I think I have a deal on an AIRBnB/flip Do I?

Question

I have a property under contract and would like your feedback. It is a huge single family home in Granbury TX. I’ve done a few properties about an hour away and successfully flipped them. It is a 5000 square foot property on 8 lots in a very rural part of the city. It’s the only property like it and has been neglected I’ve the years. A wholesaler purchased it recently and is trying to sell it now. He says he never got started on it. Here are the numbers.

Purchase price 140,000. Estimated rehab. $140,000. ARV 350,000. The ARV is questionable because it’s an unusual property that does not have a ton of comps. My thought is that it would be a great short term rental or second home. Or I could flip it when the work is complete.

I think I’ve provided enough info to get some thoughts. What do you all think?

Johnoson Crutchfield · Answer

@Dan Campbell

Yes the plan would be to build on some of the extra lots. Tons of potential on this one.

Nik S. · Answer

@Johnoson Crutchfield

Losing your EMD deposit could be an easy way out now, consider it another piece of valuable education. It's not a loss but a gain / forward move!

Nik S. · Answer

@Johnoson Crutchfield

There’s plenty of better and “safer” deals...I too like to take calculated risks but some aren’t worth the hassle nor risk. The unknown comps is not good, I’ve been down this road before. My finished product was very solid however buyers couldn’t pay the price because of lack of comps. Oh and the school district wasn’t as strong as the neighboring cities.

Eric M. · Answer

Those numbers don't sound flip worthy (especially if the rehab estimate is from the wholesaler) but it is hard to know what costs you have built into your rehab number.

Sounds like a lengthy hold time and there could be substantial holding costs. Then commissions. Not a lot left.

Only you can answer the STR question but a huge, rural property doesn't scream AirBnB or high occupancy rates to me unless it is a hunting area or something like that. Why would a large group want to stay there?

Brent Paul · Answer

I would check into local laws and regulations first to see if short term rentals are allowed.  Other things to keep in mind is the location.  If you are say 50 miles from the airport or the nearest shopping center you will be catering to a different type of person.  Not to say rural properties are bad, but sometimes they can be a challenge to keep rented.  Not everyone want's to live there.

Before you do anything you must have an exit plan of some sort.  Never trust that the wholesalers numbers are 100%.  Definitely get your own comps.  I have seen many times where they were way off.  Also be sure to get a list of repairs and get your own estimates.  He says 140k, but what if something big was missed and now it's 175k.   That can throw everything off.  If you fix it up, list it for sale and 2 months go by with no sale then what?

Secondly see what rentals go for in the area.  If it doesn't cash flow at all renting then you better think really hard about this decision.

Julie McCoy · Answer

@Johnoson Crutchfield What makes you think it would be a good short-term rental?  Others have pointed out the necessity of making sure it's legal; you also want to make sure there's demand.  Who is going to want to rent a 5000sqft property in that rural area?  Also, who is going to clean it?

I'm not familiar with that area so perhaps there is demand, and if so that's great.  However, if not, it was a very expensive experiment.  Furnishing a 5000sqft house is not a cheap proposition; have confidence it will yield good results before you continue moving in that direction.

Dan Campbell · Answer

Resale of unusual property can be a challenge to say the least. If you are ready to manage a short term rental and your city allows it, that could make financial sense. Trying to sell it while it is a short term rental will be much easier than if you put long term tenants in it. From my experience, tenants are not on your side when you are trying to sell. Good Luck.

Michael Vinson · Answer

Would that property happen to be on Moore Street?  There was a behemoth of a house on the market for several years and last I saw they were asking $140k...  If it is indeed that place, I cannot fathom the rehab costs to be $140k, or less than $200k. It is massive and sat empty for years.

As far as $350k+ homes, they are sitting on the market a lot longer than usual, so I would anticipate some holding costs.  Contractors are difficult to come by as well, due to high demand.

As far as Airbnb, there is a lot of competition.  More like 40-70 vacation rentals at any given time.  This is a tourist town and we have a lot of competition from hotels, B&Bs, etc.  Vacation rentals are popular here, but the city does actively monitor those to ensure proper taxes are paid.  The city is very protectionist in regards to short term rentals and protecting its B&Bs.  The best grossing houses are going to be on the lake, BUT good luck finding one as an investment.  A second home yes.

Johnoson Crutchfield · Answer

As an FYI, I turned this deal down.  Based on the advise here and online I decided my efforts would be better spent elsewhere.

Johnoson Crutchfield · Answer

@Dustin Mathenia sorry Dustin typo. Hard part on ARV is whether to go by price per acquire foot or actual comps in the area.

I think I have a deal on an AIRBnB/flip Do I?

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