AIRBNB HOUSE HACK DENVER - Is this a good idea??

Question

I am looking to buy a SFH in Denver or the suburbs, live in a walk in basement and Airbnb the main unit. I am planning on partnering with a family member and using an FHA loan to acquire the property. Here are some questions I have...

1. Has any one tried this in Denver? If so, how did it go?

2. What part of Denver would you recommend?

3. What is the vacancy rate like for Airbnb in Denver right now?

4. Should I expect any challenges to get qualified as an Airbnb host in Denver?

5. Is there anything else that I should know?

Thank you everyone for any advice!!

James Carlson · Answer

@Caleb LaBelle

To your broad question ... Yes, tons of people are doing an Airbnb-style house-hack in Denver and the suburbs. We've got clients in Arvada, Commerce City, Englewood and Lakewood, to name a few, all doing some variation of this. (See a deal diary of these clients or ours doing it near Westminster.)

A few other notes:

• Know thy laws. Most cities allow you to rent a portion of your space as a short-term rental while you live there. But few cities allow STRs in non-owner-occupied homes. So once you move out, it becomes a long-term rental. Arvada and Littleton are the exceptions and may be attractive for that reason, but you're also paying more than, say, Westminster, or East Colfax/Aurora. (BTW, we're talking about the Airbnb laws in various cities at this event next Wednesday.)
• Don't look at occupancy rates. They don't mean much. I can get 95% occupancy by charging $40 for a whole house. That doesn't mean anything. Look at revenue. Check out AirDNA's free Rentalizer too to estimate that.
• Good areas? Well, if you had your pick, you'd buy in LoHi, where the nightly rates and occupancy are highest.  But most people can't afford a $750k 3br/2ba Victorian there. I'd suggest talking to a lender first. Get a sense of your price range, and that will drive your search geography more.
• Kind of a piggyback off the above point (and you didn't ask about this, so excuse the soap box), but don't worry about finding "the best Airbnb house" or "the best area." If that's your criteria, you'll always wonder if you can get a better deal elsewhere. Unless you're buying in a war zone, you'll be fine. (I mean, our clients are pulling in $1,500-$1,900/mo on a basement apartment in Commerce City, for god's sake.) The bigger issue I see with first-time buyers who read a lot of BP gospel is that they don't want to seem stupid by getting a "bad deal." That prevents some people from taking the step.

Anyway, it's a great idea, and I hope you move forward with it. Good luck!

Jeff White · Answer

@Caleb LaBelle Congrats on taking a giant first step!  Combining house hacking and airbnbing is a excellent idea!

1) I have utilized Airbnb before, and it is most effective between April to October months since that is when tourism in Denver is at its peak season.

2) Anywhere in Denver is great, especially the hotspots of Highlands, Sloan's Lake, Wash Park, Platte Park, City Park, RiNo, close to downtown, etc...but just like anything else, pictures will do a great job if you are not in those prime locations.

You won't get the premium rates, but you can still run a successful Airbnb with great pictures and a good description and an immaculate home. From a price to Airbnb ratio, look for houses on the edge of those locations I mentioned above, ex. Lakewood is right next to Sloan's Lake, Englewood is close to Platte Park, Wheat Ridge is next to the Highlands. It is a way to benefit from being nearby those hotspots without paying the premium price to buy in those locations.

3) About 30-60% due to less tourism from COVID and time of year. AirDNA is a great resource to confirm projected rents.

4) If you are only considering Denver, the only catch is it MUST be your primary residence. You will have to show documentation that you live there and sign an affidavit confirming that.

5) Have you considered Arvada? Denver is a great city of course, but you can only Airbnb your house WHILE you are living there. Once you move out to the next house hack, you can no longer Airbnb that basement apartment. On the flip side, Arvada currently allows up to 3 properties that can be on Airbnb even if you don't live there. Can that change in the future? Absolutely, but it is something to consider since Arvada is a cool suburb and close to downtown.

Claire Rosenberg · Answer

Hi @Caleb Brown really exciting and definitely a great idea. House hacking is an incredible strategy to live for free and scale fast! I agree with others that you want to look at total revenue over the occupancy rate. Airbnb can be a very seasonal business, but you can typically make 2-5x more as a STR versus going the LTR route. I am on the co-hosting side and happy to answer any questions about self-managing!

Caleb LaBelle · Answer

@Jeff White Thanks so much for the reply man. There is so much great info here. My partner is out of state and would love to use this place as a vacation home even after I move out, so it looks like my best bet will be Arvada, Littleton or Centennial. (@James Carlson I called the city of centennial and there seems to be no restrictions there either) My main thinking with all of this is that I can only get qualified for a 400k home, but with the help of my partner, we could then get into a more expensive home for still 3.5% down. He will be providing the majority of the capital, while I'm choosing to make the move, managing the airbnb, being the boots on the ground, finding the deal, etc.

@James Carlson Thanks for the helpful reply my man! Yes, I didn't realize how strict all the laws were...I'm definitely learning a lot already! haha As far as getting pre-qualified, my partner and I are in that process right now. I don't have a number yet, but I anticipate we won't have too much of an issue getting into most properties considering my partner's financial situation. I work down in the Littleton area, so I might consider that, especially since that is one of the only locations that does not require you to have the property be your primary residence. That's also great advice on not being concerned about finding the "perfect deal" I've struggled with that before...Thanks again for all the help! I'm excited to move forward with this!

@Bridget Brazelton thanks for such a helpful response! That's great to know that you can only airbnb a certain amount of days in the year in certain areas. I also am encouraged to know that people are still having success with this strategy in 2020! I will certainly take more time to consider what my exit strategies would be!

Thanks everyone!

James Carlson · Answer

@Ryan Winzenburg

Are you talking about walk-out basements? Under Denver's Airbnb laws, those would be treated the same as any other kind of rental on the property where you live (whether that's a different kind of basement apartment/mother-in-law suite, a carriage house, or just a room rental STR). All of those things are allowed under Denver's STR rules.

Denver does have tough laws, but they're the norm, not the exception when it comes to short-term rental laws. Golden has a primary residence rule (and requires you live there for 10 months of the year). Englewood has a primary residence rule, so does Lakewood and Aurora. Hell, even Colorado Springs with it's more conservative, property-rights driven politics has clamped down hard on any kind of Airbnb investment.

That's why Arvada and Littleton are so interesting. They have passed laws that proactively allow for short-term rentals in non-owner occupied/investment homes. (I make the distinction between a city that allows Airbnb through an active law, and a city that allows it only through a lack of law prohibiting it. The latter is more likely to come back and shut you down.)

Bridget Brazelton · Answer

Hey Caleb,

@Jeff White covered the bases pretty well. I think that considering your exit strategy when investing in Airbnb properties in the Denver metro is really important, given the prolific primary residence restrictions. Even in places like Arvada, that are currently more investor friendly as Jeff mentioned, there are still restrictions to consider such as only being able to Airbnb an investment property for 240 nights per year. If you run the numbers in advance and it cash flows when you move out (as a medium or longterm rental), and you can maximize your cash flow while you're living there by using it as a shortterm rental, it's a win-win.

I've seen several people find a lot of success with this strategy. One of my friends in the Sunnyside neighborhood does what you're proposing, but flipped (lives upstairs and Airbnb's the basement apartment). I think that the pandemic has given a lot of people pause about starting an Airbnb, but most owners I know in the Denver area say they're as busy as ever. Last Spring, they almost all say that their calendars were suddenly filled with cancellations. A few of my friends in the Highlands and Boulder turned their Airbnbs into medium or longterm rentals, but those who stuck with STR say their booking calendars started filling right back up, oftentimes with newfound remote workers. Vacancy is so dependent on price/value, location, etc., but I guess my point is that even in such a strange year, people are still finding success with Airbnb, especially in catering to this new, mobile workforce (desks, fast internet, etc!). Whereas before I would have suggested all of the neighborhoods near the restaurants and bars, I would now also recommend properties further west towards outdoor recreation hotspots.

Ryan Winzenburg · Answer

I operate STRs in several states and there’s an interesting trend in setting happen. With covid, cities are loosening STR regulations to make more options available to tourists. Generally, I see tourists avoiding hotels, but cities want visitors. So some cities are starting to work with hosts to attack tourists dollars. I hope that things may relax on the front range.

I personally stopped operating STRs in the Denver area and reinvested my capital in areas with similar returns and more reasonable regulations than Denver.

Ryan Winzenburg · Answer

@James Carlson I’m talking about what loftium was doing with homes. They would make the back door the STR entrance, then “lock off” part of the main floor to separate the STR from the primary living space. I saw a couple where they’d mirror the bathroom and kitchen in the lock off so they’d share the pipes in the wall.

Ryan Winzenburg · Answer

Lockouts were a popular idea in Denver for a while and really opens up the number of properties you can consider. I'm not sure if Denver's draconian STR regulations has crushed that concept, yet.

AIRBNB HOUSE HACK DENVER - Is this a good idea??

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