I need help! Opportunity in hand but I am fearful

10 Replies

We have a property manager willing to lease us a single unit apartment for $1600/Month unfurnished. Wifi would be around $50-70. I think we could get it furnished for around $1500. 

There is 3 other single unit apartments in our area on Airbnb for $110/night flat. We do not live in a "destination location" per say.

Do these numbers work? 

Our city says OWNERS are  require to have a business license, and pay a 10% tax on rentals, and a short term vacation rental permit. We aren't technically owners of the property though, what should we do? 

What else aren't we considering? 

Thank you for all replies. 

Depends on how many nights it rents.  Personally, I wouldn't do it.  Even if it was 100% booked, at $110/night that's $3300/mo and you've got to pay for your utilities as well I assume?  So, power bill of ~$120/mo (?), any gas/water, what about cable?  You should get insurance to cover your commercial liability.  

Re: business license etc. you could/should discuss with property owner who is going to be responsible for it, because you need to operate legally.  99% chance you would be the one responsible for it.

Unless you could expect 95% occupancy-ish I'd pass.

So the place will probably cost you $2000 a month.  With 100% occupancy (which is unrealistic) you'd gross around $3000 a month.  Then you have to pay someone to clean it and restock it, that'll be about $500.  Then you have taxes.  So you'd gross about $250 a month with 100% occupancy.  Suppose for 3 or more nights in a month the place is vacant (this is realistic).  Now you're losing money.

@Bentley McKean I have to agree with Paul and Julie, high level you don't have enough nightly rate (and probably occupancy) to cover your costs on that deal, especially considering you are not in a destination location.  

Thank you so much for the responses folks! I don't think this particular deal would be worth the time and energy it would require. 

How do people make this work? Destination locations only? 

Originally posted by @Bentley McKean :

How do people make this work? Destination locations only? 

There are a lot of bank foreclosures in my small town after Amazon and another large employer relocated their facilities that used to be here.  $9500 will buy me a 3BR with CH/A.  There is a refinery in my town.  There is a steady stream of contractors coming here for short term jobs.  I charge what a motel charges.  $400 gets a motel room with 2 beds for a week.  I charge $600 a week for the 3BR house.  In the next 12 months there are going to be about 5000 contractors coming through this town for the largest maintenance operation in the history of this 110 year old refinery.  23 STRs, 83 beds.

Hey @Bentley McKean . You will find not many folks on here do arbitrage. The risk is just too high for the potential profit. Of course there are some people who do make it work but I think those are far and few between.

As far as areas, most of us are owners in vacation destinations. Some are bigger than others. I am doing pretty well in North Idaho on Lake Coeur d'Alene and many are doing awesome in Pigeon Forge, TN, which is a big market.

Are you only interested in doing arbitrage? 

@Bentley McKean , I think the ordinance would likely refer to the owner being required to have a license being the owner of the business entity carrying it on.  Be sure to check that out first.  Odds are you need a license.  As to profit, I think it has been covered.  Look for a property that you can rent on a long term basis that will cash flow at least a little, then look at Air BnB numbers.  With the way laws can change on STRs you should check with local rules.

The biggest likelihood the newbies trying to make a deal like this is a greatly overestimate the potential revenue and do not understand all the costs involved. Example, short-term rentals a commercial activity and you have to pay self employment tax. I'm sure some don't but they are wrong. Secondly, how do you think you can furnish a nice Airbnb for $1,500. A good mattress is 4 to 600.

people who do it on the extreme cheap are kidding themselves. This is a competitive business. The Goodwill bachelor pad doesn't work in 2019. This requires good sharp pictures. Do you really want them to look like the Salvation Army?

and people continue to pile into investing in short-term rentals. Your deal projections mean nothing. In five years, people maybe pay you half of what you think you can get now or your occupancy may drop in half.

most of what you said above to me is fiction and wishful thinking. This is a Cutthroat competitive business, try not to be one of the Lost Boys in Neverland