Airbnb Based-STR: To Buy or Rent

[Michaela Cephas]

Hi! I am currently a new homeowner who put $80,000 down on a $200,000 house in Greensboro, N.C. I have just recently gotten in to short-term rental via Airbnb. My first full month I made enough to cover the mortgage, with bookings up to six months in advance. I’ve gotten really positive feedback on my property, it’s cleanliness, how it’s decorated, etc. I have found an interest in the whole process of setting up an Airbnb and then managing it. I am currently using the house I live in and would like to acquire a new property to start an actual short-term rental business! Here are the questions I have:

1) Should I be looking to rent a property with an incentive-based agreement with a landlord (pay rent in advance, extra rent, % of profit) or should I buy a property?

-I currently bring in around $3,400/month with the ability to have $15,000 in capital in the next 6 months. With a credit score in low 700’s. However, I am very young (20).

2) If buying, how would I get approved for another mortgage on top of the one I already have?

3) Any insight/advice on these locations, or locations you would recommend on or near the East Coast? I am thinking about: Charlotte  or Raleigh/Durham

4) How much should I budget for acquiring location, furnish it, and for unforeseen circumstances?

Ultimate goal: do short-term rentals until I can build up to long term student-housing type rentals (renting by room).

[Account Closed]

Michaela Cephas

I think both options make sense for you but it’s more of a comfort level at this point. The rental arbitrage model generates cash flow which is always great. If you purchase the property you are generating equity and if laws change, you get bored of doing Airbnb, or what have you the property is still yours. Finding financing to acquire more properties for STR has been a hot topic as more and more homeowners are looking to scale their operation. One product I found is called

https://www.loftium.com/how_it_works

This platform is designed to work with STR home buyers in securing a down payment for the house and instead of requiring you to pay it back, only want a cut of the booking revenue. It’s an interesting model and may not be for everyone but it’s a start.

Your next option is going away from traditional mortgages from banks and doing a hard money loan from a private investor. You will most likely need to provide some proof of your ability to generate cash flow but the interest rates are typically not as favorable.

Third is to look at a multi family unit, preferably something that’s already being rented so that revenue will be seen as income. As the leases expire you can set up your STR operation.

I oversee operations for 250+ units along the eastern seaboard and would be happy to assist you further if you still have other questions.

Happy Hosting