Airbnb or tenant in my first duplex?

Question

I've been qualified on an FHA loan for my first multifamily. 3.5% down. I'm going the house hacking route where I live in one side and rent out the other side on a duplex. Now I've stumbled across a blog on here not too long ago where someone was making triple the income on airbnb over what having a tenant at their current market rental rates are. I feel this could be a valuable strategy as I live in Austin Texas and... There are a lot of tourists and tourist events in this city pretty much all year round. Formula 1, Moto GP, SXSW, ACL, ect.. So living next door and changing sheets doesn't seem like a bad idea for triple the income. I know this is not an accurate estimation of what I could make. Could do worse? Who knows? That's why I'm asking here.

Is it worth it? I mean if I go that route then I would need to furnish the unit with a bed, shower curtains, pots, and pans maybe???? I mean is the cost of furnishing this thing worth what I could potentially make off of airbnb? Or just play it safe and leave it vacant for a tenant? Who's done both? Love to hear some opinions and what I need to do for due diligence?

Jack V. Ospina · Answer

@Charlie Kleindinst I would check with the city and state zoning laws before I start renting out any units short term in a residential area. I know many people that rent out units short term and they were eventually shut down by the city due to violation of city and state laws. They were also audited and billed on tourism taxes. The idea of short term rentals is amazing but definitely need to look into the zoning and tax requirements first and foremost.

Ray Harrell · Answer

Don't believe all the hype about tripling your income. That assumes a high occupancy rate, and some periods just aren't as lucrative as others. For tourists, it's really about location, location, location. If someone has to pay for an Uber or taxi to get to your place, and it's far away from the things they want to do, then you will have difficulty booking. Don't think that just because you have a room or apartment available that it will be booked. Check out listings in your neighborhood to see how many bookings they have had recently and at what price.

Marc Middleton · Answer

I think that's a great idea if you are going to live next door and manage it yourself. Once you start hiring someone to book rentals, clean it, manage it, etc. you lose that extra income and then it makes better sense to rent it long term.

Most of my clients who do the AirBnB route manage it all themselves and either have a reliable cleaner on-call or do it all themselves, pocketing the 'cleaning fee'. Also, since I'm a broker in Miami, I have a lot of out of state owners so they tend to hire people to do more things. I can't speak to their ROI but its still better than annual rental.

BUT, that's Miami Beach. I don't know how Austin would do. If you are relatively close to all those events you mentioned, you should do well. As long as you price it cheap enough, you'll get lots of bookings/inquiries.

Be sure to rent it on VRBO/Homeaway as well and rack up the positive reviews. Then you can start raising the price once you have 10+ 5star reviews.

Don't be afraid to leave them some $3 Trader Joes/Aldi wine as a welcome gift too - that'll guarantee your positive review :-)

Best of luck!

Ryan Evans · Answer

I'd just make sure the deal still pencils out as a standard rental. As others have stated, it's not uncommon to have municipalities restrict STRs. You wouldn't want to make a bet like that and have the city tell you that your business model isn't legal anymore. If it can work as a standard rental then ride the wave as an airbnb for the extra cash, but always make sure you've got a backup plan!

Myka Artis · Answer

An Airbnb in Austin is BIG money but there are also a lot of regulations in Austin. You may have to apply for a permit and all of that but if you are running it as a house hack with no HOA then you don't have too much to worry about. I made a nice profit for SXSW this year by using Airbnb. I would go the Airbnb/corporate route. Furnishings should be pretty cheap in Austin. Get on FB marketplace and start stock piling furniture now. No point of going traditional rental when you can use the Airbnb/corporate method to live for free.

Account Closed · Answer

I completely agree with @Ray Harrell - the BIGGEST difference in the generated revenue for the Airbnb is based solely on location. If you're within a block or two of South Congress and within 3/4 miles of city center - you can easily triple the amount you would get from a long term renter. But if you're 10+ minute drive from downtown - you might be able to double -- but then you have to draw guests to your listing with a catered experience, and great interior styling.

Nancy P. · Answer

This was before AirBNB existed but we owned a condo in Park City, Utah.  Great skiing and home of Sundance Film Festival.  We netted at least twice as much money as a nightly rental. That's with someone advertising in magazines,  handling bookings, and cleaning it for 35% of the income.  (Yep,  that's how it was done just 25 years ago.)  Got trashed in the 2002 Olympics,  management just shrugged and said they didn't know who did it.  Since most furniture was destroyed,  we emptied it and starting renting it long term.   Paid only 10% for mgmt.  We were disappointed with the returns,  it's just an entirely different market.  Ending up selling for other reasons (poor condo mgmt.)  As others have said,  if it's a good location WITHIN Austin,  I'd totally go for it.

Deanne Bourne · Answer

Congratulations on qualifying for a great loan. I know the paperwork can be breathtaking.  I have 3 Airbnbs in different states and different environs.  One is an apartment in a small town  in upstate NY, one near the beach in San Diego and one in Lake Tahoe that is half a condo.  I read all 80 pages of the CC&Rs carefully and consulted an attorney before the condo purchase.  Charlie,  you have to be on top of what's going on in the town or you may suffer.  It is difficult to give up STR money for long term and long termed renters might get on your nerves if the walls are thin or they like to BBQ often with pot or beer.  Also regarding STR;   when you get to 3 people arriving, three people with questions, three cleaners and inquiries on top of that it is NOT passive income.  I do still enjoy it but I can see that it can be a drain from time to time.  BTW I also have 23 other doors and a husband. lol.

All in all, if the city has no anti STR law in place, pay your taxes etc and set it up.

Thomas S. · Answer

Do your research regarding your state/local laws first. Assuming it is allowed there is no reason not to try short term first. If you don't like it you can always revert to conventional rental down th eroad if you get burnt out.

It boils down to how much work you are prepared to do to earn XXX income.

Jim Cummings · Answer

@Charlie Kleindinst. No personal Experience with AirBNB - sounds like a great scenario if you could triple your income.

I lived and worked in Austin for a long time and am familiar with Austin Politics. I noted someone recently (from Austin) said the City Council was starting to "Sour" on AirBNB due to neighborhood complaints. No Personal Knowledge.  I sure don't miss the Austin political furballs!

Airbnb or tenant in my first duplex?

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