Apartment to AirBnB to Condo Conversion

10 Replies

Here is a healthy modern day brainbuster. I am currently underwriting the following play -

Currently a 25-50 unit multi-family. Primetime location. No shortage of traffic. 

Renovated each unit

Convert to full-time Airbnb 

Exit plan - year #6 sell as condo conversion 

*Keeping it slightly vague for privacy purposes*

MY QUESTIONS - 

What vacancy rate do you run for short-term rentals? Has anyone run a large scale Airbnb? 

Expenses of condo conversions? 

Any other pitfalls I may be missing? 

I have done a fair amount of research on the subject, but feel the community would enjoy the challenge as it is not common practice! 

Loren Miner, Real Estate Agent in CA (#01985246) and TX (#01985246)

    There really isn't sufficient information in this post to make any meaningful contribution. Your vacation rental vacancy rate depends on the market demand, the location of your properties, the amount of supply, the amenities of your rental, the time of year, etc. These are all things you need to determine locally and need to know before going in. The expense of the condo conversion depends on what is needed to achieve the standards demanded by the market - in addition to the application fees, zoning fees, lawyer fees, permit fees, survey fees, etc.

    Have you checked with the city of Houston to see if they would even entertain the conversion?

    And my biggest question is why do you think this is a good strategy? The same things that make for a good vacation rental, don't necessarily make for a good condo conversion. Typically, you're going to want to pick the highest and best use for a property and stick with it, whatever that may be.

    -Christopher

    Christopher Brainard, Real Estate Agent in NV (#177490)

    That really depends on the location. I know AirBnB near Facebook, LinkedIn, and Googl headquarter the vacancy is close to 40%. You need to run different scenarios for your projection.

    As for conversion, I would go to City planning asking them the requirements. Often it is elevator, parking, club house, pool etc.

    @Christopher Brainard , The property is located downtown Houston. 

    Good point on condo conversion fee's which I was uncertain if it was market by market or general ballpark #'s that could be used. I was optimistically hoping it would be similar to if you were to use construction cost $/ft #'s to build. EX $10k per unit ...etc

    Great question about the strategy. We plan on separating from the rest of the market based on the age of the building & product differentiation. We plan to do a vintage remodel for each unit.  We are not competing with Hotels, apartments, or other Airbnb. We are really seeking to offer an experience through the short term rental. We feel that the condo conversion would be an attractive option at an affordable price, to own a place to live downtown & give the future owner confidence they can use this place as a rental. 

    Thanks for taking the time to answer

    Loren Miner, Real Estate Agent in CA (#01985246) and TX (#01985246)

      @Sam Shueh Thank you for the insight and time to answer. I was 40-60% is what we had anticipated, the problem is I am having a hard time finding a whole building dedicated to airbnb. 

      Loren Miner, Real Estate Agent in CA (#01985246) and TX (#01985246)

        Suggest you to check with Houston :

        https://www.airbnb.com/help/article/905/houston--t...

        I doubt you are multi-family can be 100% airbnb it is not a hotel. Neighbors will raise hell.  If you got awful reviews from unhappy guests etc you are likely to be out of business. Need to look at long term business plan.  

        @Loren Miner The only thing I can comment on is that you would have no problem keeping the units full in downtown Houston but I'm very interested in your condo conversion. I own a condo in the DFW area but I know that most condos ban Airbnb's. I'd definitely like to know how to you complete the condo conversion. Very interesting! 

        Myka Artis

        Originally posted by @Loren Miner :

        @Christopher Brainard, The property is located downtown Houston. 

        Good point on condo conversion fee's which I was uncertain if it was market by market or general ballpark #'s that could be used. I was optimistically hoping it would be similar to if you were to use construction cost $/ft #'s to build. EX $10k per unit ...etc

        Great question about the strategy. We plan on separating from the rest of the market based on the age of the building & product differentiation. We plan to do a vintage remodel for each unit.  We are not competing with Hotels, apartments, or other Airbnb. We are really seeking to offer an experience through the short term rental. We feel that the condo conversion would be an attractive option at an affordable price, to own a place to live downtown & give the future owner confidence they can use this place as a rental. 

        Thanks for taking the time to answer

        Unfortunately the cost isn't going to be fixed. I looked into this about fifteen years ago when I lived in Dallas and the condo conversion wasn't economically feasible at the time. If I recall properly, our cost to update and convert was about 15k a unit, which was the difference between buying multifamily units vs condos at the time. Permits and fees were about a third of that. I realize this is old data and hopefully someone else can provide more updated costs.

        Other than that, I would point out that you would be competing with hotels and other airbnb. You may have a better product (the experience angle is key to a successful airbnb), but your still running a hotel for all intents and purposes. The city may also see it this way. I think I would call them first before you get to do into this. Good luck!

        -Christopher

        Christopher Brainard, Real Estate Agent in NV (#177490)

        @Loren Miner     You're buying a hotel..... probably needs to be licensed as a hotel.... 50 units...you'll need full time maintenance, maybe security, front desk person, housekeepers, HR, etc.   I think that would be crazy to keep up with trying to do everything al-la-cart.   1-2-3 units maybe....you're buying several full time jobs likely if you want to do all 25-50.

        Condo conversion can be done, but remember when you start trying to sell, it's going to be very tough likely for buyers to find financing. So you either have to do that yourself or find someone who will. Not sure what price range you are thinking about, but many buyers likely in the price range you are thinking are FHA or low down payment buyers. Those lenders and maybe even all lenders hate to be the first 1 or 10 or 15 lenders to lend on a project like that to buyers. The like to see 50% or more owner occupants...reserves and budgets for HOA, etc.

        Things may change to make these requirements easier, but I would not gamble on that.

        So then you are left with cash buyers or high down payment buyers....those tend to be investors, who typically don't like condos....and then you still run into the problem of financing for owner occupants.

        If this is your first deal I applaud you for thinking outside the box.  It's a grand vision.  One I would advise against.  Way way way too much risk for 1st time deal.  If this is your 10th multifamily and you've learned a lot on the first 9, and you have lots of resources and time....and you can get a freaking awesome price on the purchase side, might be worth a shot.   Start with 1 as AirBNB and expand it as demand warrants and tenants move out when their leases are finished.   Best wishes.

        Have you done your market research? My REI company does what you are talking about, and after around 5 units in one location, it becomes totally unsustainable. Maybe your market is different, I don't know. But I seriously doubt it. I've walked a fine line between AirBnB condo/motel/hotel for 2 years now, and it is very tricky. Better to a few units, and have a backup LTR plan. Don't get emotionally tied to an idea either. If you are underwriting this, you should have ran some numbers with a minimum of 50% vacancy with that many units. (Still may look nice on paper with that high of a vacancy)

        At some point, you've got to ask yourself why someone would choose your AirBnB's over a hotel of some kind.

        Also of note is land use regulations, zoning, variances, insurance... I mean, I feel like people have this misconception nowadays that starting a real estate AirBnB empire is as simple as listing the unit on the website. While AirBnB would love for you to think that, it is nowhere near reality. I spend all day running numbers on properties... So many of them are too fluffy and look good to an investor surfing the web. Many others would never work due to regulations. 

        Like I said, you will need to investigate, zoning, city ordinances, insurance, permits/licenses, health codes (if you have anything over 4 units, with more than 1 floor, you will be under ADA compliance jurisdiction), and irate neighbors.

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