The last 10 years we saw a big rise in technological advance and the internet boom. Everything is seemingly online now. People do not seem to be living for the moment but rather living for the image they put out on the internet.
This big technological shift has brought about some new trends that make life easier. Uber and Airbnb are two popular applications that allow users to participate in the gig economy. The apps take out several pain points in doing business like having to look up a cab company, call, wait in line, and pay once finished. With Uber you have an app on your phone that allows you to select a ride nearby and the payment is through your phone as well. Similarly with Airbnb you can browse listings and book on the app for your overnight stays. You often get more space and better amenities for a similar or less value. Regulation has been trying to cling to the past with traditional cabs and hotels but the technologies are really so much better for the consumer.
As an enterprising person and real estate investor I wanted to try Airbnb out as a business. Cash flowing real estate is the secret to wealth and what better way to create wealth than to own a business that focuses primarily around real estate.
Formation
The idea for the Airbnb started in Guam. My future business partner and I were both Officer’s in the Navy and deployed to the Pacific theater with Navy Mobile Construction Battalion 1. I was a Civil Engineer Corps Officer and my assignment was at the US Embassy in Pohnpei, Micronesia. I worked directly for the US Ambassador and setup humanitarian construction projects across several Islands there. My business partner was assigned to Guam as a supply officer with a detachment of over 100 Seabees. We spoke regularly throughout the deployment as he supported some of the missions I setup. When I stopped in Guam I would visit the wardroom and hang out with the officers there.
One night we decided to form a company for when we got off deployment. We wanted it to be in real estate and we wanted to use Airbnb. We had been researching parts of the country that we thought would be good for investing and Fort Worth kept popping up. He was able to get orders to the Naval Air Station in Fort Worth which ended up being the key to our success.
We decided on the name Stone Money Holdings after I had visited the island of Yap—home of Stone Money. Stone Money is an old form of currency that uses giant stone discs as a placeholder for value. It is thought to be the first decentralized ledger used, similar to the concept of blockchain technology. Everyone in the village knew who owned what stone and items of value like real estate were traded. We wanted the company to hold valuable real estate so what better name than Stone Money Holdings.
Finding the Deal
After filing for a Limited Liability Company in the great state of Texas, the search for property was on. The week after we got back from the pacific deployment we took leave to fly to Fort Worth and scope out the area. We stayed at an Airbnb to get the feel for it and also drove around different parts of the city to see where a good area to look might be.
The historic Stockyards seemed like a good place to start. People from all over travel there to watch rodeos and cattle drives. It has a true Western feel to it. The worlds’ largest Honkey Tonk is there—Billy Bob’s. We went there one night and the place was enormous. There was a rodeo inside the venue, a concert stage with 2,500 people watching, and several bars, pool tables, and restaurants inside.
We searched the MLS and Zillow for almost a year before finding a deal. We offered to pay cash with money we had saved up. We ended up getting $17,000 off the asking price for a 3-bedroom, 1 bath house close to downtown and the stockyards. The location was great for the type of guest we were going to cater to.
Setting Up
Once the title was transferred, the clock was ticking to get the house ready for guests. There was some foundation issues and some plumbing issues that had to be corrected which costed several thousand dollars.
I flew in for a week once the house was ready to furnish and we put in some long days to get it ready. We did some more minor repairs and started sourcing furniture. We found a fridge on Letgo, a couch from a retail store, and bedframes from IKEA. We also ordered mattresses online. The theme of the house is Texas, so we bought paintings and other decorative items online to finish it.
While we were out one day someone threw a rock through the window. We were determined not to let it get us down and termed it “the first stone cast”. We decided to get all new windows, which the house was in desperate need of anyway, so it set us back a few thousand dollars.
Listing
After overcoming many challenges we were ready for our first listing. We went live on the Airbnb app and had booking inquiries right away. Our first booking was a bachelorette party that was headed to the Stockyards. It had been over a year since formation and our idea was finally starting to come to light.
The first night I got a call from the guest:
There is a rat running around in the house and all the girls are outside, scared right now.
This was not the first interaction I was hoping for. We were running low on funds after getting everything ready and needed to start turning a profit. I worked it out with the guest for a full refund and apologized. She was really understanding and thank goodness our first review wasn’t a 1 star.
Pest control service was called and the problem was taken care of.
A Year Later
After the trials and tribulations of getting the business started it is running smoothly. There have been 84 reviews for an average of 4.8 stars. We made over a 15% return on equity in the first year of operations without any debt leverage.
We went back and forth about putting a mortgage on the property and looking for another deal and waiting for an economic downturn. We decided to hold off on acquiring another property and it proved a smart choice during the shutdown in March due to COVID-19. There was a couple of months with no cash flow. The overhead on the property was low so the losses weren’t as bad as if we had 2 mortgages and other business expenses.
The bookings started to pick back up in May and business is back to normal.
Conclusion
There are many ups and downs when starting a business. Being successful takes commitment and persistence to go through the challenging times. After you get going though it becomes worth it because you diversify your income streams.
Airbnb is a unique real estate strategy with its new hosting platform. I think it will continue to be a profitable enterprise. There are not many businesses you can start and make a 15% return in the first year. The returns will be even higher with a mortgage on the property.
