SEEKING ADVICE!! Multi-family - Airbnb or TRUE Bed & Breakfast

[Joey Wharton]

Hoping I can get different perspectives from the BP community. Just closed on a C5 zoned property in Colorado Springs on a major street less than a mile from downtown (currently going through growth explosion) and 1 mi to Old Colorado City hub (very popular tourist destination), and a 1200 sq ft commercial workshop(detached) that I can build out a second (interior floor). Excellent location and visibility for commercial (it is surrounded by commercial, or residential, or STR. Its become a hip-urban nook with 3 very popular breweries, restaurants, cafe's and a bike shop within 1-2 blocks, 1/2 mile easy access to I25 (interstate) and right on the main tourist route. The city has restricted Airbnbs, but due to C5 zoning, I can get a Bed & Breakfast license for less than $200 a year and it comes with a limited use liquor license. Retail tenant numbers not strong enough to consider.

Purchase price was $350k.

Here are the options I'm considering:

OPTION 1. Turn the "house" into a true Bed & Breakfast, and have an innkeeper I'd like to hire. "Inn" would have 5 bedrooms w/5 ensuite baths. Build out a 2bd / 2ba apartment in the workshop.

Gross revenue at 50% occupation is around 230k a year. AirDNA has this area at 80% occupancy. There could also be more revenue streams with the B & B. 

Cost to operate - I'm still working on those numbers

The big CONs are:

this is a BUSINESS, not just an STR.

Need to hire an innkeeper

I have to provide breakfast, even if it's just  continental style. 

Will require a marketing budget. Not passive income for the first 2-3 years while I build the business

Longer time for cash flow

The big PROs are:

Not susceptible to eviction moratoriums, rent loss, evictions, etc. 

The area is saturated with Airbnb's, so nightly rents have come down

More vulnerable to potential pandemic shut downs. 

Combination of Real Estate overlaid with a BUSINESS can be a very powerful tax vehicle

Business budget and business model on top of rehab budget

B & B allows us to market as an experience vs just an STR so we're not competing with the over saturated Airbnb market

OPTION 2. Airbnb House and Cottage unit, as complete units. Gross revenue project at 170k (both unit) at 50% occupancy. 

CONS

Lower revenue potential vs B & B

Still need to get the B & B license (and still need to provide "breakfast" even coffee & donuts)

STR biz model would mean much hight taxes vs B & B business (from what I understand)

HUGE Airbnb competition - area is highly desirable but oversaturated

PROS

Great revenue for an under $500k total investment

Quicker ramp up to produce revenue

Can become passive much sooner than a B & B 

OPTION 3. Keep the 3 units in the building; rent out 1/2 the workshop to a tenant who wants it NOW for $2k a month. The original units where very shabby and the area not too long ago was pretty sketchy, so either way my rehab budget is the same. I am rehabbing this property to a very high level. 

Gross revenue estimated at 75k a year

CONS

susceptible to moratoriums, rent loss, tenant damage, etc. 

need to build out separate areas and separate meters - adding about 30% to rehab budget

tenants can be a huge liability

PROs

Much more hands off than a B & B business

Immediate cash flow right at rehab completion

Tried and tested biz model, high demand area - units will rent the first day

If you've made it this far in the reading, I greatly appreciate any input, ideas, perspectives are so appreciated!