Investor · United States · Member since 2018 · 565 posts · 356 votes
I was asked what I would do if I only had $20K to start investing in real estate.
Well I know what I'd do... I'd invest it into 4-5 airbnb properties using the Airbnb Arbitrage model with other people's properties and then scale from the cashflow going forward.
@Jason Allen air bnb is risky. 4-5 properties with 20k sounds like a guru got ahold of you. Buy a single family and take things 1 step at a time. You can rush it and get rich for sure... but your likelihood or going broke is just as high.. there is a proven way to get rich in real estate. You can guarantee yourself wealth by building knowledge, cash, equity, relationships, and confidence. But you cannot do all of these things simultaneously in a rapid manner. Crawl... walk.... run.
If you go the Airbnb direction just make sure you’re upfront with the landlords and don’t lie about who will be staying there. (I assume this will be a non-starter for many deals but don’t commit fraud to start your business.) Make sure you pay all the taxes. Then be willing to lose the entire $20k if the city you choose decides to outlaw Airbnb like many of the cities around me. San Francisco, LA, Santa Monica, Vegas. Have a plan in place with the landlord about how you’re suddenly going to stop paying him midlease if this happens.
If you go the Airbnb direction just make sure you’re upfront with the landlords and don’t lie about who will be staying there. (I assume this will be a non-starter for many deals but don’t commit fraud to start your business.) Make sure you pay all the taxes. Then be willing to lose the entire $20k if the city you choose decides to outlaw Airbnb like many of the cities around me. San Francisco, LA, Santa Monica, Vegas. Have a plan in place with the landlord about how you’re suddenly going to stop paying him midlease if this happens.
Great point, I always advise to have a contingency/escape clause if something unexpected happens.
However it's not like this scenario is happening very often.
It is happening quite often on the coasts and in the southwest. Cities either get fed up or the hotels put pressure on them and they simply outlaw rentals under 30 days or in homes that the host doesn’t reside in at the time of the rentals.
I would bet even month within the next year they will be banned or severally restricted in Washington and Oregon (even though they’re really only targeting Portland and Seattle.) they’ll say it reduces inventory for families to live in and drives up costs. And if enough people rent properties to then re-rent on these sites they might be right.
California is at least 50/50. I don’t know if New York’s ban will encourage other cities/states to allow it or to also ban it. The big ones to watch will be Florida and Texas. While I wouldn’t normally think Texas would ban something like that, they are becoming control freaks after their fights with Uber and Tesla.
Maybe they get lucky and just tax it much higher like Hawaii. Although I believe they too only allow it in “resort corridors” now.
@Craig Jeppesen I am new to BP and would love to get my first brrrr...just not seeing where I can do that for 20k. Any advice?
Well you will have to leverage your $20 k but brrr is the second cheapest entry to re investing besides house hacking. It should be enough to get a hml or construction loan and do a brrr or flip.
@Craig Jeppesen I am new to BP and would love to get my first brrrr...just not seeing where I can do that for 20k. Any advice?
maybe Mexico or Kansas
$20 k should be enough to get started but you will have to leverage or get private money to help with the rest. It at least gets your skin in the game.
@Craig Jeppesen I am new to BP and would love to get my first brrrr...just not seeing where I can do that for 20k. Any advice?
maybe Mexico or Kansas
$20 k should be enough to get started but you will have to leverage or get private money to help with the rest. It at least gets your skin in the game.
I guess someone could lend the $20K. What are your thoughts on that?
@Jason Allen air bnb is risky. 4-5 properties with 20k sounds like a guru got ahold of you. Buy a single family and take things 1 step at a time. You can rush it and get rich for sure... but your likelihood or going broke is just as high.. there is a proven way to get rich in real estate. You can guarantee yourself wealth by building knowledge, cash, equity, relationships, and confidence. But you cannot do all of these things simultaneously in a rapid manner. Crawl... walk.... run.
@Jason Allen air bnb is risky. 4-5 properties with 20k sounds like a guru got ahold of you. Buy a single family and take things 1 step at a time. You can rush it and get rich for sure... but your likelihood or going broke is just as high.. there is a proven way to get rich in real estate. You can guarantee yourself wealth by building knowledge, cash, equity, relationships, and confidence. But you cannot do all of these things simultaneously in a rapid manner. Crawl... walk.... run.
Haha thanks Michael,
I'm actually an airbnb guy already so I know what I'm doing. I can get a property for 2-5K using arbitrage. If I were just starting out I'd tell someone to start with ONE and then learn the business first. craw, walk, run.
I actually am able to scale faster using arbitrage vs buying a property for Airbnb and it's much less risky.
If I put $15,000 down on a house (not including closing costs) and spend $5,000 to get it ready then I have one house.
If I use $5,000 to rent one property and put it on Airbnb then I have one house AND $15,000 in the bank to scale when I'm ready.
By the end of the first 12 months the person who bought the house will still have one house NETing lets say $1,500/month.
The person who used the arbitrage model could have let's say 4 houses each NETing $1,000
So which is better $4,000/month with adaptability or $1,500/month being stuck in a liability?
I understand what your saying. Your asking a question then of what should you do with 20k? Invest for wealth or invest to make money now. I’m saying.. if you want to invest for wealth, learn all the aspects of your specific business.. in this case real estate. Airbnb is not “real estate” as a whole. It is a niche of real estate. A new niche and one that can go away. And then what. Single family homes and apartments rented to long term tenants or flipping to sell to home buyers has been around since the first properties were built. I’m just saying there is a proven method that can be mastered. The whole Airbnb thing is a money making machine. But your carving your own path along with all the others doing what you are doing, no problem with that, it’s great and exciting I’m sure. I’m just giving my insight and trying to help you decide what you are after... with that said, if your rolling on it... if it ain’t broke don’t fix it....
I would partner with another experienced investor using BRRRR.
Or you can partner with others using something like Fundrise (crowdfunding for REI).
I do also like the house hacking idea as well but that's just not me to move around. I live in a house I love.
You could also start out with wholesaling as it costs less to get into.
Tax liens are another strategy you can into for less. It's rare that you get a house with tax liens because you'll usually get outbid, but it does happen.
However, land lots can be good. You can pick them up for a few hundred or few thousand, then resell immediately for much more if you do your homework right. Just make sure you do very deep due diligence on the property.
Make sure it's not land locked, that it's zoned as residential or commercial and not agricultural or greenbelt. Make sure it has no liens (state or federal) or easements. Make sure it's big enough, in a good enough location and a good shape (not a triangle) to build upon. Make sure it doesn't have flooding or water table problems or toxic problems. Make sure your buyer could get a building permit on it and utilities to it. Talk to all city and county authorities about it, what they have on record about it and it's history (recorders, tax appraisers, planning/zoning, bldg permit dept, code enforcement, etc.).
Our Strata in Vancouver changed to 30 day and we had been cleaning up on short term prior to that then the city cracked down. We are in Washington State also, Whidbey Island (90 miles from Seattle) and the local hotels are trying to close down short term there also.
It bothers me as an investor but it is also the way I like to travel...I have used VRBO and AirBnb extensively and prefer this kind of travel...cities who won’t provide it won’t get my travel dollars
I would house hack, buy a house with an income suite and live in one unit.
Have you seen Ashley from Detroit...identifying that her rent was the biggest expense was pivitol...a must watch if you haven’t already seen it
My first house with a suite reduced my own living expenses down to maybe 300 a month....now you’re saving and looking good for the next step...rent that unit when you’re ready to move on and you have a significantly cash flowing property
Depending on where you are, you could even do a blend...Airbnb in Summer during peak travel times, furnished student/executive rentals for the rest of the year
If I was just starting out, I would do a short term gap funding or flip funding to watch and learn the process while securing my funds in a semi-safe environment. However, now...I would find another multi-family 15-30 units and partner on taking it down.
But I have been looking more and more into self-storage......so I guess if it was a free $20,000 just given to me to invest I may consider just attempting to secure a self-storage facility with a partner instead.
I have to say I disagree with the concept of Airbnb arbitrage in general, but I do think that Vacation Rentals are a great way to grow your cashflow and acquire equity simultaneously
Were it my $20,000, and I can invest it anywhere in the USA... I can find lots of opportunities for $100k houses in Florida, New Mexico, Texas and other southern red states with low regulations and lots of sun and heat.
I understand Cheryl. I’ve never used any of the short term rental companies but I’m not against it. I’m all for letting people do what they want with their property. I was simply explaining the hazards of buying or renting property where you need those companies supplying renters and cities allowing it, to avoid going bankrupt.
I saw it happen in 2008 where people bought properties where their only plan was to sell “rent to own” to people that couldn’t get traditional financing who would pay higher than market rent towards buying. I know people who went from 50+ houses (with almost no equity but plenty of cash flow) to zero occupied houses in less than 3 months as their target market either lost their jobs, moved to market rate rental properties, or bought properties at the new lower prices. In the mean time I continued to raise my rents as the market needed more rentals.
Can't go bankrupt when I don't own the property because I can just pay a little and cancel the lease which is in every contract. This is why I don't believe in buying properties because when the neighborhood or market changes you're stuck with your pants around your ankles.
A house is not an asset it's a liability. Cashflow is the real asset. That's why we all do this real estate thing for the cashflow, then appreciation and tax benefits. What if you could get those things without the risk. Airbnb Arbitrage is a great way to do just that.
And as for the Airbnb/STR market crashing that's a joke right. The entire hotel & recreation industry is being flipped on its head because of innovative companies like Airbnb, VRBO, etc. That's the new standard and it's growing at unprecedented rates since it's inception. The big companies refuse to adapt and update and they will pay for it. Just ask Blackberry or Kodak.
Trust me NOW is the time to get into Airbnb. Just like 2008 when everyone was exiting the real estate industry a few smart folks were doing deals. Now those people are very rich and control entire markets. That could be you with Airbnb in 5-10 years.
I have to say I disagree with the concept of Airbnb arbitrage in general, but I do think that Vacation Rentals are a great way to grow your cashflow and acquire equity simultaneously
Were it my $20,000, and I can invest it anywhere in the USA... I can find lots of opportunities for $100k houses in Florida, New Mexico, Texas and other southern red states with low regulations and lots of sun and heat.
If I was just starting out, I would do a short term gap funding or flip funding to watch and learn the process while securing my funds in a semi-safe environment. However, now...I would find another multi-family 15-30 units and partner on taking it down.
But I have been looking more and more into self-storage......so I guess if it was a free $20,000 just given to me to invest I may consider just attempting to secure a self-storage facility with a partner instead.
You say we’re doing it for the cash flow, the appreciation and the tax advantages. That’s the problem. You’re losing the tax advantages and the appreciation.
I make MAYBE, $7k a month in cash flow, but my real estate income is closer to $15k ($8k goes toward mortgage pay down) and the appreciation adds at least another $12k (at 4%, it’s been 12% for the last 8 years.). And the tax after depreciation and “business expenses” is close to zero.
This seems more like a job. Not saying you shouldn’t do it. Just saying you’re giving up on the reasons I chose real estate. Almost Zero work (I use a PM) and almost zero taxes.
I’m saying a beginner can emulate my strategy and do about as well. I would bet you have skills the beginner doesn’t have and can’t really learn easily.
You say we’re doing it for the cash flow, the appreciation and the tax advantages. That’s the problem. You’re losing the tax advantages and the appreciation.
I make MAYBE, $7k a month in cash flow, but my real estate income is closer to $15k ($8k goes toward mortgage pay down) and the appreciation adds at least another $12k (at 4%, it’s been 12% for the last 8 years.). And the tax after depreciation and “business expenses” is close to zero.
This seems more like a job. Not saying you shouldn’t do it. Just saying you’re giving up on the reasons I chose real estate. Almost Zero work (I use a PM) and almost zero taxes.
I’m saying a beginner can emulate my strategy and do about as well. I would bet you have skills the beginner doesn’t have and can’t really learn easily.
Interesting,
So the business has an enterprise value or sale value (equity) that is based on a multiplier times annual cashflow.
A job is when you trade time for money. A business Airbnb or any other is an asset that generates income by leveraging systems and other people's work and time.
Having a business with Airbnb can be completely automated. Yea you need to know what you're doing just like anything.