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Post by High Priestess on Sept 6, 2016 3:33:14 GMT
See the article: www.marketwatch.com/story/buying-a-house-as-an-airbnb-investment-strategy-is-a-risky-move-2016-08-30While looking to buy a house in the Southeastern U.S., Matt Berklacy kept Airbnb in mind, hoping to earn extra income and participate in the home-sharing culture. The problem: He couldn’t get a clear answer on whether or not the cities or neighborhoods he looked at allowed short-term rentals. “You have to do a lot of digging, and it’s confusing,” Berklacy said. Potential homeowners like Berklacy, as well as real-estate investors, have increasingly considered buying primary or secondary homes and apartments with the intention of listing them on Airbnb, which can take lower commissions than other home-rental strategies. But because regulation of Airbnb dwellings is still being decided on a largely city-by-city basis, and sometimes involves outdated regulations that neither prohibit nor allow the listings, it’s hard to confidently make a long-term real-estate investment with that idea in mind. |
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Post by Maria Lurdes (Milu) on Sept 6, 2016 19:00:30 GMT
This is so interesting to me, as we've bought two houses in the last few years to run as short term rentals. I used to be absolutely risk averse. I would have serious heart palpatations at the idea of debt, and I religiously paid off my credit card balances every month. My parents brought all six of us kids up to spend less than we earn and it's something that I'm very happy to live by now. But along comes husband #2 (number 1 was a dud) and all of a sudden he's a dreamer and wants to build an empire, and I'm the one constantly saying no. Buying our very first property ever, a small house in Toronto, was the scariest thing in the world. After living with a mortgage for few years I started to learn a bit about the real estate market, and happily sold our lovely little house to take the equity and move to the USA. The next home purchase was much less scary, as I no longer feared debt. I started to think of money as a concept rather than just a pile of bills in my hand. We now have a single family that we use exclusively for short term rentals, have a two family with two apartments and a small studio in the basement and in March closed on our third property, another two family. T his last two family has a house in the front and a casita at the back, and that's where we live. As some of you know, we also have apartments that we lease through landlords we work with, so we have a total of 17 listings, and it's my full time job.
While they are all paying themselves through short term rentals, we know that if this all goes belly up, we'll transition them to traditional rentals. It will mean a massive furniture sale, but that's part of the business!
In each case we know that we can cover our costs (mortgage, taxes, insurance) through a traditional rent roll. We didn't over buy because again, I'm super cautious. So we'll ride this gravy train as long as we can, and go to a more traditional model when the ride is over.
We're lucky that we are in a small town that still has lots of residential inventory, and we're extra lucky that we're so close to Manhattan, so we have a great draw that's a 15 min bus ride away. A two family house here is now around $500k, and you get a lot more house on the west side of the city than you do in Queens or Brooklyn. We couldn't go to the east side and get anything decent for $500k so we'll stay right here, listening to all the Jersey jokes, living with a fool of a governor, minding our business and making a living.
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Post by High Priestess on Sept 7, 2016 4:52:31 GMT
I think it's good if when investing in property, people consider if they would still buy that property if they could only rent long-term. If the answer is yes, then there is much less risk. The risk is run when you can only profit by doing short term rentals, or don't want to do long term rentals, and really due to uncertainties about STRs in many cities you can't count on being able to do that indefinitely. It sounds to me Milu like you have been thinking about that all along, so that's wise.
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Post by keith on Sept 7, 2016 17:07:21 GMT
There are several risks in buying investment property whose ROI is based on higher daily rates of short term rentals vs. long term tenant rental prices. T here's much more management overhead in dealing with short term tenants.- Property damage rendering the unit unrentable for a period of time means likely lost revenue (it may be that you can insure against this, but you are now at the mercy of fine print in an insurance policy). In any case, proving the value of the loss is difficult and you will most likely get less than you would have if you were renting.
- Laws are changing...In most cities, there's some ordinance that prevents short term rentals, and there's likely a HOA covenant against it as well. In some cases laws are making it more difficult or at least less profitable, while in others the restrictions prevent full time short term rentals.
- If things go bad, the value of your property may not have appreciated as much as you think--other people nearby likely made the same investment and if the tide turns the market may be flooded with houses for sale.
- In less touristy places, the supply is outpacing the demand for short-term rentals. You may buy something now seeing $200/night with an 85% annual occupancy, but in 2 years that may become $175 with 75% occupancy... is your investment still profitable?
- Were you expecting to save money by managing your own properties? do you now have the added expense of a property management company? Same for cleaning...it seems fine in the beginning to do your own laundry, and clean the units, but is that going to last forever?
Buying real property is a longer term investment and the longer term prospects of short-term rentals, while looking promising, is relatively unpredictable. In most cases it can likely work out really well in the short-term.. If you can make a plan to take some quick cash and then unload the property in a couple years it might be a smart investment.. The real estate alone may appreciate enough to make the investment worthwhile and if the STR revenue covers the mortgage, then it's basically free equity. It would be a shock to buy a house, list it, then suddenly get a bill from your local city for fines that far exceed your income. Due Diligence is definitely required. |
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