How's the STR and MTR demand in Littleton, Colorado?

Question

Hi,

I'm considering submitting an offer on a property that's a couple blocks away from Main St in Downtown Littleton. It's an up / down duplex with 3 / 1 up and 2 / 1 in the basement. My intention is to live in the basement, rent out the remaining bedroom to a long term roommate, and run the upstairs as a full time STR.

I'm aware that the City of Littleton has strict short term rental regulations, but they do allow STRs as long as I have a license and I am occupying the property. I checked AirDNA, and there is a comparable nearby that grosses $80k annually. Other comparables with the same bedroom and bath count gross $60k-70k annually. I figure for the first year, this property would gross at least $50k-60k annually. Depending on the furnishing and amenities, it seems probable I could get closer to that $80k number.

After I move out, I can no longer operate the property as a full time STR, so I want to switch the strategy to MTR. However, I am not sure how the property would perform as an MTR. My guess is that it would be about 20% less than what I'd get for a STR, which would net me between $3k-$4k a month. I'd probably not operate the property as an LTR because with such little down (5%) at today's rates, it would be negatively cash flowing.

For the investors who invest in Littleton and have a furnished rental, can you speak on what the MTR and STR demand is like? What are the average occupancy rates per quarter? What are the average nightly rates per quarter? Do these numbers and estimations seem reasonable?

Any insight is greatly appreciated, thanks!

Collin Hays · Answer

My first reaction is, I've heard that Colorado municipalities tend to be STR-unfriendly.  I would check with the city of Littleton before I did much more.

Michael Baum · Answer

Hey @James Carlson. So I don't follow CO STR stuff other than basic reading posts here and some other places as well.

I hear you that we are talking about primary residence STRs but that can change just as fast as non occupied IMHO. Maybe never in CO but other areas have seen it happen.

Personally I am always trying to tell others that they need to look carefully in any area no matter how attractive the deals are.

I agree that you need to work with an agent who knows the lay of the land.

I get it, I was too vague not specific.

James Carlson · Answer

Totally true. There's no guarantee of anything in the STR investing world, and I do think cities are legally allowed to switch their laws, so as soon as I say it's super unlikely to happen, that thing will then happen.

But again, not even the most liberal, affordable-housing-starved, anti-STR city in Colorado has changed their laws and not allowed those who were operating under a legal short-term rental license to continue.

Your point is well taken though. You should always know what you're getting into. And have a plan B and plan C.

Rene Hosman · Answer

Hey Bruce, I wanted to point out one other potential option that hasn't been voiced, it works in Denver for me but check the rules in Littleton specifically with your permit. I had a primary condo I lived in, a 2/1 I househacked and rented out the second room. When I moved out I rented to a tenant who I allowed to arbitrage the second bedroom. He holds the master lease to the property and it is his primary residence, with my permission he rents the second bedroom on AirBnb, all I had to do was sign a waiver for him to be able to obtain a STR permit. It's a little more work to find someone willing to do this kind of scenario, and in my personal case I just charge my normal rent and I'm content with that because it cashflows. In your case though, I've heard of people in Denver proper with duplexes who parter with LTR tenants (you could put them in the basement) who will co-host with you and be able to get a STR permit since it's their primary residence and you can work out a profit split for the STR or some kind of reduced rent for your LTR in exchange for helping you and you being able to keep the STR running

Just a creative idea I wanted to toss out as a potential plan B or plan C!

James Carlson · Answer

And also, it's important to point out that unlike some states that have a statewide allowance for STRs, Colorado has no statewide law. Airbnb and short-term rentals are regulated city by city, county by county.

So people unfamiliar with Colorado probably hear the drip drip of "Denver banned STRs," and "Colorado Springs allowed regulated Airbnb," etc. etc. But that's not the same as all regulations in Colorado are always in flux. They're not.

Final point, for those savvy investors or second-home buyers who can find the pockets of Colorado that do allow them, you're getting an STR in a market where competition is artificially capped.

James Carlson · Answer

I appreciate your thoughts on STRs in this forum. You're usually spot on, but this advice is based off myth more than reality.

I've followed Airbnb laws across Colorado for eight years. It's totally accurate to say that more and more cities and counties are implementing regulations on vacation rentals. Many of them end up banning non-owner occupied STRs.

But ...

1. I can't think of a Colorado city or county that has banned STRs in a primary residence, which is what OP is talking about doing.

2. More importantly, every municipality that allowed for Airbnb investment properties and then switched and banned them also grandfathered in existing licenses. (Littleton, where OP is buying, is an example of this.)

So as long as you work with an agent who knows the laws in and out (ahem, blatant self-promotion), and you buy in an area that currently allows non-owner occupied, you almost certain to be allowed to do so in perpetuity.

Michael Baum · Answer

Hey @Bruce Tieu, I kinda agree with @Tony SanFilippo on this.

Colorado seems to be always in flux, banned, not banned, restricted, banned again.

If you want to go this route, make sure it will cash flow as a LTR.

James Carlson · Answer

Yeah, more and more Colorado cities and counties prohibit non-owner occupied STRs. (Almost all allow Airbnb in your primary residence even if they ban short-term rentals as an investment property.)

Littleton, just south of Denver, has been all over the map. First, they legalized Airbnb in non-owner occuped properties. Then, a year later, they reversed course. (A good example of why you should work with an STR-friendly agent who knows Airbnb laws in and out. ... ;))

Anyway, what OP is looking to do is legal in Littleton. Though there is a thought that if you're going to house-hack with Airbnb, you could choose one of the Denver area cities where they allow non-owner occupied short-term rentals. That way you Airbnb while you live there in that separate unit AND you can Airbnb it when you move out.

How's the STR and MTR demand in Littleton, Colorado?

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