Airbnb in Austin - own to rent model thoughts?

Question

I am curious about BP member thoughts on an Airbnb-purpose condo project underway in Austin. Pros and cons of looking at this as an investment? Thanks!

New article here and posted below also. Press release here. "AUSTIN, Texas — A new concept debuting in Austin combines condo ownership and short-term renting with the city's first high-rise homesharing property.

Unit owners will purchase one of the 249 hotel-licensed condos with the intention of listing their unit on the Airbnb platform or independently or through Natiivo management, a new brand by NGD Homesharing.

The development planned for 48 East Avenue in the Rainey Street District will feature 33 floors of fully-amenitized and furnished studios, one-bedroom and two bedroom units. Due to the hotel license, owners cannot use the property as a primary residence and are not intended to stay for more than 30 days at a time.

“Natiivo fills a gap in the hospitality landscape by combining an elevated, professionally-hosted experience, great design and cutting-edge technology with the service, security and consistency of a great hotel,” said Harvey Hernandez, founder and CEO of NGD Homesharing.

Natiivo Austin will include coworking spaces, a cafe lounge, a spa-inspired fitness center and a rooftop pool deck with private cabanas. Units will cost between $300,000 and $1.2 Million."It's basically a hotel that offers what we call 'the new way' of owning real estate," said Hernandez, on the phone from Miami. Instead of being rent-to-own the model is own-to-rent. The property is ideal for anyone who wants a fully furnished, professionally managed short-term rental in Austin. The project is co-developed by Newgard Development Group and Pearlstone Partners, with architecture by STG Design and interiors by New York-based INC Architecture and Design. Natiivo Austin is expected to break ground by mid-September with an opening in September 2021.A similar project, Natiivo Miami, will stand 48 stories high with 604 units. Nearly 200 units will be dedicated hotel-licensed homes. Natiivo Miami’s expected opening is Spring 2022.

Natiivo Austin will include coworking spaces, a cafe lounge, a spa-inspired fitness center and a rooftop pool deck with private cabanas. Units will cost between $300,000 and $1.2 Million.

"It's basically a hotel that offers what we call 'the new way' of owning real estate," said Hernandez, on the phone from Miami. Instead of being rent-to-own the model is own-to-rent. The property is ideal for anyone who wants a fully furnished, professionally managed short-term rental in Austin.

The project is co-developed by Newgard Development Group and Pearlstone Partners, with architecture by STG Design and interiors by New York-based INC Architecture and Design. Natiivo Austin is expected to break ground by mid-September with an opening in September 2021.

A similar project, Natiivo Miami, will stand 48 stories high with 604 units. Nearly 200 units will be dedicated hotel-licensed homes. Natiivo Miami’s expected opening is Spring 2022.

According to Airbnb, Austin continues to be one of their top 10 destinations.

Julie McCoy · Answer

That sounds like a more elaborate version of what's happening in Nashville, namely, condos that are appropriately zoned and STR-permit eligible, with HOAs that explicitly allow STRs.  It's pretty much the only way to get in the STR game in Nashville now.

Bottom line, make sure you know all the details, associated costs, and permitting requirements (and probability of them remaining permit-able for the foreseeable future); do all the regular due diligence; then if the numbers crunch, go for it.

Carlos Rodriguez · Answer

@Jenny Gardner

I'm actually in the process of reserving a unit in the Natiivo project. I ran some numbers in the BP calculator,  based on Austin's hotel vacancy rate of 25-30% and avg nightly rate of $250 for a hotel suite.

Bottom line is that this is probably not a good investment for the average investor. Also,  they have not ironed out all of the details yet. Having said that,  the reservations are flying off the shelves. So there is a market for this concept.

I'm going to use the house hack strategy by bouncing between this place and another AirBnB I own. Certainly not the lifestyle for everyone. But I plan bounce between vacation homes in "retirement" anyway. :-)

Paul Sandhu · Answer

I buy 3BR bank foreclosures with CH/A for $9500.  Furnish them for around $1000 and rent them for $400 (2 people) to $600 (3 people) a week.  My renters are refinery contractors.  Welders, pipefitters, boilermakers and the occasional group of psychotic mutts.

How does this compare to that?

Ken Latchers · Answer

Ok. I bought two mfh buildings BY MYSELF in a reasonable tourist town and live within a block of each. Cost approximately $415,000. Perhaps $70,000 of furnishings and fixups. 7/8 units total.

$160k+ gross and I manage myself.

How does this project compare to that?? Seems stupid for smaller investors.

Michael Baum · Answer

I am betting they will offer in house financing. Keep it all in house, more money for Natiivo.

Andrea Ives · Answer

@Jenny Gardner Thanks for starting this discussion I was curious about this property when when I first read about it. I think the responders before me have adequately covered the possible volatility of this property when it comes to keeping permits, competing against the same unit one floor above yours, and not having a comparable market. I agree and think there is another missing aspect that hasn't been mentioned.

To me this property takes away the unique feel of staying in an AirBnb or VRBO, and transforms it into a glorified hotel. The concept behind AirBnb is experiencing life through someone else's home.

I could see this property turning into a residential building in 8 years.

Robert Tinker · Answer

Wondering if the developer is hoping that institutional investors will gobble up these? It'll be interesting to see how it all plays out.

Scott Fehrenkamp · Answer

One "con" would also be the financing options.  One would be unlikely to be able to get a conventional loan on a "condotel" such as this.

Ken Latchers · Answer

I wouldn't touch a project like this with an 11 foot rope . Sort of like having an Amazon storefront while they collect my data and then compete against me later.  Why in the world do I need to get involved  in something that has unknown risk when I can go out and get any property I wish in a reasonable area and do it myself?

Like being involved in an REIT that somehow manages to make considerably less than an independent landlord can make

Michael Baum · Answer

Ok, so I did a quick search on AirBNB and Verbo to see what was what in that basic area.

From what I can see, 2 bed 2 bath rates are just under 200 a night on VRBO. That includes areas down near the Edward Rendon park.

AirBNB has several in the same area. 1bed 1bath rates are under 100 per night. Most of the places say "Spa Condo" or something like that so I assume it they are somewhat similar to what you are looking at.

So a 1bed 1 bath basic unit at 300k. Mortgage is around 1600 a month. Plus insurance and taxes. Add in the HOA (have to find out what that will be). Let's say $400 HOA for everything. Monthly payment will be something like $2400 or so?

$28,800 a year in those costs, plus all the things that make a nice STR.

If the place is just amazing you might get 120-150 a night, maybe. You will be competing with all the other units as well so that might be wrong.

At those rates, you are looking at 54,750 if you rent at 150 a night with 100 percent occupancy which is not realistic.

225 nights at 33,750 would probably be more realistic.

All those numbers are all very rough, so take them with a grain of salt. Could be meat, could be cake....

Airbnb in Austin - own to rent model thoughts?

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