LIFE…
Mr. Waterhouse’s bag of tricks at the Beverly Hills home included several cost-saving face-lifts. Instead of replacing kitchen cabinets for about $40,000, he refaced the existing cabinets for $12,500. A formal foyer that would have looked good in marble instead got marble-looking porcelain tile. Rather than spend big on artwork, Mr. Waterhouse hired an artist to create a dozen custom canvases painted with colors showcased in each room. They cost $500 to $600 each, he said.
Furniture must look modern and new, but shouldn’t be top-tier designer fare, which is too expensive to replace if damaged, Mr. Beaurivage said. Instead of buying Persian carpets, Mr. Waterhouse had a sturdy sisal carpet made for less than $1,000 for a big room. He used furniture from Crate & Barrel’s spinoff brand CB2 and Restoration Hardware, including a sofa with washable slip covers.
Key to a high rental rate are extra bedrooms, so Elite converted an outdoor pool house into a guesthouse.
Kelsey Path, controller for Signet Management, which owns the property, said the investors, whom she declined to name, earned $1.5 million in short-term revenue this year. The property is now rented for the next 18 months for $125,000 a month, she said.
A Short-Term Rental “Only in Kentucky”…
The Kellys and Ms. Kelly’s sister Delena Spencer bought this once-defunct distillery building and restored it. They’ve spent a total of $2.6 million so far. The main building’s tenant is a bourbon distiller whose product is named for the building’s original distiller: James E. Pepper. The family hopes their distillery unit will attract short-term renters craving an “only in Kentucky” experience. The family members spent $2.6 million to buy and restore the building;
PUMP UP THE AUTHENTICITY…
Teri Kelly knows what it takes to get people to pay $700 a night and up for a short-term rental in Lexington, Ky. She has been renting out her own historic home for years, making as much as $1,100 a night. The home is furnished with the results of “3,000 hours of scouring yard sales and antique marts,” said Ms. Kelly. The Kellys believe the traditional style of their home is a draw for tourists seeking an authentic experience.
“It shouldn’t be cluttered. It should be authentic. We’re trying to make it Instagrammable,” said Ms. Kelly, 54, a professional property manager. In addition to renting her personal home, she, along with her husband and sister, is also putting the finishing touches on an 1,800-square-foot condo she plans to rent for $600 to $750 a night.
They will spend about $250,000 more to complete the rental unit. Décor includes art depicting horse racing and reclaimed wood from the distillery. Kentucky bourbon will serve as a welcome gift.
Ms. Kelly’s own home didn’t cost a fortune: She and her husband bought it for $290,000 in 1999 and spent somewhere around $300,000 over the years improving it. Neither it nor the condo they are developing features Viking stoves nor designer furniture.
In recent years, she’s cut back on renting it to about six or seven weekends a year, bringing in roughly $10,000 annually, she said.
The Kellys and Ms. Spencer have tapped into the same concept that drives the model of Onefinestay. Stephen Haskell, general manager, America, for the company, said one of the most popular homes in the U.S. is a Los Angeles house “that looks like an old-fashioned Hollywood movie.” In Brooklyn, classic brownstones with period detail are big sellers. In London, the renters are mostly Americans who crave English traditionalism, he said.
MAKE IT ’GRAMMABLE…
When Sean Breuner, the chief executive and founder of AvantStay—a company that leases properties from owners, redesigns them and then rents them short term—looks at photos of his properties, he doesn’t talk about bedroom count or square footage. Instead, he describes scenarios.
“Here’s where you sit on the balcony overlooking Lake Tahoe while you’re sipping a glass of wine next to a fire pit, roasting marshmallows with your whole family and telling stories about how the trout you caught was bigger than your brother-in-law’s,” he said.
If Mr. Breuner sounds like he’s narrating an Instagram story, that is on purpose: Consumers, he said, are more likely to book stays when they can envision sharing a picture of themselves swinging in a hammock or engaged in a poker game at a fully stocked card table.
To underscore the notion of a home as an activity center, AvantStay moves out breakfast tables and formal parlors, and brings in ping pong, pool and foosball tables. It decorates walls with surfboards, skateboards, or pool cues, and outfits backyards with bocce ball courts and croquet sets.
In their distillery unit, Ms. Kelly and Ms. Spencer created a sign at the gate with the name of the unit—The Top Shelf—“where renters can take selfies,” Ms. Kelly said. Tile work in the shower is inscribed “Join or Die,” a Revolutionary War slogan.
The goal is to provide “something authentic, local and original that gives people something to write about their trips on their Facebook page or Instagram,” Ms. Spencer said.
If renters follow through and Instagram their trips, that is a bonus, Mr. Breuner said. But the point of the visual storytelling is to get them to book a stay.
“Short-term renting is the business of selling experiences through pictures,” Mr. Breuner said.
The Recipe for a Successful Short-Term Rental:
1. ADD A BEDROOM
Turn a home office, storage area, or den into an extra bedroom for the greatest boost to income.
2. SPARE THE CAVIAR
Invest in sturdy, preferably washable, furniture from upmarket brands. Skip the most expensive stuff, which is too costly to replace if damaged.
3. SOFA SERVINGS FOR ALL
Make sure the central gathering space has seating for the maximum capacity of the home.
4. A SEAT AT THE TABLE
The maximum capacity of guests should all be able to sit for group meals together.
5. HEAVILY SPICE WITH LOCAL FLAVOR
Don’t be afraid of stereotypes: Décor and accents should reference the best elements of the location itself.
6. SPRINKLE ON TOYS
Make it easy to envision having fun at the property by providing activities like cornhole, ping pong, pool, pool toys, bikes, etc.
7. SO DELICIOUS IT’S INSTAGRAMMABLE
Stop and consider an emblematic feature of the house—perhaps a sign with the property name on it—where guests will stop and take selfies.
8. SERVICE WITH A SMILE
Luxury renters demand new towels, toiletries, high quality sheets, strong WI-FI, and someone to call if there is a problem.
What to Know Before You Rent Your Home…
Short-term landlords need to follow local laws, secure valuables and insure against unknowns. Here are the must-dos:
KNOW THE RULES
Many states have complicated rules and requirements that govern what types of homes can be offered for short-term rent, and rent duration. Many state and local governments require hosts to pay hotel or occupancy taxes on their rental income.
Separately, it is essential that your insurance carrier knows you are short-term renting, or damages and liability may not be covered at all. Short-term renting may be excluded in some policies, and telling the carrier you intend to rent may cause them to threaten cancellation. Some insurers have policies specifically for short-term renting. Other may require you to take out a business policy.
LEARN THE PLATFORM’S POLICY
Cuvée requires that all renters buy accidental damage insurance for each stay; the company offers its own provider, which typically adds $109 per stay. Airbnb offers up to $1 million in “host protection insurance” for each stay. AvantStay carries $10 million in commercial general liability coverage and tells homeowners it will cover property damage. Policies change, so demand the most updated information.
BUILD A SAFE ROOM
Rental platforms said it is routine for homeowners to have a locked room or closet where they keep their valuables and anything else they don’t want renters to touch.