Up/Down Duplex, No Off-Street Parking, Worth Trying as an AirBNB?

Question

Hey everyone,

I've got an up-down duplex (both units are 2-bedrooms) that is doing well enough as a long term rental in a town that is a vacation destination for people in the Twin Cities. We have another short term rental that's a single family house about 6 blocks down the road from the duplex, and it is doing really well since we've gone live in September.

The pros for this place as an STR are it's close to all the attractions in town, close to the hospitals, has some lake views, is zoned in a way where operating as a short term rental is legal and simple in a town where it's really difficult to get licensed if you're not in the right zoning, I don't see a ton of 2-bedroom options on VRBO or AirBnB in this area, and of course the rates are much higher as a short term than a long term.

The cons are it needs close to $100k in renovations/furnishing to get it to a point where it would do well as a vacation rental, has no off-street parking or yard, and is on a loud road.

Is it worth pursuing the short term rental to chase the higher returns? Or am I better off keeping this rolling as a long term rental and keeping my eyes open for another property that is in a little bit better location for our next short term rental?

Thanks in advance!

Jerry W. · Answer

@Matt J., I am somewhat amazed at the idea that you are looking at $100K to change a decent LTR into a STR. I realize that I am cheap, but I can do a LOT of upgrades for $40K and I actually buy 70% or more of my furnishings on Facebook Marketplace and get some pretty nice stuff for 20% to 40% of new prices. Maybe just fix up one side and be conservative and see how it goes. If it flops you have one nicer rental and one regular, if it does great do the rest of the duplex. I don't see much to lose by trying it. Most of your upgrades will make a LTR able to rent for more money as well. There is some risk in all real estate, I don't think this risk is too far out of line. Either way good luck.

Michael Skinner · Answer

@Matt J. have you run the numbers on the two scenarios yet? If your goal is to maximize the productivity of your capital, it should be a pretty straightforward path to determining your answer. As @Jerry W. alludes to, $100k could go a long way elsewhere, and the only way you'll know if it makes sense to put it into this property for STR purposes is by understanding the various income scenarios and potential outcomes... Here are some follow-up questions to consider: 1. What's your estimated target CoC return? Is this the most important factor driving your investment decisions? 2. What investment alternatives are you considering, if any, with this $100k? 3. Could you put a fraction of that $100k into the property, keep it LTR, and increase rent to achieve better or similar returns than STR? 4. Are you enjoying the day-to-day of running your current STR? With regard to time/attention needed for management, LTRs scale better/easier than STRs so you'll need to be prepared to increase communications and other operational responsibilities. You said "chase the higher returns" so my assumption is that you've run the numbers and have a high level of confidence that STR would offer better returns. If that's the case, the question of location is moot. If, on the other hand, you're not sure about how location will impact top-line revenue as an STR, then I'd suggest running highly conservative scenarios (including a worst-case scenario) to help inform your decision. Hope this helps!

Michael Baum · Answer

Hey @Matt J., I would keep it a LTR if that is working. What is the CoC for that? I know that I wouldn't want to stay somewhere that was too busy.On street parking isn't as big a deal for me as long as it is reliable. I find that can be a real hit or miss depending on the time of day. I sure wouldn't want to park 2 blocks away and walk back.

Andrew Steffens · Answer

Gotcha - Its hard to say because I do not know how people are in your market. I would think if there is on street parking readily available and you properly disclose that, it should not be an issue. Are there any other Airbnb's you can find in that area with the same issue? If they are booking and reviews are good I think it would be fine.

Matt J. · Answer

There's a place right next door that does well but they have a small driveway, are a 3 bedroom house, and are one house off of the busy street (our house is between theirs and the busy street).

Matt J. · Answer

The city only allows 2 people per bedroom. So a max of 8 people in the building. There is no off street parking at all. There is some on street parking available on a side street that is usually fairly available.

Andrew Steffens · Answer

Hey Matt - By quick calculations the house as a 4bedroom would sleep at least 12 people based on 4x2 and 2 pull out couches. How readily available is off street parking based on there could be 6 or more cars for a reservation?