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Creative Real Estate Financing

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Jessica Yau
  • San Francisco, CA
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How to finance conversion of building to 5 bedroom vacation rental/B&B

Jessica Yau
  • San Francisco, CA
Posted Feb 28 2023, 09:28

We own a farm property (5 acre rose farm) with an existing AirB&B cottage in Sonoma County CA. The property also earns rental income from hosting weddings and other events. We have a beautiful 3,300 sq ft Carriage House barn that is very underutilized. I have design plans to convert it to a 4-5 bedroom vacation rental/B&B but financing is a complex problem and I wonder if the juice is worth the squeeze. 

We have invested heavily the last 5 years in renovations of the existing gardens, AirB&B cottage, and structures for the event business. As of 2022 we have completed all the major deferred maintenance for the rest of the property and operating costs have stabilized (2022 loss was $12k on $165k revenue). We have over $1m in equity in this property (purchased at $2m / currently valued $2.6-$3.2m / with a $700k mortgage). The renovation would likely cost ~$1m and add an additional $100-$125k in annual revenue. I think realistically stabilized cash flow with the additional rooms would be ~$70k ($250 revenue - $180k total expense).

Wondering what the group thinks as far as 1) is it worth pursuing 2) how could I finance a $1m renovation with 5 years of losses under my belt?

Here is a link to our existing AirB&B: https://www.airbnb.com/rooms/1...

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Replied Feb 28 2023, 19:04

https://www.bnbcalc.com/analys... 

This is how to start your numbers for your area. The site is what many first timers on Airbnb use to compare the prices in their area to list their property at a reasonable price based on others across the country and in your area with similar specifications.

Run your numbers for a whole year to see if your numbers would produce a significant ROI. Good Luck!

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Jared Rine
Lender
  • Lender
  • Sacramento, CA
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Jared Rine
Lender
  • Lender
  • Sacramento, CA
Replied Mar 8 2023, 19:50

@Jessica Yau...is there any way to decrease your expenses?  It seems like a good idea on the surface until you get into the details.  I'm just speaking from the lender side and dealing with different investors.  If there really is that much equity in the property, you could possibly get the funds but then it becomes a question of is it worth it.  I'd want to understand what your expenses are right now because it seems like they eat up a lot of the revenue.  Just my $0.02 ...I'd be interested in hearing more about this.

  • Lender California (#01915324) and California (#893462)

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Chris Davidson
  • Real Estate Agent
  • Boise, ID
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Chris Davidson
  • Real Estate Agent
  • Boise, ID
Replied Mar 9 2023, 06:21

@Jessica Yau what would be the added value/ equity in the property with the addition. 

You have to figure out what your net will be on the addition. Look at getting a renovation loan from a local bank/ credit union. If you don't show any income anywhere it will be hard to get a loan as you wouldn't look very lendable.