I recently sat down with Jake Cohen and Erik Mehus to talk about their Airbnb properties in Steamboat Springs. They told me how they got into the business, walked me through the first home, and detailed the lessons they learned along the way. Now, they’re launching a website to help others who want to invest in these types of properties, too.
- Listen to the podcast “#297: Airbnb in Steamboat Springs: Lessons Learned through Trial and Error” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
An Early Start in Hospitality
Jake grew up on the shores of Lake Tahoe helping his parents run their Bed & Breakfast He remembers his dad entertaining guests downstairs while he and his mom frantically hung up the last few pictures the first day they opened. After college, he moved to Palm Springs and ran his parents’ second Bed & Breakfast there until moving to Denver. Jake thought Denver had an exciting real estate market and was eager to start investing. By that time, his parents sold one of their Bed & Breakfasts, which brought some money, but not enough for his mom to retire on comfortably.
Jake made a proposition to his mom. He would find real estate deals and do all the work to manage the properties if she put up the initial investment. This would help fund her retirement. She agreed and soon they purchased a townhouse in Lakewood for $180K in 2014. They leased it for $1550 a month as soon as they closed and were able to bump up the rent $100 every year. Three years later, he realized the property was worth a lot more than it was purchased for and sold it for $308K. He did a 1031 exchange and acquired his first mountain property in November 2017.
Making the Move to Steamboat Springs
Steamboat Springs was the most appealing mountain town to Jake because he could get the most bang for his buck there. He found a duplex that had a lot of potential and purchased it for $474K with a $15K credit at closing. The whole property is about 1400sqft, with a 2 bed 1 bath unit upstairs and a 1 bed 1 bath unit downstairs. The property needed a lot of work, both structurally and cosmetically, and he knew he would need to completely furnish it, too.
The main issue that came up during inspection was that the home needed helical piers to bolster the foundational support. Since the duplex was built on a slope, the backside of the second floor was bowing without the extra support. The bid from a structural engineer came in at $10K plus more for every foot they would need to dig down. In all, he ended up paying around $27K for the project, $15K of which was covered by the seller credit.
Jake estimated the repair costs at $80K, but the total cost for repairs, renovations, and furnishings ended up coming to $240K, 3 times more than the initial budget. His main goal when he closed in November was to get the property ready to rent out by Christmas, which meant the contractor he hired was more focused on the timeline than shopping around for the best deal. In addition to the helical piers, he also replaced all of the flooring, put in gas log fireplaces, redid all of the electrical and plumbing, replaced all of the appliances, as well as a complete cosmetic remodel including new kitchen cabinets, bathrooms, and some reworking of the layout.
Another spending issue came from putting too much into products to make the home nice, such as the $6-8K that went toward linens. In Jake’s mind, he wanted to have the best property in Steamboat Springs, but the truth was the duplex is a mile away from the mountain and isn’t a grand home. His target renters weren’t people spending $1K a night, but guys like him who wanted to do some skiing, stay at a decent place, but only pay around $150-$200 a night. If he’d identified his target guests from the outset, he estimates he could have saved around $50K.
Because the costs went so far over budget, Jake used up the extra reserves he’d set aside and still had to come to his mom, who was his main investor, and ask for an additional $100K. It was a hard conversation to have, and he felt like he’d let her down. A lot of people don’t have the ability to get that much extra money when a project goes overbudget, so having a clear plan from the start is key. Know that in small mountain towns, everything will cost more and don’t try to use numbers from other cities, such as Denver, for cost estimates.
In the end, the duplex was ready by January 15, nearly a month later than planned, but still a good time to rent out a property in the mountains. Estimates from property managers were that the property would do $5K a month in rental income, but it ended up doing much better.
Looking at the Rental Property Numbers
Ever year he’s owned the duplex it’s performed better than expected. Even though there was a shutdown in 2020, he was still able to make $82K in rental income that year.
Monthly Operating Expenses
Jake self-manages the property. After the learning curve of figuring out the best software to use, he only spends about an hour or two a week on each property that he owns. The only time he has to do anything is if someone asks a question that hasn’t been asked before or if there’s an issue upon a guest’s arrival, such as not having enough towels. Even then, though, Jake just needs to text the cleaner to bring some over.
He markets the property to couples and families with kids and makes clear that it isn’t intended for large groups or parties. This cuts down on general wear and tear, and he’s found that using quality products saves money by not needing to be replaced as often. For example, he stocked the kitchens with the same high quality frying pan he uses at home. If that pan lasts about 10 years in his home, he can expect to get about 5 years’ worth of use for it in a rental.
His big expenses come from cleaning and snow removal, and he has a special type of insurance that covers both the property and business liability. He highly recommends this type of policy so that if something were to happen, he won’t find himself unable to cope with a million dollar lawsuit because he wanted to save a few hundred dollars
First Year Returns
The home appreciated considerably since he bought it, thanks to a high demand for houses that accommodate families. He just sold it for $877,800 and is using a 1031 exchange to buy a duplex in Gulf Shores, AL.
Helping Others with their Rental Properties
After all of the work of getting the mountain duplex up and running, Jake hired Erik Mehus as his project manager for the second home he bought in Steamboat Springs. This 7 bedroom 4 bathroom house is almost 3 times the size of the duplex, but they were able to remodel and furnish it for half the cost. They took turns going up to monitor the progress and were able to stay on top of any delays or missing deliveries. Those little details add up to thousands in savings. Jake & Erik have honed their skills and now are finding Cash on Cash returns of 20+% percent in Short Term Rentals.
Now, Jake is an Airbnb ambassador who helps people getting started as Airbnb hosts. He is able to assist with setting up listings and can review them before they go live to ensure they have the best pictures and details.
Jake and Erik launched a website to document what they’ve learned from doing short term rentals. They started putting out webinars two years ago after seeing that there wasn’t good documentation on the process from start to finish. Their webinars cover everything: finding a property, renovating it, how to pick out the best furnishings and software, and creating the best listing through Airbnb. Their main goal is to help smaller investors who have some extra space they want to rent out, or those looking to buy a property or two, not bigger investors who are aiming to manage 1000 properties or make millions of dollars.
Connect with Erik and Jake
And if you’re interested in your own investment property, reach out to me and my team will help you figure out the best move for you.