Deal Diary: Second home/vacation rental in Colorado

[James Carlson]

Thought I'd share a deal diary of a vacation rental/short-term rental in Colorado that my clients will also use as a second home when visiting. (Pics at the bottom.)

The Goal
Out-of-state buyers wanted an STR mountain home outside Colorado Springs or outside Denver that could legally be rented on Airbnb and that they could stay in when visiting Colorado.

The House
A 6br/5ba home + a 1br/1ba apartment on 2.5 acres of land. Incredible views, privacy, roomy lot and roomy house and still just 20 minutes from a few grocery stores and bars/restaurants in Woodland Park.

Also two RV garage spots and three outdoor RV spots with full hook-ups that can be rented. The property is near Florissant, about 10 miles west of Woodland Park or 30 miles west of Colorado Springs. Was built in 1996 but updated fully in the last few years. 

Price
$820,000. It was originally priced at $930,000. They dropped the price numerous times and were at $850,000 when we offered. We came in below $800k and ended at $820,000.

Numbers

• $3,200 -- all-in mortgage (PITI -- principle, interest, taxes and insurance)
• $9,600 -- STR gross revenue potential just for the main house. (There's another $1,000/mo for long-term rent for the 1br apartment and another $1,500/mo for renting the RV spaces for six months of the year, if desired.)
• $5,750 -- net STR revenue (I always take out 40% for costs to be conservative with a short-term rental/Airbnb investment.)

$2,550 net profit

Again, that net profit doesn't include another revenue from the 1br apartment or RV spots.

Location
I'm a big fan of the "one town over" or "one neighborhood over" idea. You have a place that's popping off -- be it a neighborhood or a city -- then look one step over and that's likely a good buy and where the money will go next. In this case, Woodland Park is already hot for the California and east-coast buyers who want their mountain homes. But what about Divide or Florissant just a touch west of Woodland Park. If this house were in Woodland Park, it would cost $1.2M to $1.4M. 

Other considerations
We're always staying on top of the Airbnb laws in an area. In this instance, the property was in unincorporated Teller County which allows STRs, but the property also had a small HOA. I dug into the covenants and talked to a board member about their short-term rental regulations. They had none, but it's always important to do your due diligence on this matter.

Pictures
A few select photos.

[James Carlson]

@Ryan Moyer

We use AirDNA for our short term rental revenue estimates. I know it's not as reliable in areas where there aren't a lot of data points (other STRs) to generate an estimate. But in Colorado, I've found it to be pretty good. I have investors who've bought Airbnb investments in cities near Denver (Arvada, Wheat Ridge, and Littleton), and in Colorado Springs and the mountains, and all of them are pulling in roughly what AirDNA said they would.

I used to feel the same as you do about a lot of areas that have successful Airbnbs -- why would anyone go there? But after doing this for five years or so, I see a ton of successful STRs that aren't in the heart of Denver or the heart of a ski town. The comparable properties used in the AirDNA analysis prove it out. (If you have a subscription to AirDNA, you can look at the other Airbnb listings used to generate the estimate.)

A few unscientific reasons I think these homes still do really well:

• A lot of visitors don't care as much about being in the heart of a place -- be it a city or a ski town. This might have to do with price. Not everyone can afford an Airbnb close to the action. So they're willing to be 20 minutes or 40 minutes away from "stuff." You could say, well, so it's not as good of an investment. Eh, maybe. But your purchase price for that home is also lower.
• If you search for homes in a certain city, the results are usually geographically broad. For instance, search for homes in Woodland Park, the the first page of results will include homes from Divide and Florissant.
• More specific to the above property, if you're a big property, you stand out wherever you are. There just aren't a lot of short-term rentals that can accommodate 12 or more people. Some of the best performing Airbnbs are the big homes, and location matters a little less. In this instance, though, this is ideal for family getaways, graduation parties, etc. People love to have a lot of space and amazing views.