Buying an Air B&B in IRA: How do I determine where to buy?

Question

I will soon be rolling over a 401(k) into my sdIRA and I want to use it to buy one or more Air B&Bs. How do I decide where demand is highest (i.e. there are not enough units versus renters) and whether rents/occupancy will pay my mortgage and other expenses each month? I do not need to invest near where I live. Do I care about mountains (skiing, hiking, etc.), beach, lake, golf destination, national park area, city, or other?

If I decide mountain, should I look at Park City? Breckenridge? Vail? Whiteface? Other?

If beach, Gulf coast, Florida Keys, Atlantic Ocean, Hawaii, other?

SFH, duplex, condo, townhouse?  How many bedrooms and baths (like 2-3 bedrooms for a small handful of guests versus a big place for family reunions, corporate retreats) should I look for?

How do I best diversify?  Multiple property types, multiple locations, multiple quality levels, or some other manner?

Will I need 20% down payment plus the costs of furnishing the home?  As it is an income producing property, can I get away with less than 20% down with a bank?

Presuming I put down 20% and let's say I have $150k.  Generally speaking, would I be better off buying  a $750k unit, two $375k units, or maybe a $250k unit and a $500k unit?  How much should I expect to front for furniture, bedding, kitchen tools/flatwear, artwork/tchotchkies/other home-y items?  Is laundry key?

Is there an Idiots Guide to Air B&B or Air B&B for Dummies or some other resource that can answer most of my questions?  I reached out directly to Air B&B and didn't hear back.

Thank you!

Joe Tomko · Answer

Thank you, Bill.  I know when ABB first started, a lot of cities were restricting them, but I thought a lot of places have eased restrictions because the demand is there (and the property owners vote).  Would you say the trend is still toward more restrictions in most places or less?  Obviously, I need to check on the local government wherever I plan to invest, realizing that things may change at any time.  If there is a move toward more restrictive, would you expect a grandfather clause for those already established as STRs?

Bill B. · Answer

Because these have to be non-recourse loans and you can not visit or work on them, I would bet you’d be lucky ti get 25% down loans. Since the bank can’t come after you fir the balance and you can’t make the payments. Which leads to another consideration. You have to make sure these properties will cashflow since you can’t add money or make payments. AND, you want to make sure they will cashflow as REGULAR LONG TERM RENTALS.I can hear you now. But, they’re going to be STR air bnb properties brining in the big bucks. That’s great, but what about when the city you’ve chosen says no more STRs, or only owner occupied STR (which as we discussed, you can’t).it happens “all the time” So if the long term renter doesn’t pay enough to cover the payments and repeats you have to sell or lose the property.

If this retirement money is for retirement and you can’t afford to lose it, please be careful. You’re getting access to the money but you’re taking on a boatload of restriction while also increasing the taxes owed by changing capital gains taxes in to regular income unless you’re betting on the future value being lower.

Lindsey Van · Answer

As far as a mountain town Park City is a great location. 30 minutes from a major airport with direct flights from many cities. We have 2 ski areas in Park City and 8 other resorts within an hour and a half. In Park City I would suggest a condo given your budget. Most investment property loan products require 20-25%, but not all. Condos are easier to manage if you aren't living here. HOA's take care of major exterior maintenance and there are lots of property managers in the area.

In Park City the market has appreciated so much and rents haven't quite caught up so cash flow is not huge. There are some that will cash flow, but I would say your looking more at appreciation on the front end, and cash flow down the line. Overall the market this year has appreciated over 30%. Most condo or investment properties are sold fully furnished, and a large percentage are sold turn key.

Let me know if would like to know more about Park City. Investment properties are my focus.

Bill B. · Answer

I can only talk about Vegas and the Lake MTkA area of Mn. They have both gotten “more restrictive”. (I put quotes because Las Vegas banned them a couple years ago but now allows owner occupied one’s. So they’ve become less restrictive in the last year but more restrictive in the last 2 years, and too restrictive for you.) thee was no grandfathering in Vegas. My MN property did what I see might become the trend. 30 day minimum stays. It’s the “compromise” between owner’s rights and protecting your neighbors from living next to a hotel which zoning wouldn’t allow to be built. MAYBE that would make areas where “mid-term” rentals are allowed and most people stay 30+ days ideal, if such a area exists.

Maybe you could do something like @Jay Hinrichs where you host insurance claim victims or traveling workers?

Buying an Air B&B in IRA: How do I determine where to buy?

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