What do you think of this strategy?

Question

Hi All! I wanted to know your input on this strategy, I've done a couple of small projects, dealt with tenants etc. and also have a w2 job which I want to quit and do this full time.

Instead of purchasing one big hotel, I want to purchase small duplexes, triplex and fourplexes and airbnb them (it's allowed in my area). To keep funding the next purchase, I want to refinance the previous purchase and go into the next one.

However, is this overleveraging even if it's in the correct locations? Can the income from this replace a w2?

Is airbnb a long-term strategy or short term? How do I know if I can pay myself a salary from this?

Tim Delaney · Answer

@Mike Rodriguez make sure your tax returns show substantial income from your rental and Airbnb activity for at least two years before quitting the W2 or you may have a hard time qualifying or bank financing. Depending on how quickly you are trying to grow they may not consider any future income for your first few years until it appears on your tax returns either. So for example you may buy a few units in January that are making you thousands by July, when you are ready to make another purchase. But the bank may not consider that other income until they see it on your tax filings for the year.

As for the Airbnb strategy there are definitely pros and cons. Running a bunch of units in one location will give you operating efficiencies. But any disruption to the market (regulations, weather events, more competition, etc) could impact you severely. It may be worth getting set up but then investing some of those profits in another market or asset class for some security.

Jonathan Greene · Answer

1. Where do you live that would make it attractive for people to Airbnb in multis?

2. Why do you think Airbnb is a better play than annual rentals in multis in your market?

3. Are you prepared to manage all of those units for Airbnb and all of the different changeovers on your own or pay? If pay, it costs WAY more than you think.

4. Airbnb is a getaway principle. Renting a unit in a multi may not be as attractive to vacationers unless your market is conducive to short-term stays or other conventions.

Ideally, a four-plex in a vacation area can be used nicely as a mix of Airbnb and annual so you don't put all your eggs in one basket.

Michael Dumler · Answer

@Mike Rodriguez a lot at play here. Most experienced investors would suggest scaling your portfolio to meet all of your expenses before quitting your W2. I would get one or two airBNB properties under your belt first to determine if the strategy is indeed valuable. More likely then not you will come to find problems arising that aren't laid out on paper.

Like any other buy and hold deal, you need to run your numbers religiously. Demand? Rental income? Vacancy rate? Turnover? Location? All important questions to ask before going under contract. Hope this helps.

Kevin Sobilo · Answer

@Mike Rodriguez, I'm sure you could make a living doing airBnB as you suggest. However I would consider a couple of things. First is what happens if something changes in your market and the airBnB rental market dries up.

For example, what if local ordinances change not allowing them once you are fully vested in it?!? What if some of the main reasons your clients travel there change?? What if too many other people offer airBnBs and prices decline??

I would want to diversify both in market and in type of investment property. If all you do is airBnB and you rely on that for your income you have a single point of failure.

Another challenge to paying yourself a salary is managing the income. For that I recommend a book that I just read and have started implementing the concepts from:

https://www.amazon.com/Profit-...