It’s pretty obvious from my post, 10 Reasons to Invest in Colorado Springs Right Now, that I’m bullish on Colorado Springs. But it’s one thing to tell other people to put their money somewhere, and it’s another thing to do it yourself. So, this post is about putting your money where your mouth is and experiencing this from the client side.
How It Happened
We’re pretty familiar with short-term rentals because we operated a few for two years and have constructed an entire real estate niche around telling people to do what we did: Leverage short-term rentals (i.e. Airbnb) to make money, acquire new properties, and repeat. It’s a lot like BRRRR (buy, rehab, rent, refinance, repeat) but with short-term rentals.
We also had former clients, now friends, who wanted to also do something like this and were interested in a partnership.
I cannot say enough nice things about our partners, and I think our wonderful relationship revolves around the following
- We are respectful in our disagreements. (This is true in our business and politics. Before signing off with someone, you might want to discuss something you disagree on and see if you still like each other.)
- Expectations were set. All parties knew their responsibilities.
- We lawyered up. So did they. Contracts were drawn. Lawyers advocated on both sides for things that we didn’t even know we needed, allowing both parties to feel confident moving forward.
Here’s what you need to do a short-term rental in a different city:
- 20-25% down
- A real estate agent who knows about short-term rentals (if you are thinking about using an agent that says they know about short term rentals, vet them because they can really make or break your investment)
- Additional money for a whole lot of furniture
- The money portion was not an issue.
- We were the real estate agents.
- Acquiring the furniture was the biggest headache. By far.
The Biggest Headache
In case you didn’t catch it before, furnishing causes the biggest headaches. To begin with, people have very different ideas about what is stylish. Secondly, there’s the question of bargain shopping versus simply taking a trip to IKEA.
When it comes to debates around bargain shopping versus IKEA, the debate is as follows.:
- This is a business. Therefore, money needs to be conserved by purchasing Craigslist furniture rather than buying new.
- Time is money. The longer it takes to hunt down every piece, the longer the place cannot be rented—and money is lost. Also, bargain shopping is annoying, is harder to track financially, and involves people who want to talk too much. You may be able to tell which side I’m on.
Either way, one thing you should do is use checklists to make sure you are being thorough and to prevent the headache of constant one-off trips to the store.
Was it a Good Buy?
First, I’d just like to say we bought a duplex that we kept telling other people to buy, but which they never executed on. We thought we were right, so we bought it, closed in mid-May, and had our first rental in June.
As far as the money:
- It cost a little over $13K to furnish the place from IKEA. One unit is 2 beds/1 bath, and the other is 2 beds/2 bath. We got six sets of white towels, sheets, etc., because it makes cleaning easier. Also, we decked out the kitchen—not necessarily with nice stuff, but we made sure they had all the amenities because this is somewhere we’ve noticed investors do cheaply, and it gets annoying when you are the one renting it out. (This is an upfront expense that should be catalogued with closing costs, as it should be a one-time investment.)
- The PITI (principal, interest, taxes, and insurance) is $2,156/month.
- The utilities are $465/month (for both properties combined).
- We put 5% of the revenue aside for future maintenance/upkeep expenses, which has been on average $315/month. (If you’re saying 5% is low, it’s because the revenue is much higher with a short-term rental, so 5% of short-term rental money is like 10% of long-term rental money.)
- We’ve averaged $6,200/month in revenue.
So, what that means is:
- Each month, we are getting approximately $6,200 in sales.
- Each month, we pay out $2,900 in expenses between mortgage, utilities, and anticipated repair costs (CapEx and budget repairs),
- On average, our LLC walks away with $3,300 per month, which is then split between us and our partners as agreed upon.
A couple of things to note in these calculations:
- These cover three summer months (June, July, August), so the height of the summer time, and we do see decreases during the winter months (October through March).
- A good property manager will take 20-30% of your revenue for short-term rentals.
- The laws are changing in Colorado Springs (and other cities nationwide) regarding short-term rentals. It’s important to stay on top of these to know you are making a sound business investment and that you have a Plan B should regulations change.
If you would like to learn more about partnerships, partnering with us, investing and/or general real estate, please reach out. We love talking to folks on this site about their goals and helping out.
Are you in the short-term rental market? Why or why not?