Pacific Palisades Vacation Rental Market

 

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Thinking about holding out part of your Pacific Palisades home on AirBnb?


Not getting equitable bang for your buck: Pacific Palisades has one of the lowest price to rent ratios in the Los Angeles area. In other words Pacific Palisades real estate is expensive but rental rates do not rise proportionally with those high property values.

 

Examples of area price/rent ratios (lower is better):

Pacific Palisades: 25.48
Los Feliz: 20.36
Beverly Hills: 19.18
Downtown: 18.39
Bel Aire: 17.87
Santa Monica: 17.51

 

One might think that because Pacific Palisades has no hotels and because Pacific Palisades is full of a bunch of rich people who wouldn’t want to be bothered with earning crumbs by hosting a stay on airbnb, that there is great opportunity. Isn’t there higher demand for those few who do want to host in Pacific Palisades? That doesn’t seem to be the case. In fact, compared to places like Hollywood, which is chalk full of airbnb stays, there just aren’t many people hosting stays in Pacific Palisades. Unfortunately a lot of hosts seem to be struggling to book their calendars.

 

And guests don’t care if your house is a 3.5 million dollar house or a 1 million dollar house. They just want to save money. People who look to Airbnb for a place to stay are generally budget-conscious consumers. Wealthy / middle class consumers stay at hotels rather than requesting permission from a stranger to stay at their home. There’s more people on a budget than wealthy people.

 

Pacific Palisades is not suitable for subletting (AKA flipping) apartments on Airbnb

 

In order to show a profit by renting an apartment and then turning around and using that entire apartment as an Airbnb rental you will need a cheap space. The problem is that Pacific Palisades apartments are NOT cheap! You're going to have a hard time finding any decent apartments for less than $3,000 a month. But let's say you did find one for 3K per month. If you were so very lucky as to be booked 28 days of the month you would need an average rate of $143 per night to break even (before additional costs). You can stop it right there. At that relatively high Airbnb stay price it's just not realistic to expect to be fully booked 28 days of the month. And we haven't even gotten into the cost of utilities, expendables, etc. And are you hiring a maid? Add in that cost too! Startup costs for furnishings and what not will set you back about $7,000 as well.

 

There are people making a killing by subletting apartments in places like Hollywood and downtown LA. But that's a completely different Airbnb rental market. In Hollywood you can find apartments for $1,500 a month. There's plenty of room for profit. And the location is prime. Mobs of tourists come all year to visit Hollywood. Things die down in Pacific Palisades once the beach weather cools.

 

And so Airbnb in Pacific Palisades only makes sense to people who already have their house or multi-room apartment that happens to have an unused room.

 

Still interested? Location, location, location

 

Even during the summer beach season, stays in Pacific Palisades just plain do not attract anywhere near as many guests as the tourist area of Hollywood and Highland. People do flock to the beaches during the summer but Santa Monica is the most desired location to stay. Some people will settle for staying farther away in Pacific Palisades if they can save money. But besides price, what are people looking for in Pacific Palisades?


1) They want to be walking distance to the beach. A view of the beach is a big plus. For example, places near Chautauqua and PCH get top dollar and are fully booked.

2) They want to be walking distance to the Palisades village of stores.


Everyone else will have to fight and claw for guests. That means lowering their price about 20%. Regardless of where you are hosting your stay, a guesthouse is always attractive. Many people, in fact I would say most people, would prefer the privacy of a guesthouse (with hardly any amenities) over a shared interior space that comes with laundry access, a kitchen, living room, served breakfast, etc.

 

How low can you go?

 

Do not give Air Bnb’s price tips much credence. For example Airbnb was suggesting I set my Pacific Palisades guest suite at $69 for some days. Really???? Where do they get their comps from? I searched other stays in the area as far South as Venice. I found someone (with 37 reviews) renting an old 60‘s camper trailer parked in their back yard in Venice for $75 per night plus a $15 cleaning fee. If my Pacific Palisades home is on par with this then it’s really time to get out of the hosting business! I have figured out that my suite gets booked at sometimes $20 over AirBnb's price tip. During high tourist season on weekends I've found that sometimes AirBnb may even recommend too high of a price.

 

Understand that airbnb has a vested interest in keeping prices low in order to take business from hotels and keep guests very happy. Airbnb is less interested in the needs of hosts.

 

Once you get about 5 reviews you can begin to experiment with pricing. And the only real way to find out if your price is too high is let some days go by unbooked. Don't panic in the final week or final few days. Some people may book same day, although if you have weekend dates not getting booked until one or two days before check-in I think your price is too high. Keep experimenting. Sometimes as little as 5% lower makes all the difference.

 

Start up costs


Do you have $300 in startup costs or $3,000 or more in startup costs to get your place ready to host. If you have a lot of startup costs then this might not be such a great business venture. Your first summer might be spent just trying to break even while recouping costs.

 

Probably the most important thing about your space is the mattress and bedding. Do you have a used lumpy old concave mattress? Does it have any smell to it at all? One bad review can put you out of business for months. So buy a new mattress. And do spend the extra money to buy that higher quality $850 mattress instead of the budget $550 mattress.

 

By the way, while we're on the subject of smell, the space where guests will be staying should have NO smell at all! Again, one bad review about that “apartment smell" that “musky smell" or other unknown smell coming from the mattress, carpet and/or elsewhere can put you out of business for months.

 

The bottom line:


The bottom line is that if your Pacific Palisades stay isn’t walking distance from the beach and you want to get it booked solid, you will have to be a bit of a bottom feeder, lowering your price to attract people from the more desirable Santa Monica / Venice area. But is that really worth it when factoring in the 14% LA City tax, the airbnb fee, the cost of supplies (laundry detergent, bleach, bathroom tissue, coffee, sheets, bedding, pillows, etc), the hidden costs such as wear and tear on your place, wear and tear on your washer and dryer, higher insurance costs and the risk of paying the deductible if a guest makes a claim against you for slip and fall, the risk of encountering a squatter who requires an expensive unlawful retainer court action to get them out (neither insurance nor airbnb will cover this), bounced credit cards (neither insurance nor airbnb will cover this), etc. And don’t forget to put a value on your cleaning work. It might be more profitable to just become a maid! The bottom line is that doing airbnb in Pacific Palisades is not that far off from being an Uber driver, AKA working for less than minimum wage. A much better choice is to rent your entire furnished house out short-term (1 to 4 months). Even after paying to stay at an apartment and paying Federal and state taxes, you’ll pocket about 3 or more times as much in the same amount of time.

 


Here's a few more airbnb tips

 

Perhaps you have a guest suite? Before embarking on this business venture there's a few thinks to consider.

 

Shared space or not? First of all, are you going to share your kitchen, living room, laundry room and other areas with guests? Or are you going to only allow them access to a bedroom and bathroom and give them a private entry so that you're not sharing any interior space (like staying in a hotel suite)? Believe it or not, most people would prefer complete privacy over having the extra amenities that come with sharing an entire house with some stranger they have never met, even if they're an airbnb superhost.

 

If you're skittish about letting strangers stay in your home, I would say don't be. Airbnb guests are normal people who understand that they are being invited into someone's personal home -- not a hotel. Even people who might tend to be disorderly know that this is the time to be on their best behavior. Most also understand that Airbnb is built on reviews. Hosts and guests alike are trying to compile a lot of positive reviews for themselves so that they can continue to save money by using Airbnb.

 

Do you have all of the necessary furnishings and amenities already? Do you already have a mattress, bed frame, sheets, pillows, blankets, mattress cover, towels, desk, office chair, office refrigerator, coffee machine, TV set, outdoor string lights, timer, nightstand, lamps, power failure lights, hair dryer, etc? All of this stuff can add up really fast. Some things like a bed frame can be bought used on CraigsList, but others you just cannot cut corners on. The mattress is perhaps the most important item. It's also likely the most expensive item. If a guest gives you a bad review about a lumpy mattress, this can kill your listing in no time. A decent quality mattress will cost you about $850. Before you know it you've already invested $3,000 into getting a guest suite up and running. Do not buy a used mattress off of CraigsList. A lot of mattresses in so-called "great condition" have smells. I once purchased a top-notch used mattress that sells new for $2,600. I failed to notice that it had a relentless "apartment smell" to it. I literally had to leave it outside 24/7 to air out for about a month!

 

By the way I recommend a king sized mattress. In order to reduce wear and tear on your room, if you think that providing just a queen mattress will discourage parties of 2 people you are wrong. So you might as well give people the comfort of having more space in bed. Get a king.

 

Insurance concerns: Airbnb has 1 million dollar insurance policy. However the word I've been hearing from other hosts is do not count on Airbnb's to bail you out when trouble comes. Unless you're broke and have very little equity in your home, you're gonna need insurance to cover having transient occupancy guests living in your home. Regular homeowner's insurance does not cover a business use claim like this. And if you have substantial net worth including the equity in your home of more than 1 million, you're gonna need an umbrella policy to cover things like slip and fall claims. Understand that the standard deductible is about $3,000. So if someone falls and cracks their head open, you'll be paying for the first $3,000. This begs the question, is it really worth bringing in small airbnb income with this risk? This is for you to decide.

 

Hazards: But keeping this in mind, you want to do everything you can to prevent an accident from happening. Walkways must be well lit with lights on timers so that guests never find themselves stumbling through the dark. All mirrors should be secured at the top by clips (old mirror mastic dries up and fails).

 

First of all Pacific Palisades has the worst rental yields (price/rent ratio) of any city in the area. Just because your home is worth 3 million doesn't mean that you will be able to charge more than some 1.5 million home in a hot tourist area like Hollywood.

 

Pricing: One thing very important is that you need to generate perhaps at least 3 positive reviews about your stay in order to get guests and at top dollar. That means you need a rock bottom price when you start out. After you get 2 or 3 reviews then you can start to raise your prices. But keep in mind as you're raising your prices that guests are still price shopping. Just because you have 100 rave reviews doesn't mean that guests won't book that 3 review place with a lower price instead. You have to tweek your prices by trial and error. This price experimentation may take months to determine.

 

Low price stigma: Having a higher price gives the impression that your stay is somehow better. I am amused by a couple of stays in the Palisades, that are hosted by Super Hosts none-the-less, that are priced about $40 cheaper than other comps in Pacific Palisades. Because of the low price, when I see such a home my thoughts are always "What is WRONG with this home?"

 

Instant Book: Do not allow guests to book instantly! You want to be able to screen guests. Often times guests will ignore your requirements, for example that guests must be "verified" (with a government ID) in order to book, or that they must post a selfie of themselves in order for you to match the picture with the person who shows up at your property. If you have to cancel a booking because a guests didn't adhere to your criteria then this count against your ability to become a "super host". Fortunately very, very few hosts in this area (Pacific Palisades / Santa Monica) have bought into the "instant book" feature. So join the crowd... uncheck that little box regarding accepting instant book.

 

Risky

 

Renting in California is also risky. If someone refuses to leave your home after check-out time, you can't just call up the Sheriff to drag them out like you might be able to in other states. In California's liberal courts, landlords are automatically presumed to be bad people who kick guests onto the cold streets, leaving them homeless. And so you must ponderously go through a minimum of 3 weeks of court process to win your case to in turn get the Sheriff to come out. By that time your dead beat "guests" have bilked you for an extra 3 weeks free stay. Heck, if you're from out of the country and you're only visiting the USA one time for perhaps a month, might as well just book a 1 week stay and enjoy the last 3 weeks for free! Nobody's gonna sue you in International court.

 

And if you think that you can just require a $5,000 security deposit to protect against squatters, think again. Your place will never rent if you charge more than about $1,000 for a deposit!

 

Fraud Risk

 

And it doesn't end with the risk of dealing with a squatter. When accepting payments from guests you are in a precarious position. Checks can bounce weeks later. Credit cards may be stolen, and until an unauthorized charge is discovered, neither VRBO nor AirBnb will know. Credit card charges can also be reversed if your guest creates a phoney gripe about who knows what. Then the credit card company becomes judge and jury and you are powerless to stop their decision.

 

No Way to Adequately Screen Guests

 

And just who will be staying at your home? When you lease your home long-term you get to fully screen prospective tenants. But when you rent your home to short-term guests you are at the mercy of doing a quick "Internet screening" if possible -- Are they on Facebook? Linked In? Does anything show up when you Google them?

 

Air BnB is problematic when it comes to screening. All you see is their first name and a brief introduction that they may or may not present. Some have many different forms of verification (that you can't see) and some might have nothing more than an email address verified by AirBnB. So with AirBnB you may be left completely in the dark. If the prospective guest does not have pre-existing feedback then you might want to just refuse to book them. AirBnB also only accepts one form of payment: Credit card payment through AirBnB only. No PayPal. No personal checks. No cashier's checks. Nothing. Air BnB also doesn't let prospective guests know the exact address of where they are booking. This is because AirBnB is paid based on a percentage of the rental price. They don't want guest and host to make side arrangements, thus circumventing having to pay AirBnB. For all of these reasons I suggest not even bothering with AirBnB.

 

When you pay VRBO a yearly fee of about $400 you become a "subscriber". Then, since VRBO has already been paid, VRBO actually lets you exchange phone numbers and information with prospective guests This way you can actually get a feel for who is wanting to stay at your home.

 

Discrimination

 

But this leads us to the next potential problem with renting your home: Legal problems such as discrimination lawsuits. And there's agents who work for the city of Los Angeles who may contact you, pretending to be prospective guests. You are not allowed to discriminate based on race, color, religion, disability, medical condition, marital status, age, gender, sexual orientation or country of origin. These are considered "protected classes". That's right, if you are worried about screaming kids destroying your house, then tough luck! Last time I checked, the fine was somewhere around $18,000 for the first offense. Accordingly, you want to have a written screening procedure and rejection policy, preferably saved as a document file just in case you need to prove that you aren't making up policies on the fly and you didn't reject someone because they were part of a so-called protected class.

 

There's also all kinds of other things you can get sued for under California law and local ordinances. For example you cannot be too strict about occupancy rules. For example insisting on no more than 2 people per one-bedroom, or 4 people per two-bedroom home, or 6 in a three-bedroom home may violate Uniform Housing Code. In the eyes of the law you are discriminating against minorities. I take issue with this because I don't want all of that excess wear and tear on my home! And if a guest can bring 7 people into my 3 bedroom home, all of a sudden my Pacific Palisades home becomes affordable for riff raff that would otherwise have to stay at a Motel 6, all thanks to law makers who have made things as difficult as possible! So you will need to read a law book or two before doing this vacation rental thing. Even more work and headaches!

 

City of LA Headaches

 

Another annoying thing about holding your house out for short-term rentals is that you must file a tax form once per month (not per year!) with the City of Los Angeles. By the way it took me about a week to figure out if Pacific Palisades falls under LA County or LA City jurisdiction. The County of LA didn't even care to alert me when I registered my Pacific Palisades home by mistake under LA County. But so the City of LA doesn't even care if your home has rented at all or not. You still have to keep filing the tax form month after month after month. Adding insult to injury, half the time that I mailed in my tax return, they claimed that they never received it! Even once I cancelled, they still kept barking up my tree about failing to file for the last month. The city is run by bumbling idiots and Lois Lerner types who want to punish you for owning a home and taking money from the hotels (who paid the local politicians to go to bat for them).