AirBNB as a first Investment Property?

Question

Good afternoon from Colorado! I've worked as a mortgage processor for about 2 years but still have a ton of learning to do! I'm looking to make my first investment in real estate this year. I've analyzed quite a few deals in my local area with the Rental Property Calculator and have not been able to find one that would generate positive cash flow without decreasing the purchase price by 40k plus. I'm wondering if my area (weld county) is just very high priced and would it be a good idea to look into purchasing an AirBNB rental property near the mountains somewhere? I understand I may need 20% down which presents another issue, but I have some ideas for fundraising for the 20% down.

Michael Weigum · Answer

@Lorenzo Prieto

Hey Lorenzo, we have similar stories. I lived in Denver for 24 years. 2 years ago I was learning everything I could from bigger pockets and trying to find my first deal but couldn’t make the numbers work. Since then the market has become even more crazy.

My family and I left Denver in 2020 and traveled finally settling in Myrtle Beach. I was looking for houses to flip and found out about the STR market here. I finally found an ocean front unit and bought it. It was an amazing experience. We had a phenomenal year with Airbnb and made a great return on our investment. So good that I am closing on my second unit this week and a am helping my mother in law close on her first investment here.

I always wanted a place in Summit County, but the entry price point just didn’t work for me. I traded the mountains for the beach and found lots of opportunity here.

I think STR’s are a great first investment. You might have to look outside of Colorado to get the ball rolling.

Good luck!

Bruce Woodruff · Answer

@Lorenzo Prieto STR is a great vehicle for Real Estate success. Doesn't matter if it's your first one or not. Just be sure that you choose the right area.... where would you want to visit? Where do your friends vacation....? And note that you can turn a STR into a LTR if you need to, so consider that option before you buy as well.... Good Luck!

Bruce Woodruff · Answer

Bingo!

Steven Goldman · Answer

If you are challenged for the 20 percent. We regularly handle investment property mortgages were the guarantor is not the individual who is contributing the capital. Instead the LLC has an angel investor member, who provides the money but not the guaranty. Many of our sophisticated investors are only doing AirBnB due to the substantially greater cash return. Keep in mind the property will be qualified on the AirDNA statistics if it has not previously established a rent roll as an AIrBNB. So you calculate DSCR on the basis of the AIRDNA statistics or the market annual rent. Not your projected rent. Good luck.

James Carlson · Answer

@Lorenzo Prieto

You're math's not wrong. Colorado's a tough state (scratch that -- a nearly impossible state) to cash flow as a traditional long-term rental. Even Weld County, which 15 years ago wouldn't have hit on anyone's radar, is hot. You're right to consider creative rental models.

Airbnb is totally a great option. We see a lot of buyers cash flow well. (See this guy's short-term rental investment in Wheat Ridge, just outside of Denver. He's making bank right now.) Of course, you gotta know the STR laws, as most cities and even some counties in Colorado, prohibit Airbnb unless it's in your primary residence.

About lending ... if you can scrounge up the cash for a 20% down payment, then great. Also, you might consider buying it as a second home for slightly better rates and less cash down required. One other option is a DSCR loan. The rates are higher (like closer to 5%) and they still require 20% down, but they qualify you based on the projected revenue of the underlying asset. (And most any good Airbnb will qualify.) So it's an option for those that might not qualify for the payments but have the cash for the down payment.

Good luck!

Joshua Janus · Answer

This is a great idea. You'll most likely need 20% down for any investment property whether it will be a STR or not. Airbnb can produce a high cash flow rather quickly but presents the biggest challenge of managing the property to fulfill its obligations. Have you reached out to potential STR property managers, or would you do that yourself? Good luck!

Jimmy Woodard · Answer

@Lorenzo Prieto if you find an area that has favorable regulations, the next step I'd recommend is going on sites like Airdna, Rabbu, and Airbnb to figure out what revenue estimates to expect and also what renovations you can make to stand out from the crowd. You can certainly buy an Airbnb property with just 10% down for a second home loan, you'll just have to check with your lender to see what are the requirements for how many times you have to stay in the property for the year. Good luck and DM me if you have any other questions!

Lorenzo Prieto · Answer

Hey Dylan! Thank you so much for your reply! That is great feedback! I'm certainly going to look into that further before moving forward.

Dylan Whitcher · Answer

Hey Lorenzo! AirBNB is a great option, but make sure you have a second escape plan. If the only way you can make a piece of real estate work is through AirBNB you might get put into a tough situation if a new piece of legislature is put into place that bans AirBNB. (Has happened to plenty of people.) If you are going to go AirBNB as the only escape plan, I recommend investing in a place where there are already short-term rental regulations in place, as it is less likely for them to implement more on top of the existing regs. (Info from a recent podcast episode.) :)

Caitlynd Fawn Born-Dohm · Answer

@Steven Goldman I am in a similar situation, except I live in Florida. So far, I have had lots of trouble finding private funding for the purchase of an Airbnb, because it will also be my first home purchase, and I don't have 20% down. However, I do have great credit, and I am eager to learn. Do you think you would you be able to help me?

AirBNB as a first Investment Property?

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