Owner Financed Airbnb - Good or Bad strategy?

Question

What's up BP!

Last Friday in my search for a willing landlord to start my Airbnb business I found a seller willing to owner finance the property. The list price was $284,000 for about three months then got dropped to $264,900 and they offered the owner finance option. $5k down and $1,500 a month. With me taking on the finance my self in not more than 4 years. Fixed rate of 5% interest. They are also leaving the home fully furnished. I asked them to because the home is set up perfect for an Airbnb as is. I could literally list the property the day after closing. I was planning on a $4k furnishing budget if they emptied the home. I offered to bring an extra $3k down to closing if they would leave the furniture and they said YES!

Comp. bnb units in the area are going anywhere from $150 - $300 a night. The house is 2 story, 3bd 2bth with a second lot attached that i could put a small guest cabin or bungalow on in the future.

If I can get say $200 a night and I only have a 50% occupancy rate. That's $3k on a bad month minus payment and utilities. I could potentially profit $600-$800 at 50% occupancy...and I own it so i'm building equity as well.

Also, the balloon payment(when I take on my own finance) is contingent upon the appraisal at that time. So $264,000 is the agreement now but if it appraises at $240k that's all I have to pay but if it appraises at $300k I still only pay whats remaining of the $264K

I see a win win where I could potentially have 20% equity in a few years at half occupancy. I have the property under contract but it's contingent on my satisfactory inspection.

I would also plan to continue paying to principal with my regular job to get to 20% equity ASAP!

Looking forward to your advice!

Thanks BP!

Trey Knight · Answer

This sounds like a go to me.  If I read that correctly, you pay a balloon payment based on appraisal minus the principal you've already paid, but not more than the agreed price.  Is this normal? Sounds too good to be true.  Why would the seller take the risk on depreciation?

Myka Artis · Answer

This sounds like a great deal but my advice is to run your LTR numbers on the property first. If those numbers don't work then back out of the deal. The reason I say this is because you also mentioned that the city isn't regulating STR's at the moment. That is a good and bad thing. If more STR's start popping up, neighbors start complaining, and the city gets involved you have no way of knowing which way the council will vote. Therefore you should just keep a backup plan of knowing the long term numbers. I'd also check the corporate housing market in the area. That's another backup strategy to STR/Airbnb. Good luck on your journey. I've been thinking about adding more STR's to my portfolio with the owner financing strategy myself.

Gerald Pitts · Answer

I agree on it being a great deal. If a town "does not regulate STRP at this time", make sure you have another exit strategy numbers-wise like Long Term Rental if they ever start regulating.  Some cities have decided they don't like STRPs, and have been strict with regulations once they decided to regulate.

Chandler L. Parker · Answer

I have checked with my county&city and they told me they do not regulate Airbnb at this time.

It's a wild story actually, they are becoming minimalist and moving cabin in the woods.

I also agree it's to good to be true so we will see in a few days when I start the due diligence period.

Julie McCoy · Answer

If the numbers work, then congrats on the find - but yes, definitely do that inspection, get a real estate attorney to take a look at the contract, double-check your occupancy rate estimates to make sure they're realistic, and have a solid plan for how you're going to finance it when that balloon is due.

Also, I assume you've already done your due diligence on the legalities of AirBNB in the area - if you haven't, definitely do that first!

Good luck :)

Chandler L. Parker · Answer

I had previously checked Airdna.co on other properties but not this one yet. I feel like I'm getting better at my research as Airdna had the property at 48% occupancy, $183 a night, generating a little over $600 a month profit. I was basically spot on there!!! I would say these numbers are conservative as my property will be above the average comps Airdna uses.

Man I'm kind of new to the BP forums, I really appreciate all the input you guys have. Very valuable!

Chandler L. Parker · Answer

Well, the way I look at it. There are roughly 75 hotels within 5 miles of the property. They dont build them if they wont make money. Just take 1 room out of all those hotels, that's my 1 unit. I think the occupancy rate really relies on the staging, photos and marketing of the propertie. Hosting quality, style and amenities like wifi, muffins, coffee, water all the shampoos and soaps. Cleanliness. Search engine optimization on the platform. I did check out Airdna.co as well. Really cool site.

Ken Latchers · Answer

I had an owner in Ireland who financed the six Plex I bought. Nothing wrong with that.

however, I would doubt each and everything I heard and was told and verify each detail. There's something about this deal that smells a little fishy.

you should be looking for what's wrong with this deal and not what's right.

Alpesh Parmar · Answer

@Chandler L. Parker sounds like a good deal. Make sure to check out airdna.con for Airbnb market plus occupancy.

Ralph Poirier · Answer

I just drove through Irmo (I'm in Chapin for the holiday) but my question is who is renting for those rates that often?  What makes you think 50% is the right number?  Is the house on a lake?  I could see potential demand during football season.  Sorry just make sure your estimates are realistic.  If they are it sounds like a win!!!!  Good luck!

Owner Financed Airbnb - Good or Bad strategy?

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