I need opinions please, fairly new investor

Short-Term & Vacation Rental Discussions

I need opinions please, fairly new investor

Erie, PA · Member since 2022 · 16 posts · 8 votes

Hello BP community,

This is my first post on BP so my apologies if I over explain. I purchased a 5 bedroom home my sophomore year of college, house hacked it through school and also fixed it up. I just graduated and am ready to move out of it. I have roughly 100k in equity. Should I:

A: Sell it to get the equity out and reinvest in multi family, or STR.

B: Keep it as an STR and do a HELOC. I am unsure of this option as I used BPs Airbnb revenue estimator and it calculated I could make 75k gross revenue. Can anyone attest to the accuracy of airdna and the BP Air BNB tool?

Any suggestions are greatly appreciated!

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Eliott Elias

Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes

Keep it. You want to build wealth, not instant gratification. This is a long game and in 5 years you'll have 300k in equity

7 Reply

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
I would consider keeping it as a student rental.
4 Reply
Bill Crawford
Member since 2022 · 1 post · 5 votes
4y
Dan,

You need to do your market research. What does growth in the area look like? How many houses are similar to yours? If doing STR, how many other STR options are there and what is the general price point for nightly rentals? What's the municipalities views on STR's? What is the general condition of the home (a new roof, A/C, etc) can wipe out a lot of profits in the short term.

To answer your question…it really depends on a number of factors you need to work through.
5 Reply
Pretty Khare
Investor · Austin, TX · Member since 2021 · 83 posts · 80 votes
4y
Quote from @Dan Porter:

Hello BP community,
This is my first post on BP so my apologies if I over explain. I purchased a 5 bedroom home my sophomore year of college, house hacked it through school and also fixed it up. I just graduated and am ready to move out of it. I have roughly 100k in equity. Should I:
A: Sell it to get the equity out and reinvest in multi family, or STR.
B: Keep it as an STR and do a HELOC. I am unsure of this option as I used BPs Airbnb revenue estimator and it calculated I could make 75k gross revenue. Can anyone attest to the accuracy of airdna and the BP Air BNB tool?
Any suggestions are greatly appreciated!

John has a good suggestion renting it by the room if it is in a high demand college location. I would advise against selling the property because there are other ways to unlock the equity without having to sell a revenue generating house and losing some of that equity to transaction friction (closing costs, commissions etc.)
the accuracy of STR rent estimators vary by locations. Try googling for "enemy method" which is another way of verifying STR revenue estimates.
Also, See if you can get a HELOC before moving out of the property. It is much easier to get a HELOC on a primary residence than if you do not live in it.
4 Reply
Jon W.
Investor · Matamoras, PA · Member since 2015 · 111 posts · 32 votes
4y
Get it appraised. If there is equity to be had. Dump it and go multi-family
0 Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
4y
Hey @Dan Porter, I agree with @John Underwood. Keep the place and rent to students. Just be aware that students suck at upkeep so you will have to go in and refurb often.
The upside is students don't seem to give a crap about how the place looks as long as it isn't a dorm...
Where my son goes to school (Washington State University) decent homes close to campus get 750-1000 a room per month.
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
Keep it. You want to build wealth, not instant gratification. This is a long game and in 5 years you'll have 300k in equity
7 Reply
Eric Yu
Real Estate Agent · Seattle, WA · Member since 2019 · 243 posts · 246 votes
4y
Would recommend keeping it if you are still cash flow positive. Is there anything you'd be able to buy with that $100k of equity that could net you a better return than this property?
If you want to chat more about Airbnb potential, shoot me a message. Happy to help with the analysis & I have lots of connections in the short term rental property management space!
1 Reply
Ruben Kanya
Short Term Rental: Realtor, Investor, Manager · Atlanta, GA · Member since 2017 · 138 posts · 85 votes
4y
Agree with @Bill Crawford you should map out all of your exit strategies based on data.

STEP 1: Speak to a realtor or look online for history of property value growth in your area for buy and hold history you may be surprised on growth or the other way around.
STEP 2: Put in your address at the Bigger Pockets Airbnb Calculator to get an idea on how much you could gross as a STR. For a more granular neighborhood data, on average daily rate on airbnb, occupancy rate overtime, top properties and similar properties like yours in your neighborhood buy a zip code on airdna.co for the month to get the data and cancel it after.
STEP 3: I would consider tapping into multiple options. Cash out refies are not the most desirable due to higher interest rates now, (probably why you didn't mention it) but it is a non-taxable event, all depends on your numbers, HELOC could be leveraged and you can tap into more equity than a refi, some lenders do 90% LTV. And selling well there's going to be capital gains taxes on that so factor that in unless you're doing a 1031 exchange but it's all depending on opportunity cost and what you would buy instead.
I personally would lean towards a heloc on a next project (use it as a down payment and furnish another STR) and either airbnb your current property or leverage LTR with students if you just want to maintain this as an asset in your portfolio that possibly could cashflow very well with renting by the room model, you could crush it that way too but you gotta know your numbers, see how close to the school you are and what students are willing to pay in that market. If i wanted to use it as cash-flowing machine then I would Airbnb it considering I've done all my research on the numbers above and any anticipated STR regulations etc. Typically that's the cash-flowing model i love the most but it all DEPENDS on your goals, not mine ;)
3 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Dan Porter have you lived in it as your primary per IRS guidelines? If so, may make sense to sell it as you can take up to $250k tax-free!

Otherwise, agree with @John Underwood to keep it as student rental for max cashflow and you already know that market.
STR - are they allowed where the proprety is? What is the market potential?
Why does everyone always reference HELOC's? Do you understand they have a variable rate like a credit card? Look into a cashout refinance for a 30-fix stable rate.
[email protected]248-209-6824
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1 Reply
Daniel Nobile
Real Estate Broker · Seattle, WA · Member since 2018 · 46 posts · 75 votes
4y
@Dan Porter Airdna and Mashvisor seem relatively accurate, within 20% i'd say.
Selling has tax implications normally, but if you've lived there 2 of the last 5 tax years you can take $250k capital gains tax free. Thats a big pro in the sell column.
HELOCS are a great option also to utilize some of your equity. Holding real estate for the long term is usually a good play. The important thing is if you sell Real estate, make sure it is to buy more and better real estate or other assets. If you break down payment, loan balance, purchase price, potential sale price and all the other applicable numbers I can help give a sell or hold recommendation!
2 Reply
Chris Tarashuk
New to Real Estate · Member since 2022 · 17 posts · 14 votes
4y
As a college student myself I have many friends who lived off campus. I've seen a few people talk about how students are terrible at upkeep. This is 100% true even when looking at the more responsible students. We get busy with studying and managing our course work as well as trying to like "college life" and it can be quite a headache for the home owner such as yourself. The thing with college students is they also do not really care about the quality of the place so as long as the place remains livable you should have no issue finding tenants. I have seen students paying over 2k a month for an apartment where the toilet seats were falling off and the place was in shambles as well as other wild things. If kids can live in that your place should be fine! I'm still new to everything but see if you can add specific clauses to the terms of the lease (such as no parties greater than x people).
Hope you found this helpful!
1 Reply
Lauren Holmes
Investor · Littleton, CO · Member since 2022 · 13 posts · 10 votes
4y
Dan, Take into consideration what you personally want out of a property. Is it just cash flow? Do you want a badass vacation STR that you yourself can go utilize so you don't have to pay for a hotel? Do you feel you'd be better suited to self-manage or use a property manager and what are those associated costs? Property management for long term tenants is probably less time consuming than an STR. I would think beyond just the money aspect of it and think about what fits into your lifestyle and your bandwidth to manage something. Best wishes!
1 Reply
Dan Porter
OP
Erie, PA · Member since 2022 · 16 posts · 8 votes
4y
Quote from @Bill Crawford:

Dan,

You need to do your market research. What does growth in the area look like? How many houses are similar to yours? If doing STR, how many other STR options are there and what is the general price point for nightly rentals? What's the municipalities views on STR's? What is the general condition of the home (a new roof, A/C, etc) can wipe out a lot of profits in the short term.

To answer your question…it really depends on a number of factors you need to work through.

Thank you for the input, the growth in the area has been pretty stagnant, which is what is making me lean towards selling it. I believe the municipalities are very back and forth on STR regulations. The city gets alot of complaints regarding them. I really appreciate the advice!
0 Reply
Dan Porter
OP
Erie, PA · Member since 2022 · 16 posts · 8 votes
4y
Quote from @Pretty Khare:

Quote from @Dan Porter:

Hello BP community,
This is my first post on BP so my apologies if I over explain. I purchased a 5 bedroom home my sophomore year of college, house hacked it through school and also fixed it up. I just graduated and am ready to move out of it. I have roughly 100k in equity. Should I:
A: Sell it to get the equity out and reinvest in multi family, or STR.
B: Keep it as an STR and do a HELOC. I am unsure of this option as I used BPs Airbnb revenue estimator and it calculated I could make 75k gross revenue. Can anyone attest to the accuracy of airdna and the BP Air BNB tool?
Any suggestions are greatly appreciated!

John has a good suggestion renting it by the room if it is in a high demand college location. I would advise against selling the property because there are other ways to unlock the equity without having to sell a revenue generating house and losing some of that equity to transaction friction (closing costs, commissions etc.)
the accuracy of STR rent estimators vary by locations. Try googling for "enemy method" which is another way of verifying STR revenue estimates.
Also, See if you can get a HELOC before moving out of the property. It is much easier to get a HELOC on a primary residence than if you do not live in it.

Thank you for the advice! I had not considered how much of my equity would be lost due to transaction friction. I will definitely try googling that and see what it estimates
0 Reply
Dan Porter
OP
Erie, PA · Member since 2022 · 16 posts · 8 votes
4y
Quote from @Eric Yu:

Would recommend keeping it if you are still cash flow positive. Is there anything you'd be able to buy with that $100k of equity that could net you a better return than this property?
If you want to chat more about Airbnb potential, shoot me a message. Happy to help with the analysis & I have lots of connections in the short term rental property management space!

The growth in the area is fairly stagnant. Only growth is due to inflation, So I was thinking it would be beneficial to invest in a growing area. Thank you for that offer! I may end up reaching out to you! I will try to analyze it on my own prior to bothering you with it. But thank you!
0 Reply
Dan Porter
OP
Erie, PA · Member since 2022 · 16 posts · 8 votes
4y
Thank you everyone for the replies!!! I will take them all into consideration. Although it is unlikely that I will use it as a student rental due to the fact that I could purchase a cheaper home and rent it for the same as a student rental (Several colleges in the area, so there is alot of demand for student housing). I appreciate the help!!
0 Reply
Robin Carriger
Investor · North Richland Hills, TX · Member since 2014 · 18 posts · 18 votes
4y
Just a reminder... STRs are one of the most management intensive types of investment in our business, so... as you grow your portfolio, make sure you have a plan to automate the management as much as possible. Self-managing might work for a while, but it will get old.
3 Reply
Jess Haas
Realtor · Seattle, WA · Member since 2019 · 117 posts · 165 votes
4y
@Dan Porter where would you go next? Like @Daniel Nobile mentioned you are avoiding 250k of taxable gain if you sell within the next 2 years. If you don't think the market will appreciate and you NEED to hold it as a STR to cash flow, I would sell it. When covid hit, our STRs were bought at a low enough purchase price that it didn't hurt us to run it as a mid term rental to ride out the storm. Have multiple exit strategies. To me it seems like your investments are better elsewhere.
3 Reply

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