Comment by cleansy | Hacker News Reader

Comment by cleansy | Hacker News Reader

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It's getting hot in the luxury rental market. But to be fair, $300M is quite a sum for Luxury rentals. The high-end market is a tricky- and operationally complex business. Suddenly instead of just putting up a website with some stock images you need to have either some sort of warehouse and cleaning staff or negotiate and train contractors in each city to provide the service that your high paying guests expect.

Depending on how you structure the business you have to inspect each home before you put it up for rent and normally you reject 4 out of 5, because of location or other criteria. Then stuff happens like: heating or A/C doesn't work and somebody has to be sent out to fix it in the middle of the night..

In a normal hotel you can do all of that with less then 10 minutes of work. But in this scenario you need to drive somebody to these homes. Not a really scalable business.

I would say good luck Airbnb :)

Edit: Disclaimer: I work in this industry

My family owns a few luxury apartments in Santorini. We always have them overstaffed. The apartments are 80% full during all seasons and 100% March to November.

The revenue is exceptional.

Our clients are quite happy I'd say, judging by reviews in tripadvisor, booking etc (9.5 booking, 4.5 tripadvisor).

Even during times that electricity is cut off and there is no water due having an electric pump to bring water up the cliff.

Its a win win scenario. We get a few customers that are on their honeymoon etc, meaning they are paying way above their actual price range, and they are always happy with the things provided.

Even on unfortunate moments like 2013 I think where half of the island was out of power for 4 days so thats 4 days without water, electricity on a 2000+ euros a night trip, I'd say customers were pretty understanding of the situation and also they were glad we did everything we could to accommodate their needs such as giving them ton's of bottled water etc.

The point am trying to make here is that people that are willing to pay for a luxury apartment are usually nice enough and understanding when there is an issue, and the ones that can't really afford it but its their big moment in their lifes, appreciate things like "bed/mattress" etc luxuries that they never had before.

Btw people living on our apartments will pay 100euro taxis and 600 euro boat trips... (way overpriced compared to general market prices) and generally they will spend a lot more money than just accommodation

How does the math on this work out?

How much is one apartment worth, and how much yield are you getting from them after deducting all the overhead? It's something that I've looked at though obviously highly location dependent.

Well Santorini is a really expensive location. I'd say my parents bought those apartments really early on 60 years ago, before Santorini became so popular. (goldmine for my family)

We had an offer for 1 of the apartments for 6m euros. (Not selling it) The lowest rent per day is at 2k euros. 2k euros is a high monthly salary for a worker. So I'd say it makes quite some revenue.

(Note that my sister is running the business so I am not very familiar with the details)

Cool! Well done (to your parents).

To add a bit of math into the equation:

Piketty estimates that the average return to real estate worldwide is a little less than 5%.

In other words, the average property worth $6M would generate 6,000,000 x 0.05 / 12 = $25,000 in rent per month.

If we use the same assumption to calculate the value of your property, assuming an 80% utilization rate - $2000E/day x 365day/yr x 0.8 utilization / 0.05 = $12M.

So given these assumptions your sister was offered half of the value of the property. Of course this simple valuation hasn't been adjusted for taxes, depreciation, cost of maintenance, etc. but I doubt that would bring the value of the property down by 50%, and I'm willing to bet that you generate much higher than a 5% return on your properties if the rental mkt is as good as the OP has described.

The offer was at least 10 years ago, we weren't renting most of them back then. I gave it as an example because I don't know what the actual evaluation of each apartment is.

Santorini boomed the past 5 years I'd say to the point that this year the Government had to cut down Ships from mainland to Santorini because the Island couldn't afford having that many tourists on it.

Using your calculations yes it would go for more than 6m euros although you have to calculate the fact that Greece is currently in a very unstable economic state, with heavy property taxes etc, and of course being close to the Middle east tourism can be affected heavily by wars etc. Although again I have no idea what the actual price of any of the apartments would be nowadays.

There's a massive difference between active management (e.g. short let luxury rentals) of a property vs passive management, though.

If they were renting out properties long term, the yield would be lower. I have a friend who did something similar in London, and he was renting out apartments for £200-300 a night which would rent out for £3,000-3,500 on a long let lease.

Also, I would assume the average property worth $6m would rent out for a lot less than $25k a mo. Most properties worth $6m can't even be rented out consistently, for years on end unless you're in a prime city such as London or NYC.

Santorini is a great place for wealthy people to spend a week, or even a month, but I don't expect many to have their permanent base there.

> Not a really scalable business

You don't need scaling when you work in luxury, anyway :)

I've worked in that industry too. I had stripe processing $10k single payments through credit card. Scaling was the last of my problem, I just wanted everything to work perfectly.

Scaling the operational pipeline is the big challenge. Most of the tech challenges at onefinestay were in allowing our workforce to do their jobs efficiently. Even when I was there (a couple of years ago), we had bookings in excess of £100k.

Indeed. I've been cofounder and CTO at LeCollectionist, most of our work was thinking about tools to empower admins in their communication with janitors and landlords. Those kind of business never "get at scale" on their customer base (the whole point of luxury is that the market size is small), but they do on the employees/partners part, because everything has to be perfect and you need to do a lot more in customer care than in usual businesses. Good thing is, ultimately, it's more about product design than about infrastructure scalability (which was fun, tbh).

In most cases, on the upper end of the market, renting a nice apartment and/or house is just much more enjoyable and better value than renting a suite at a high end hotel.

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