WASHINGTON — Karl Scarlett’s business can be traced to a nasty spat with a tenant who would not leave a rental property he owned in Washington.
“She wouldn’t pay her rent, and I was falling behind in my bills,” said Scarlett, a software writer and entrepreneur. “I was struggling, working extra hours in my consulting business to pay my mortgage.”
The tenant finally moved on, and Scarlet backed away from the landlord business. “I didn’t want to go through that again.”
Then he changed course and, in 2015, latched onto Airbnb, the online marketplace for short-term rentals. He started making money. Before long, friends and other people started asking him to help them do the same thing — and by 2017, a company was born.
Scarlett founded Great Dwellings, a Washington-based aggregator — or go-between — for short-term rentals. The company brings together residential property owners and prospective guests shopping for rooms or homes to rent on Airbnb, Expedia, booking.com and other hospitality sites.
Scarlett, 41, and his six-member team help hosts put guests in furnished homes and apartments rented through Airbnb, Expedia and other digital platforms, with most of the business coming through Airbnb.
“We are a property management company,” he said.
Great Dwellings is focused on the relatively short-term hospitality market. The other is focused on longer-term rentals.
Scarlett made his move because he recognized the growing demand for short-term rentals geared to both tourists and local professionals, particularly those in the political and technology spheres.
He also saw that millennials tended to shun legacy hotel brands, preferring the variety and economy offered by digital upstarts like Airbnb, Vrbo and booking.com.
Turning a profit
Scarlett said the company is profitable, with 91 accounts in Washington, Los Angeles, Mexico and the Dominican Republic. And thanks to the internet, guests come from all over the globe, including New Zealand, Australia and Asia.
Now he wants a bigger footprint.
“I want to take this national and sell it,” he said. “That’s the future.”
The Washington city council has passed legislation that would allow property owners to rent rooms whenever they wish for as long as they wish on the condition that the owner is living on the property. A 90-day annual limit would take effect if the owner is not on the premises.
Scarlett said more than 70 percent of his properties “will be complicit with this law. The remainder will either be converted to legal long-term rentals or we will find another way to help them comply.”
The company works out of a WeWork rental office in the Navy Yard, a block from Nationals Park. It will gross $1.2 million in revenue this year on $3.1 million in reservations. The company has billed more than $4.2 million in reservations since its start two years ago. Scarlett owns 80 percent of the company. Employees own the rest.
Property owners who are leaving home for extended periods contact Great Dwellings about marketing their properties online for short stays. One client, or host, is a serviceman who is stationed overseas and wants to make money on his home while he is gone. Another client, hired by a California-based social media firm, wanted to rent out the home, instead of selling it, in case the owner didn’t like the West Coast and wanted to return.
Great Dwellings posts its properties on Airbnb and Expedia. Guests pay Airbnb the nightly rate, which includes taxes and a one-time cleaning fee. Airbnb takes its fee and passes on what’s left to Great Dwellings, which takes its 25 percent cut and gives the rest to the property owner. The company manages its inventory through Guesty software.
Great Dwellings requires homeowners to make their properties available to rent for at least six months. They meet with most homeowners to discuss the property and arrive at a price.
“It takes time to learn the home,” Scarlett said. “We need to get familiar with the property and the neighborhood. We don’t want this to be a quick relationship.”
The residences run the gamut — from moderately priced English basements to high-end homes that command $750 a night. Most stays are for a few nights.
“Hands down, the three-to-four-day rentals in the summer are amazing,” Scarlett said. “I have a property in Shaw that does really well. Capitol Hill does well, too. Travelers want to know how far you are from the monuments and the National Mall.”
Like any Washington hotel, Great Dwellings’ busiest season begins in the spring and runs through the summer and into early fall.
“During baseball’s All-Star Weekend in 2018, we had several major league stars stay at our properties with their family,” Scarlett said.
The 25 percent cut isn’t Great Dwellings’ only business model. The company has a two-year lease on a 12-unit apartment building in Playa del Carmen, which is near Cancun on Mexico’s Yucatán Peninsula. It converted the property into an Airbnb.
“It’s not that expensive,” Scarlett said of the Playa del Carmen lease.
The lease is riskier than taking a percentage, but there is a lot of upside if Great Dwellings can keep the property filled. Scarlett estimates the inventory in the entire portfolio is filled about 80 percent of the time.
Scarlett, a computer guy by profession, lives with his wife and four children in Washington. His mother was an aspiring entrepreneur who moved around the country when he was young.
Scarlett was interested in business from a young age, though he didn’t have much money growing up. But he was always a saver, scrounging for dollars, and he put away as much as $6,000 from his paper route earnings.
“I didn’t know what to do with it,” he said of his cash. “I didn’t have a desire to spend it. I had a desire to earn it.”
When one of his mom’s friends came by in a Corvette, Scarlett asked, “How do I get one of those?” “Study computers,” the man responded.
Scarlett went to work for the federal government after graduating from Wheaton College in Illinois with a computer science major and a business minor.
“I enjoyed the business classes more than the computer ones,” he said. “All that (business) stuff seemed so applicable.”
He has bumped around the computer software sector ever since, working for Accenture and Verizon and on his own as a consultant. He still does computer work for a couple of clients for an hourly fee.
Scarlett is fishing for a $1 million investment to expand Great Dwellings. He has a couple of companion businesses that he hopes to develop.
The goal, again, is to get swallowed up by a giant competitor. Scarlett doesn’t expect to be the next Instagram, the photo-sharing company that Facebook bought for $1 billion in cash and stock in 2012.
The best offer so far was for $350,000, from Airbnb rival Vacasa. Great Dwellings is three times the size it was then, and he wants to keep growing and attract a bigger shopper.
“Maybe Marriott or Hilton will say, ‘Let’s just buy him and join him rather him rather than fight.’”