Traditional Duplex Rental VS SFR AirBnB

[Gino Tomba]

Hey BP,

Frustration has mounted the last 6 months not finding my first duplex to reach my goal of 3 in 3 years. Time is money and the longer it takes, the further I set myself back on my goal. I am looking anywhere west of Cleveland above 480 at this point. I am now considering my plan B.

Beside the obvious downfalls of consistently needing to clean up after short term tenants/inconsistency of income, what is your opinion on cash-flow/benefits between the two? I can get a GORGEOUS Single Family that doesn't need a thing for a fraction of a duplex that "needs work".

The plan would still be to buy the next property and live in it after 12 months (as FHA permits), and traditionally rent out this first purchase SFR.

Thanks in advance BP'ers. You're the best!

[Neil Henderson]

Some random thoughts:

• Don't let your goals push you into doing a deal just because you feel you need a deal to meet an arbitrary timeline you set for yourself. It's good to set goals but let your deal criteria guide you, not your goal timeline.
• All things being equal, there's probably less risk/reward with doing a traditional rental. If it needs work, I assume you're buying it below market value and forcing some appreciation with the rehab. Doing that builds in a small margin of safety for you should the market soften. Make sure it cash flows! 
• The short term rental route can be profitable and fun but it's far from passive. First thing to consider is the market. 
  • 1. Are short term rentals legal in that area? Search Google for "short term rental ordinance" + "city name". If there is even a hint that a city is talking about regulating them, proceed with caution. 
  • 2. Is there a demand for short term rentals in the vicinity where you plan to buy? Near hospitals and medium sized colleges are a great place to look. What are short term rental rates like in that area? If it's less than $250 a night for a 3 bedroom unit, your margins will be thin. 
  • 3. Turnover and guest communication are your biggest issues with short term rentals. You'll want to have systems in place to ensure the guests arrive to a spotless vacation rental. You'll also want to make sure you are able to answer guest inquiries and questions in a timely manner 24 hours a day. All that is possible, but it means setting up systems. Michael Hamilton of Live Swell, Michael Sjogren (@theairbnbguy on Instagram) and Zeona McIntyre are all experienced short term rental operators who are operating multiple properties. 

Good luck to you and keep us posted about your progress.