Hostel/Airbnb Investment Property

[Dino Monteverde]

Hello Everyone, thanks for the add! I am looking for some advice, here is my situation: -started with my first home in Sep 2016, end of year gross: $5K -2017, end of year gross: $60K -2018, end of year gross: $130K

I've had some difficulty with Airbnb "arbitrage", started 8 different projects, only three are operating to this day (one being mine, the other two I handed over to other investors) Since it's going to be technically our third year in the business, we should finally be able to qualify for a second home mortgage (so we don't have to deal with landlords again and I'm done with renting another location just to have to shut down months later) with the profits we've made. My question is, should we sell our current home and just opt for a larger place or keep it and start over again with the second home being smaller? I'm afraid if we apply and let our mortgage consultant know we are selling the home, they might not count our rental income for a potentially larger place anymore. We've re-invested about $80K into the business and if we maintain, we should be clearing $36K each year after expenses. Is this a good ROI? Should I sell and buy in a better location? We are located in Tacoma WA and ideally I would have bought in Seattle WA but got priced out of that market in the beginning. I'm also just thinking of selling the home and starting over in SE Asia with the equity in the home (bought for $250K now appraising for $360K). We are at the point of near automation but I'm thinking labor is much cheaper in SE Asia and will be easier and less stressful than to automate in the US. I would love to purchase an actual building someday in the US, but do not have the skills to build a proper business plan nor money to invest and right now we are operating out of a 5 bedroom home with two tiny houses in the back (25 beds). I've seen some proper hostels built in Vietnam/Philippines for about $60K (six floors probably and over 50+ beds). Based on our tax returns this year and after I submit to my mortgage lender, I will have a better picture but am constantly thinking about the next impending real estate downturn. Should I sell or should I stay? What do you all think? Thanks in advance!

[Jake Alger]

Hi Dino,

First, welcome to BP! This is a great community to ask questions such as the one you have in front of us and I’m sure you will be getting a bunch of differing opinions.

There is quite a bit to unpack from what you posted. 

Related to your question of selling the home and then not being able to qualify for a new loan, that is a real concern. Without knowing your overall financial situation and how the lender is going to calculate debt to income ratios, etc. I think the best first step is to speak with a good lender who can provide some insight and guidance. 

I work with many investors and I can tell you what I’ve seen over the past few years. A lot of people I know who had rentals, whether short-term AirBnB or single-family/multi-family properties, located within the city limits of Seattle, have been selling. The main catalyst is because of the ever changing rental rules — this doesn’t apply as much to you as you’re in Tacoma. What they have been doing is 1031 exchanging to other states, or to other areas such as Tacoma, or more broadly Pierce County. Tacoma still has a lot of room for growth, both fiscally and job wise. Not to mention, less and less people can afford to live in Seattle or the immediate, surrounding areas. Thus, they’ve been buying in places such as Kent, Federal Way and Tacoma. Still close enough to commute, but more affordable. 

It’s hard to give a recommendation without knowing the full picture. Ultimately what sets you up best to achieve your goals is what you should consider. If that means selling a home to buy a new, bigger one, so be it. If that means purchasing another on a tighter budget, go for it!

Hopefully there’s something from this response that helps. I’d definitely be interested in knowing more about what you’ve been doing and plan to do. 

Feel free to reach out!