AirBnb in Non-cashflowing markets

[Omid A.]

Hello BP. I am curious as to what everyone's opinion is on this matter. If you live in a market with a high price-to-rent ratio, such as my Market here in Portland, where cashflow is impossible or very difficult. What are your thoughts on buying one that is cash flowing negative to use as an airbnb rental property? I realize it takes more work, but could one consistently create positive cash flow at the end of the month using this method? 

[Scott Sutherland]

Thanks Lynn. 

We have a duplex in Austin that would cash flow negative at its current valuation. The only justification for the value is use as a Vacation Rental or owner occupy. 

This duplex has a market value of $700K. Long term rents would be $4500 per month. Clearly not a cash flowing property using that model.

2013 rental income as a vacation rental averaged $9000 per month. Expenses for the year were about $9500 more than a long term rental so net income for the year was ($4500*12-$9500)=$44,500 greater using the vacation rental strategy. 

Short term rentals require more active management, but we feel it's worth it to make an additional $44,500 on a single property.