Advice? Converting Primary Residence into STR

[James Mitchinson]

Hi All,

I own an updated 4 bedroom, 3 bathroom ranch-style home in the Quail Creek neighborhood of Austin. I'm evaluating a conversion of my home into a short rental property and would love to connect with anyone who has experience in this area. Specifically, I'm exploring:

1. STR permitting - I understand I'd be eligible for a Type 1 STR permit as I plan to keep my house "owner-occupied". Wondering how successful people have been with getting these permits and what the process is like.

2. Taxes - with this model I wouldn't be able to move the property to an LLC (I would lose homestead status which is what is used to make the "owner-occcupied" determination). I'm trying to understand what implications this may have (for example, can I still write-off expenses?)

3. General advice on pricing, revenue, and how to set up a home for the area. I have checked out sites like AirDNA but don't really trust the data. Has anyone found any local consulting services valuable for this type of advice?

Thanks!

James

[Michael Baum]

Hey @James Mitchinson, if you can STR the property, you are one step ahead. I have no idea on how the permitting process is, but at least you can do it. Austin seems to have had a few rules keeping STRs at bay.

You don't need an LLC. Just keep good insurance and an umbrella.

Your best bet is to go out and look at all other homes that are similar to yours. See what amenities they have, their nightly rates and occupancy. That will get you close. No need for a consultant IMHO.

[Eliott Elias]

Never gone through the permit process, I heard it's a nightmare. Airbnb is oversaturated and in my opinion going to slow down quite as we get deeper in a recession. Make sure you can cash flow with long term rents as well 

[Jordan Moorhead]

@James Mitchinson the process to get a license is pretty easy, just slow. Apply for it asap and hurry up and wait. You need to keep it your homestead to keep the license but MTR works great when you move out. Our STR and MTR are performing well right now!

[Chris Schorre]

James, the wait time for an STR inspection is months so as Jordan said, get in line early. Are you planning to live in the house and then rent is as an STR when you are not there? If you do not plan to live there, that's not a Type 1 license. Cost is $650 for a license from the City. Also, make sure your house is up to code as they will send an inspector.

With regard to homestead and taxes, yes you would lose this if not your primary residence. Also, keep in mind that your property taxes will jump to the county assessed value each year. If the assessed value jumps by 25% in 2 years, you pay the full amount - no 10% annual cap. 

As for revenue, be conservative. Airdna will tell you that average occupancy is 63% in Austin but make sure your finances work at 50% or less. There are more than 9,000 STRs in Austin, of which less than 2,000 are licensed STRs. Read this article for more info on STR investing in Austin. https://www.atxnext.com/post/a...  

[Ryan Kelly]

@James Mitchinson as others have stated, your first decision is to decide if you want to run a "legal" STR in the city of Austin or to go around the rules. To be legal, the property will need to stay in your name (no LLC), have a homestead exemption, and be considered your primary residence (you live in it). You then apply with the city and go through the hoops to get an STR-1 license. As @Chris Schorre stated, there are a lot of STRs in the city, most of which are not legal, so you'll have some healthy competition. Ask yourself these questions "Am I passionate about STRs and building a hospitality business? Or am I focused on STR only because I think it will cash flow better?" If your answer is the latter, I find most of those clients don't appreciate the work it will take to have a profitable and long-term successful STR and bail on the strategy a year or two later. Nothing stopping you from success, so just go into it with the right intentions and take action.

[Aaron Gordy]

@James Mitchinson We have a lady who is highly credentialed on staff that manages str's in the metro for quite a few folks and also consults for optimizing returns with interior designs. Feel free to reach out. 

[Sara Levy-Lambert]

Google Awning Airbnb Estimator.
The tool is free for revenue estimates.

The company also offers Airbnb property management

[Chris Schorre]

@Sara Levy-Lambert this is a cool, useful tool. Thanks for sharing.

[James Mitchinson]

Thank you all for the replies and feedback! I'll be looking into these different tools and options.