Taking Action to Buy First Property by the End of 2019!

[Daniel Choi]

Hi all! I just want to start off by saying thank you to whoever reads this first post of mine on the BiggerPockets forum. I absolutely love everything this community does!

I think it's best to start off with my WHY? In short, I want to create enough passive income (as quickly as possible) in order to become financially free; my core objective is to continue and fund the social work I have done in the past through social entrepreneurship ventures, and enact my life mission statement of increasing the standard of living for as many people as possible. 

To give some background, I currently live in northeast Ann Arbor, Michigan and I'm getting ready to purchase my first property as my primary residence as I work full-time at the Google office here. I previously attended the University of Michigan for my undergraduate degree, so I am very familiar with (some parts of) the area. By the end of 2019, I plan to use my saved money to buy my first single family property; I'm aiming to put 20% down on a $150,000k property with a monthly mortgage around $860 (I'm currently paying $1,059 in rent for my 1 bedroom apartment). My credit score is in the high 700s, but I'm thinking my credit history won't be sufficient to get a loan; I am hoping it might be possible to get one under my sister's partner's name if they decide to invest in me/the property as well (they recently bought a property in Austin, Texas together and are actually the ones who introduced me to BiggerPockets). 

I have heard that the areas surrounding Ann Arbor are the best places to invest in properties as the Ann Arbor market is considered oversaturated and overpriced (due to factors including high taxes and it being a college town); however, I would like to purchase in Ann Arbor to be in close proximity to where I currently work. I would also like to house hack utilizing an AirBnB model, and after some renovations are made, eventually fully rent the house out to generate a positive cash flow of $300+ a month. If all goes well, I hope to reinvest the positive cash flow and my continued savings into more properties in the area to possibly be managed by an AirBnB property manager I have spoken to recently.

To get more into the weeds, I have been looking at property listening across many sites for the past few months and am considering one property more so than any others. It is a single family, 2 bedroom, and 1 bathroom house south of downtown Ann Arbor; the price is around 150k with a monthly mortgage around $860. When using the AirBnB calculator on the BP site, the potential for the zip code is $1326 and $1452 a month for 4 and 5 guests respectively. I believe this is an overestimate, especially considering the house isn't (too) geographically centralized, only has 1 bathroom, was built in 1930, and has no centralized AC. Looking at similar AirBnB Ann Arbor listings (in terms of locations, amenities, bedrooms, and bathrooms), the average nightly cost is approximately $100 with vacancy rates around 60-70% (I spoke with an AirBnB property manager and they said this was the average he has seen with the properties he manages). To be conservative, I would aim to rent the house for $75 a night with an assumed vacancy rate of 50% (especially if the housing market takes a dip with the financial market). With an average of 30.2 days in a month, and our previous assumptions, the monthly inflow of cash would be $1,132.50 (30.2 days x 0.5 vacancy rate x $75 monthly cost); with more ideal assumptions (30.2 days x 0.7 vacancy rate x $100 monthly cost), the monthly inflow of cash would be $2,114. If this all holds true, my cash flow would be $272.5 ($1,132.50 - $860) and $1254 ($2,114 - $860) respectively; this would not include closing cost, property management fees, cleaning fees, and other extraneous costs I am unaware of (I'd approximate them to collectively come out to $300-500 a month. I would pay renovations out of pocket. 

I was hoping I could get some feedback on my reasoning, information about AirBnB/their unique rules, and recommendations on great real estate agents and AirBnB property managers in the area. Any advice/criticism is welcomed with open arms because this is my first investment and I am sure I am thinking about a lot of things incorrectly. Thanks in advance!

Kindly,

Danny