How much readily available cash needed to safely expand?

Question

I am Active Duty Officer and currently own a home in Texas with 85k left on loan (100k originally borrowed at 15 years conventional) on property that is around 300k at 4.25%. The tenants are leaving end of August and I will rerent at around $1900/mo.

I am closing on main property in Colorado for $470k at 2.5% VA with no money down (the rate was much better than conventional loan) and at 2.5% the general consensus was to borrow as much as possible.

I am looking to buy another property for Airbnb either in CO or TX. I have about 100k readily available cash (TSP, IRAs not included), but fear that if I use 100k (or a part of it) as down payment on another property I will not have enough cash buffer in case on emergency in the event of vacancy, repairs, etc. May be worst case cash out refinance property in TX?

TX property is self-managed. CO main property employer pays ~90% of mortgage. If all goes well, I'll retire in 4 years to a pension of ~5-6k/mo and should not have any problems securing well paid job due to nature of my work. However, that's then and there are too many what-ifs so I rather play it safer-ish. What's your take? Thanks.

James Carlson · Answer

@Maxim Yershov

I think you kind of answer your own question there at the end. "... I'd rather play it safe-ish." That might be all you need to know. There are no absolute right answers in real estate. My wife and I have bought two different rentals in Colorado Springs that our investor clients passed up on and we did great with them. It didn't work for them (or they weren't comfortable with the rental model that could make it work.) It did work for us.

That said, some more thoughts ... Your desire to own an Airbnb property in Colorado is smart but can be tough. Colorado Springs' STR laws used to be open, now they're much more closed. (That said, I just got some clients under contract on an investment Airbnb there this summer.) In Denver metro, you've got three cities that actually allow for short-term rentals in non-owner occupied properties. Our clients who have bought in those cities are doing well with Airbnb, but again, it does limit your search a bit. I guess what I'm saying is, know the Airbnb laws before you go too far down that road.

Then there's the money. I agree, if you have $100k in cash, a lot of that is going to go toward a down payment In Colorado Springs, average home prices are in the mid-$400s now. You can find places in the $300s, but not always in Airbnb-eligible areas. Even then, that's $70,000 for a down payment and closing costs there. That gives you some room for reserves, but not a ton, and Denver area is basically out unless you want to use every penny of that $100k.

Texas might be the option. Or if you want to buy in Colorado Springs, what about a medium-term rental? Two, three, four month stays to traveling nurses/remote workers. Yout get maybe 20-30% more in rent than LTR, but you also get around the STR laws so your search area is wide open.

Just some thoughts. I wish you luck!

Maxim Lorenz · Answer

@James Carlson Thanks much for your advise. Yes, perhaps medium-term rental is a better option. We bought in northern Colorado Springs due to better schools and better rental potential later down the line if needs to be. We're here max 4 years  before moving to out retirement country. We're looking into a smaller cabin in Woodland Park, but perhaps you're right about medium length rentals here in Springs as I am sure not everyone want to live/drive to Woodland Park.