Investing in Seattle for Airbnb (Ballard, Queen anne fremont)

[Michael Chen]

Hello, I am a new home investor. I am currently looking for homes/ townhouse in seattle area , fremont ballard and queen anne. The properties im looking at range from 750k to 850k. I can rent it out on airbnb for 250-350 per day. Would you guys recommend me buying a home right now? I know seattle homes are overpriced right now, but i am not sure if prices are going to keep going up in the next few years

[Garrick S.]

$350/day seems really optimistic. During the summertime I'm sure it's possible, but the average daily rate is probably a lot less. Plus you need to factor in vacancy. How are the numbers looking for you? I picked an example property in Ballard as a quick case study using your parameters. 

Property: 6706 23rd Ave NW Seattle, WA 98117

Asking price: $799,950

This is a nice looking home that would show well on Airbnb. It's also right near the hotspots of the neighborhood and it's asking price is smack dab in the center of your price range. The listing shows it as a 2 bed / 2 bath, but top floor and the living room can have sofa beds. So, that means you can accommodate up to 8 people.  Using Airdna.co's MarketMinder tool, this property is estimated to have 62% occupancy with an ADR (average daily rate) of $180 which includes cleaning fees.

But, for fun, let's say Airdna is wrong and actually you can get $350 ADR with 62% occupancy. That's an operating income of $6600. Airbnb's tend to have higher expenses than traditional rentals due to the higher management fees and covering all of the utilities. I've found that the expenses usually fall around 60-70% of income. Let's say this home is cheap to operate, as a best case scenario, and use 55% as a rule. So, we have $6600 income, $3630 in operating expenses leaving us a net operating income of $2970. Assuming you paid cash and were able to buy the property at asking, that's a cap rate of %4.45. As a best case, non-realistic scenario, it seems pretty mediocre. If you try to leverage the property at 20% down, you'll actually be losing money each month.