AIRBNB PROPERTY MANAGEMENT: PERFORMANCE EVALUATION OF A RENTAL PROPERTY

Douglas (Doug) McDonald, a manager and owner of several short-term rentals, knew that he had an upcoming deadline to provide a performance report to his business partner, Thomas (Tom) Grant, by the end of July 2019. He stared blankly at the master budget (see Exhibit 1 and Excel Exhibit 1) and output from Airbnb detailing the nights in which the unit was rented as well as the rental income (see Excel Exhibit 2) for the first two quarters of 2019 (January-June).

Doug began managing an Airbnb when his employer asked him to leave Halifax, NS, to undergo several months of training in Europe. Instead of letting his home sit vacant, Doug used the Airbnb platform to rent his condo to tourists visiting Halifax. Over the next two years, Doug owned and managed three short-term rentals and eventually partnered with a long-time friend Tom Grant to manage another property and rent it using Airbnb. To date, Doug had not done a thorough analysis of his performance, but, after partnering with Tom, the two agreed that monthly and quarterly performance evaluations should be prepared for their jointly owned property. Tom provided Doug with an introduction to Income Statement Performance Reports and a template for generating the reports (Excel Exhibit 3).

The Partnership

Doug and Tom agreed to form a partnership for joint ownership of a condominium that would be rented using Airbnb. Exhibit 2 shows the main page of the partners rental on the Airbnb platform. Toms primary responsibility was to arrange financing, prepare the property for renting, and construct the master (static) budget (Exhibit 1). Dougs primary responsibility was to manage the property, which included coordinating with guests, making pricing decisions, arranging cleaning services, and keeping a log of unanticipated expenses, such as maintenance and repairs (Exhibit 3). Dougs prior experience managing short-term rentals meant that many of the operational systems, such as finding a reliable cleaner, were already in place.

Airbnb

Airbnb Inc. is one of the most successful companies to use a sharing-economy business model. Sharing-economy business models generally involve peer-to-peer transactions often facilitated by an online platform. Other examples of companies that use a sharing economy business model include UBER, a ride-sharing platform, and LendingClub, a private loan platform. Airbnb started in 2007 when Brian Chesky and Joe Gebbia were living together in a small San Francisco apartment and began renting an air mattress there. Nathan Blecharczyk soon joined the team to develop the website, and, on August 11th, 2008, they launched airbedandbreakfast.com, later shortened to Airbnb.com. [1] Airbnb now provides an online platform in which rooms or entire properties are rented, generally for short-term stays. Property owners are known as hosts and those who rent them are known as guests.

Airbnb has grown significantly since its inception. As of summer 2019, the company had over 6 million listings in more than 100,000 cities worldwide. The founders continue to run the company with Brian Chesky as Chief Executive Officer, Joe Gebbia as Chief Procurement Officer, and Nathan Blecharczyk as Chief Strategy Officer of Airbnb. The company has disrupted the global hotel industry having created a business worth over $31 billion[2] while the founders amassed an estimated combined net worth of $11.1 billion.[3]

Airbnb recently expanded beyond general short-term rentals to include several other offerings. Airbnb For Work lists properties that include communal work spaces. Airbnb For Work hosts must have an overall rating of over 4.8 in the last year with at least 5 reviews, include an extensive list of amenities, and provide a flexible or moderate cancellation policy.[4] In 2017, Airbnb acquired the company Luxury Retreats and rebranded it as Airbnb Luxe. Properties listed on Airbnb Luxe handpicked by Airbnb and are required to have elevated designs, high-end finishes, chief-grade appliances, and over 300 additional requirements. Airbnb Luxe bookings are processed by a trip designer that ensures the stay is custom-made to the visitor's unique desires throughout the trip.[5] Airbnb has also created a new segment of rentals under the brand Airbnb Plus. Rentals branded as Plus have been verified, in-person, by an Airbnb employee with attention paid to quality, amenities, and style.[6] Airbnb Experiences is a service in which hosts provide unique opportunities and experiences to visit the city they live in. Experiences include tours, cooking classes, local activities, and meetups.[7]

Airbnb Platform

Airbnb hosts post their properties on the Airbnb platform, which includes all property information including location, availability, house rules, cancelation policy, etc. Properties are typically offered for short-term stays as opposed to long-term rental leases. Hosts decide pricing, dates available, check-in and check-out times, and other house rules. Properties posted can range from condos and castles to tree houses and tents. Hosts also list the amenities associated with the rental such as a hot tub, washing machine, breakfast, TV, etc.[8] After check-out, the space is cleaned and prepared for future guests. Hosts are financially protected through Airbnbs $1 million insurance in property damage protection, and they have access to a 24/7 support team through phone, email, and live chat. [9]

Airbnb guests use the Airbnb website or mobile application to search properties based on date, location, price, and other desired property features. Guests are required to create an online profile that includes a profile photo as well as an ID verified by Airbnb. After selecting a property, guests contact the host and request to book; the host has 24 hours to confirm the booking, though instant booking is available through some hosts.[10] Guests can book a stay in a little as three clicks of a mouse, originally inspired by Steve Jobs idea of only being 3 clicks away from playing music on Apple products.[11] Airbnb provides a 24-hour customer service safety hotline for guests who encounter issues with their reservation.[12]

Airbnbs platform facilitates the search, the booking process, communication between the guest and host, and the rental fee. Star ratings for guests and hosts encourage rule compliance by the guest and help ensure an as advertised property; following a guests stay, the host reviews the guest, and the guest reviews the host, providing qualitative comments and a star rating out of 5 stars. Hosts and guests participate in an online community where Airbnb users can leave public or private feedback and comments and questions about a listing. After the listing has at least three reviews, the average rating is shown to the closest half star.[13]

Nova Scotia Short-Term Rental Market

The short-term rental market in Canada grew significantly in recent years. Between 2015 and 2018, total revenues for short-term rentals increased by 940% to approximately $2.6 billion; see Exhibit 4 for annual averages, by province. The Nova Scotia market mirrored national trends. In 2018, short-term rentals generated over $70 million in revenue, over 70 times the 2015 figure. The tourism industry in Nova Scotia was worth approximately $2.7 billion in 2017,[14] and short-term online rental platforms facilitate tourism. As stated by Tourism Industry Association of Nova Scotia, "Airbnb tourists can explore more of Nova Scotia than ever before by accessing accommodations outside of traditional tourist areas. They also support local businesses by spending more time and more money in the neighbourhoods where they stay.[15]

In 2018, most short-term rental properties in Nova Scotia were located in Halifax. AIRDNA, a vacation rental data provider, analyzed over 1400 short-term rental listings and found that the citys average daily rate in Halifax was $144 at 77% occupancy. Approximately 83% of these rentals were posted on Airbnb, 9% on Homeaway, and 8% on both. In 2018, 2,363 hosts offering short-term rentals earned an average of $12,160.[16] For properties offered on Airbnb, the average Airbnb rating was 4.72, and 89% of the listings in Halifax had a rating of at least 4.5 out of 5 stars.

Short-term accommodation rentals in Halifax have been controversial. Alex Dagg, one of Airbnb Canadas spokespersons, said that Halifax listings are usually regular people that are sharing their homes to help make ends meet.[17] However, in north-end Halifax, a group led by Bill Stewart of the Hydrostone neighbourhood began lobbying the Halifax municipal government to bring in new laws restricting short-term rentals. Stewart claimed that "Were losing a neighbor and we're also losing a good piece of available housing for someone who wants to rent or purchase."

After significant growth of the short-term rental industry, the Nova Scotian government presented two bills in March 2019, scheduled to pass in 2020. The first bill was created to impose residential rather than commercial taxes on short-term rental owners who rent their primary residence. The second bill aimed to encourage hosts to register their rentals and to keep records of all transactions. These bills would repeal the old Tourism Accommodations Act, resulting in changes to the Assessment Act. Kelly Bennett, a spokesperson for the government of Nova Scotia, said: "All operators will be required to register except those renting their primary residence." Therefore, short-term accommodation hosts who rent out their primary residence will not have to register or pay commercial tax on their property, but hosts who have many listings with different properties will. In the urban core of Halifax, where the short-term rental is located, residential property tax is calculated as 1.2055% of the assessed value of the property while commercial property tax is 3.3735% of the assessed value. Hosts who do not comply with these rules will have to pay a $500 fine.[18]

Performance Evaluation

In preparing to compile the monthly and quarterly results, Doug noted that all fixed expenses besides Maintenance (detailed in Exhibit 3) were unchanged from the master budget. Rental and cleaning revenue is detailed in Excel Exhibit 2, downloaded from Airbnbs website. Cleaning revenue is a fee charged to Airbnb guests for the guests stay, not nightly. The variable expense included only the cleaning charge, which was $46/stay from January to March and $63.25/stay from April to June. This expense pays for the cost of cleaning the unit after the guests stay.

Questions

the first task is to compile monthly and quarterly results to calculate the total revenue, total expenses, and operating income as a simple income statement.

The second task is to prepare income statement performance evaluation reports using the master budget, actual results, and a flexible budget

Master Budgets for Q1 and Q2, 2019 Month Q1 Total April January February March May June Q2 Total Revenue Rental Revenue Occupancy Days in Month Rental Days Average Nightly Rate Total Rental Revenue Cleaning Revenue Average Cleaning Charge/Night Total Cleaning Revenue Total Revenue 80% 80% 80% 31 28 31 25 22 25 $70.00 $70.00 $80.00 $1,750.00 $1,540.00 $2,000.00 80% 90 72 $73.47 $5,290.00 90% 30 27 $80.00 $2,160.00 90% 90% 31 30 28 27 $90.00 $90.00 $2,520.00 $2,430.00 90% 91 82 $86.71 $7,110.00 $15.00 $15.00 $15.00 $375.00 $330.00 $375.00 $2,125.00 $1,870.00 $2,375.00 $15.00 $1,080.00 $6,370.00 $15.00 $15.00 $15.00 $405.00 $420.00 $405.00 $2,565.00 $2,940.00 $2,835.00 $15.00 $1,230.00 $8,340.00 $15.00 $375.00 $15.00 $330.00 $15.00 $375.00 $15.00 $1,080.00 $15.00 $405.00 $15.00 $420.00 $15.00 $405.00 $15.00 $1,230.00 Expenses Variable Expenses Average Cleaning Cost/Night Total Variable Expenses Fixed Expenses Power Condo Fees Average Mortgage Interest Property Taxes Parking Banking Fees Maintenance Internet Total Fixed Expenses Total Expenses $127.00 $127.00 $127.00 $154.30 $154.30 $154.30 $514.60 $514.60 $514.60 $92.85 $92.85 $92.85 $103.50 $103.50 $103.50 $14.95 $14.95 $14.95 $200.00 $200.00 $200.00 $63.25 $63.25 $63.25 $1,270.45 $1,270.45 $1,270.45 $1,645.45 $1,600.45 $1,645.45 $381.00 $462.90 $1,543.80 $278.55 $310.50 $44.85 $600.00 $189.75 $3,811.35 $4,891.35 $127.00 $154.30 $514.60 $92.85 $103.50 $14.95 $200.00 $63.25 $1,270.45 $1,675.45 $127.00 $154.30 $514.60 $92.85 $103.50 $14.95 $200.00 $63.25 $1,270.45 $1,690.45 $127.00 $154.30 $514.60 $92.85 $103.50 $14.95 $200.00 $63.25 $1,270.45 $1,675.45 $381.00 $462.90 $1,543.80 $278.55 $310.50 $44.85 $600.00 $189.75 $3,811.35 $5,041.35 Operating Income $479.55 $269.55 $729.55 $1,478.65 $889.55 $1,249.55 $1,159.55 $3,298.65 Date Type 03,01,2019 Reservation 11,01,2019 Reservation 14,01,2019 Reservation 17,01,2019 Reservation 22,01,2019 Reservation 29,01,2019 Reservation 01,02,2019 Reservation 06,02,2019 Reservation 08,02,2019 Reservation 11,02,2019 Reservation 24,02,2019 Reservation 26,02,2019 Reservation 01,03,2019 Reservation 05,03,2019 Reservation 07,03,2019 Reservation 09,03,2019 Reservation 11,03,2019 Reservation 14,03,2019 Reservation 18,03,2019 Reservation 23,03,2019 Reservation 28,03,2019 Reservation 30,03,2019 Reservation 03,04,2019 Reservation 11,04,2019 Reservation 13,04,2019 Reservation 16,04,2019 Reservation 18,04,2019 Reservation 20,04,2019 Reservation 22,04,2019 Reservation 24,04,2019 Reservation 25,04,2019 Reservation 01,05,2019 Reservation 03,05,2019 Reservation 04,05,2019 Reservation 06,05,2019 Reservation 09,05,2019 Reservation 10,05,2019 Reservation 12,05,2019 Reservation 17,05,2019 Reservation 28,05,2019 Reservation 30,05,2019 Reservation 31,05,2019 Reservation 03,06,2019 Reservation 08,06,2019 Reservation 22,06,2019 Reservation Start Date Nights 02,01,2019 10,01,2019 13,01,2019 16,01,2019 21,01,2019 28,01,2019 31,01,2019 05,02,2019 07,02,2019 10,02,2019 23,02,2019 25,02,2019 28,02,2019 04,03,2019 06,03,2019 08,03,2019 10,03,2019 13,03,2019 17,03,2019 22,03,2019 27,03,2019 29,03,2019 02,04,2019 10,04,2019 12,04,2019 15,04,2019 17,04,2019 19,04,2019 21,04,2019 23,04,2019 24,04,2019 30,04,2019 02,05,2019 03,05,2019 05,05,2019 08,05, 2019 09,05, 2019 11,05, 2019 16,05, 2019 27,05,2019 29,05,2019 30,05,2019 02,06,2019 07,06,2019 21,06,2019 Amount Cleaning Fee 4 320.1 50 3 271.6 50 2 151.32 50 4 320.1 50 6 455.9 50 3 252.2 50 4 349.2 50 2 145.5 50 3 271.6 50 13 523.41 50 1 105.73 50 3 220.19 50 4 383.15 50 2 162.96 50 2 174.6 50 2 213.4 50 3 237.65 50 4 388 50 5 388 50 2 188.18 50 2 174.6 50 2 213.4 50 7 525.06 50 2 190.12 50 3 354.05 50 2 170.72 50 2 203.7 50 2 221.16 50 2 170.72 50 1 109.61 50 6 397.7 50 2 192.06 50 1 117.37 50 2 271.6 50 3 310.4 50 1 126.1 50 2 286.15 50 5 470.45 50 11 699.85 50 2 242.5 50 1 130.95 50 3 339.5 50 5 611.1 50 14 1112.93 50 8 886.5 50 Sales Volume Variance Static (Master) Budget Exhibit 3: Income Statement Performance Report Template Flexible Actual Budget Flexible Results Variance Budget Output U/F Total Revenue (U/E Variable Expenses U/F Fixed Expenses U/F Total Expenses U/F Operating Income U/F U/F U/F U/F U/F U/F U/F Total Difference in Operating Income Maintenance and Repairs February 6: Light and exterior door repair: $430.00 March 26: General house supplies: $35.62 April 24: Toilet repair: $184.00 Exhibit 4: Statistics Canada Short-Term Accommodation Table 2018 Total revenue of the private short-term accommodation market, by province and territory, 2015 to 2018 2015 2016 2017 thousands of dollars Canada 265,190 814,164 1,930,292 Newfoundland and Labrador 435 3,430 18,239 Prince Edward Island 451 6,928 19,264 Nova Scotia 1,115 18,599 44,778 New Brunswick 421 4,127 12,287 Quebec 65,192 215,569 467,938 Ontario 93,967 257,200 628,405 Manitoba 1,538 4,376 9,784 Saskatchewan 836 2.508 6,465 Alberta 8,818 30,916 96,974 British Columbia 92,020 268,692 620,590 Yukon 308 1,071 2,777 Northwest Territories 77 699 2,556 Nunavut 10 48 234 Note: Numbers may not add up to totals due to rounding. The values are expressed in current dollars. Source: Statistics Canada, special tabulation, 2019 19 2,760,023 29,406 29,768 70,870 20,510 634,588 909,421 16,052 11,208 151,929 876,080 4,678 4,797 715 Master Budgets for Q1 and Q2, 2019 Month Q1 Total April January February March May June Q2 Total Revenue Rental Revenue Occupancy Days in Month Rental Days Average Nightly Rate Total Rental Revenue Cleaning Revenue Average Cleaning Charge/Night Total Cleaning Revenue Total Revenue 80% 80% 80% 31 28 31 25 22 25 $70.00 $70.00 $80.00 $1,750.00 $1,540.00 $2,000.00 80% 90 72 $73.47 $5,290.00 90% 30 27 $80.00 $2,160.00 90% 90% 31 30 28 27 $90.00 $90.00 $2,520.00 $2,430.00 90% 91 82 $86.71 $7,110.00 $15.00 $15.00 $15.00 $375.00 $330.00 $375.00 $2,125.00 $1,870.00 $2,375.00 $15.00 $1,080.00 $6,370.00 $15.00 $15.00 $15.00 $405.00 $420.00 $405.00 $2,565.00 $2,940.00 $2,835.00 $15.00 $1,230.00 $8,340.00 $15.00 $375.00 $15.00 $330.00 $15.00 $375.00 $15.00 $1,080.00 $15.00 $405.00 $15.00 $420.00 $15.00 $405.00 $15.00 $1,230.00 Expenses Variable Expenses Average Cleaning Cost/Night Total Variable Expenses Fixed Expenses Power Condo Fees Average Mortgage Interest Property Taxes Parking Banking Fees Maintenance Internet Total Fixed Expenses Total Expenses $127.00 $127.00 $127.00 $154.30 $154.30 $154.30 $514.60 $514.60 $514.60 $92.85 $92.85 $92.85 $103.50 $103.50 $103.50 $14.95 $14.95 $14.95 $200.00 $200.00 $200.00 $63.25 $63.25 $63.25 $1,270.45 $1,270.45 $1,270.45 $1,645.45 $1,600.45 $1,645.45 $381.00 $462.90 $1,543.80 $278.55 $310.50 $44.85 $600.00 $189.75 $3,811.35 $4,891.35 $127.00 $154.30 $514.60 $92.85 $103.50 $14.95 $200.00 $63.25 $1,270.45 $1,675.45 $127.00 $154.30 $514.60 $92.85 $103.50 $14.95 $200.00 $63.25 $1,270.45 $1,690.45 $127.00 $154.30 $514.60 $92.85 $103.50 $14.95 $200.00 $63.25 $1,270.45 $1,675.45 $381.00 $462.90 $1,543.80 $278.55 $310.50 $44.85 $600.00 $189.75 $3,811.35 $5,041.35 Operating Income $479.55 $269.55 $729.55 $1,478.65 $889.55 $1,249.55 $1,159.55 $3,298.65 Date Type 03,01,2019 Reservation 11,01,2019 Reservation 14,01,2019 Reservation 17,01,2019 Reservation 22,01,2019 Reservation 29,01,2019 Reservation 01,02,2019 Reservation 06,02,2019 Reservation 08,02,2019 Reservation 11,02,2019 Reservation 24,02,2019 Reservation 26,02,2019 Reservation 01,03,2019 Reservation 05,03,2019 Reservation 07,03,2019 Reservation 09,03,2019 Reservation 11,03,2019 Reservation 14,03,2019 Reservation 18,03,2019 Reservation 23,03,2019 Reservation 28,03,2019 Reservation 30,03,2019 Reservation 03,04,2019 Reservation 11,04,2019 Reservation 13,04,2019 Reservation 16,04,2019 Reservation 18,04,2019 Reservation 20,04,2019 Reservation 22,04,2019 Reservation 24,04,2019 Reservation 25,04,2019 Reservation 01,05,2019 Reservation 03,05,2019 Reservation 04,05,2019 Reservation 06,05,2019 Reservation 09,05,2019 Reservation 10,05,2019 Reservation 12,05,2019 Reservation 17,05,2019 Reservation 28,05,2019 Reservation 30,05,2019 Reservation 31,05,2019 Reservation 03,06,2019 Reservation 08,06,2019 Reservation 22,06,2019 Reservation Start Date Nights 02,01,2019 10,01,2019 13,01,2019 16,01,2019 21,01,2019 28,01,2019 31,01,2019 05,02,2019 07,02,2019 10,02,2019 23,02,2019 25,02,2019 28,02,2019 04,03,2019 06,03,2019 08,03,2019 10,03,2019 13,03,2019 17,03,2019 22,03,2019 27,03,2019 29,03,2019 02,04,2019 10,04,2019 12,04,2019 15,04,2019 17,04,2019 19,04,2019 21,04,2019 23,04,2019 24,04,2019 30,04,2019 02,05,2019 03,05,2019 05,05,2019 08,05, 2019 09,05, 2019 11,05, 2019 16,05, 2019 27,05,2019 29,05,2019 30,05,2019 02,06,2019 07,06,2019 21,06,2019 Amount Cleaning Fee 4 320.1 50 3 271.6 50 2 151.32 50 4 320.1 50 6 455.9 50 3 252.2 50 4 349.2 50 2 145.5 50 3 271.6 50 13 523.41 50 1 105.73 50 3 220.19 50 4 383.15 50 2 162.96 50 2 174.6 50 2 213.4 50 3 237.65 50 4 388 50 5 388 50 2 188.18 50 2 174.6 50 2 213.4 50 7 525.06 50 2 190.12 50 3 354.05 50 2 170.72 50 2 203.7 50 2 221.16 50 2 170.72 50 1 109.61 50 6 397.7 50 2 192.06 50 1 117.37 50 2 271.6 50 3 310.4 50 1 126.1 50 2 286.15 50 5 470.45 50 11 699.85 50 2 242.5 50 1 130.95 50 3 339.5 50 5 611.1 50 14 1112.93 50 8 886.5 50 Sales Volume Variance Static (Master) Budget Exhibit 3: Income Statement Performance Report Template Flexible Actual Budget Flexible Results Variance Budget Output U/F Total Revenue (U/E Variable Expenses U/F Fixed Expenses U/F Total Expenses U/F Operating Income U/F U/F U/F U/F U/F U/F U/F Total Difference in Operating Income Maintenance and Repairs February 6: Light and exterior door repair: $430.00 March 26: General house supplies: $35.62 April 24: Toilet repair: $184.00 Exhibit 4: Statistics Canada Short-Term Accommodation Table 2018 Total revenue of the private short-term accommodation market, by province and territory, 2015 to 2018 2015 2016 2017 thousands of dollars Canada 265,190 814,164 1,930,292 Newfoundland and Labrador 435 3,430 18,239 Prince Edward Island 451 6,928 19,264 Nova Scotia 1,115 18,599 44,778 New Brunswick 421 4,127 12,287 Quebec 65,192 215,569 467,938 Ontario 93,967 257,200 628,405 Manitoba 1,538 4,376 9,784 Saskatchewan 836 2.508 6,465 Alberta 8,818 30,916 96,974 British Columbia 92,020 268,692 620,590 Yukon 308 1,071 2,777 Northwest Territories 77 699 2,556 Nunavut 10 48 234 Note: Numbers may not add up to totals due to rounding. The values are expressed in current dollars. Source: Statistics Canada, special tabulation, 2019 19 2,760,023 29,406 29,768 70,870 20,510 634,588 909,421 16,052 11,208 151,929 876,080 4,678 4,797 715