Should I rent or Airbnb my 3br 2ba townhouse?

Question

Hello,

I'm a current working professional who lives in a 3br 2ba in mesa az. My mortgage is $2000 and hoa $200. I'm thinking about renting my townhouse for around $2400/month or $2200. I would technically be taking a loss every month, but it would be a few hundred dollars (I think 200-500) but I would move out of here and into a cheaper apartment around $1200/month. My question is should I try to rent this townhouse out for $2200 or AirBnb the entire place? I'm 10 mins from ASU so it might get traffic. My thought process is instead of me paying $2200/month to live there, I can pay only $300/month after the renter income and then $1200/month in an apartment. This is a save and someone else will be paying down my mortgage. So its technically reducing my costs if it all works out. I got the home a year ago so theres no chance of refinancing lower as interest rates have skyrocketed.

I'm leaning towards renting because I'm afraid my house would get destroyed by doing AirBnb and the renters would take care of my home better. Any thoughts? I just wanted to see if any of you had any ideas or if I'm missing something.

Ramandeep Sidhu · Answer

It sounds like you are considering whether to rent out or Airbnb your 3 bedroom, 2 bathroom townhouse in Mesa, Arizona.

There are a few factors to consider when making this decision. One thing to consider is the local rental market and what similar properties are renting for in your area. If you are able to rent your townhouse for $2200 or more per month, it may be a good option to go that route as it could provide a steady stream of income and potentially help reduce your overall housing costs. On the other hand, if the rental market is not as strong or if you would be unable to rent the property for a high enough price to cover your costs, Airbnb could be a good option to consider.

Another thing to consider is the level of effort and time required to manage each option. Renting out a property typically requires less management and maintenance than Airbnb, as you will typically have longer-term tenants who are responsible for taking care of the property. Airbnb, on the other hand, requires more frequent turnover and may require more of your time and effort to manage.

It's also worth considering the risks associated with each option. Renting out a property carries some risk of default or damage, but Airbnb carries additional risk as you are dealing with a higher volume of shorter-term guests who may not have the same level of personal stake in the property.

Ultimately, the decision to rent or Airbnb your townhouse will depend on your individual circumstances and priorities. If you are looking for a steady stream of income and are willing to put in the time and effort to manage an Airbnb, it may be a good option to consider. However, if you prefer the security of a longer-term tenant and are willing to potentially take a small loss on your mortgage, renting out the property may be a better fit for you.

Alden Ho · Answer

Hi @Jeremy Holden you are spot on. I found this out shortly after i made this post that my HOA does not allow STRs. I'm now looking into renting each room out for 30 days or more (long term) since I will not be able to fully cover everything with renting the entire place out. A real estate agent I work with gave me comps of 1800-2200.

@Nathan Gesner that is a valid strategy and I will consider. The problem is my home is now at the same price i bought it at (335,000) since the market went down. I also used loan assistance program which if i sell my home within 36 months, i'll pay 2/3 of it back since i bought the home 12 months ago. That with seller fees I will have to pay money out of my pocket in likely tens of thousands to sell this home. So i'm going to try and hold on to it and rent the rooms individually. Rent the first two, live in third, then rent the third and move into an apartment rental.

Jared Hottle · Answer

I think try the Airbnb for a few months and see how it goes. Stay on a friends couch when it is use and give it a trial run with your furniture in there it is really no risk. The other concern is what does the HOA say about Airbnb or longterm rentals. Seems like a good area to hold a property but taking a loss is not ideal

Josh Young · Answer

Hi Alden,

I live in Gilbert and have a few long term rentals, I like your idea of keeping as a long term rental. Repairs/Maintenance/Property Management/Cap Ex/Vacancy etc...  these vary a lot, so reserves are important, these might be 2-8% each, so you might be right with $200-500 per month. You also have a low interest loan so your principle payments on your amortization schedule are pretty strong, that is an important factor when calculating return on equity, return on equity is one of my favorite measures, obviously you need cash flow to keep the whole thing alive, but building your balance sheet is the ultimate goal in Buy and Hold RE Investing.  Rather than moving into a rental why don't you buy another property as your primary residence using a conventional 5% down loan.  You should be able to put a long term lease on your current property to help you qualify and there are a bunch of properties in Mesa for sale under $300k, so your payment will be about the same $2200, it probably won't be as nice as the property you are in now, but you will own two properties, rent will increase more over time, expenses will too, but not as much as rent, in a few years your cash flow will improve and your balance sheet will be growing.

Barb Asay · Answer

Am I missing something?  Why would you rent out your house at a loss just to turn around and also rent an apartment (more expenses)?

Lisa Caracciolo · Answer

Have you thought about turning your condo into a midterm rental....it gets you around the 30-day minimum for your HOA and will give you more cash flow then a long term tenant. I would look on furnishedfinder.com and see if it might make sense for your location/property. I know a couple people who have made this work and love it. Good luck!

Drew Sygit · Answer

How much time do you have to invest in this proect?

If a decent amount, then STR it.

Regarding your negative cashflow, it's typical for the first 3-5 years with a Class A property.

Jeremy Holden · Answer

@Alden Ho

Im an investor and realtor in the valley who actually owns an STR n Mesa. Off the bat, you home is in an HOA. I am 99% sure there is verbiage in your CCR's and regulations limited rentals under 30 days. Before making any decisions, please check your community documents.

There may be other homes in your community operating as airbnb's, but that is no assurance. Many individuals push the rules to the side, but this is a big no-no.

Nathan Gesner · Answer

Learn to analyze a property: https://www.biggerpockets.com/...

Your math sounds good on the surface, but you are missing some critical pieces. Just using your math, you said it will cost you $1200 to rent an apartment plus up to $500 a month out of your pocket to maintain your townhome as a rental. That's $1,700 a month for a total savings of $500. However, your number are off.

As a rule of thumb, you can expect 40% - 50% of your rent income to cover expenses like vacancy, maintenance, capex, HOA fees, property management, or other expenses. Subtract that, then subtract the mortgage, and you'll be more than $500 in the hole. I suspect your true cost will be more like $1,000 a month. Add that to your $1,300 rent for a new apartment and you are at . . . $2,300.

You aren't saving anything. Learn to calculate cashflow and reconsider. If you really wanted to save, you would move into an apartment and sell your townhome. Then take the cash from the sale and use it to purchase a multi-family where you can live in one unit and rent out the other three. That will get you some cashflow and reduce living expenses.

Should I rent or Airbnb my 3br 2ba townhouse?

Most Popular Reply