My wife and I are looking to purchase our 1st place (townhouse or condo) in the next 6 months to 1 year. We’ve heard Airbnb is potentially a great option for cash flow so the plan is to live in it for 1 year then rent it out for a short term vacation rental. Why should I NOT do this? Or if it’s a good idea please put my nerves at ease. Thanks!
Hi Joseph, I tend to disagree with most of the replies to your post. There is can certainly be an opportunity for you if you educate yourself before purchasing the property. #1 make sure that there are no short term regulations or HOA rules that would prohibit you from operating an STR.
If you find one that makes sense for you, I would recommend using the "Rentalizer" tool on at Airdna.co, it's a free tool that allows you to estimate the potential revenue that a property could generate. It can be high or low, depending on the comparable listings, but it will give you a general idea. You can use this link to go directly to the tool for Phoenix, no need to create an account: https://www.airdna.co/vacation-rental-data/app/us/arizona/phoenix/rentalizer
If you are planning on living there for the first year, there are a few benefits, but I would recommend thinking about "house hacking" to get a good idea of whether you'd like to continue on as an STR or a LTR when you decide to move out. You could rent out an extra bedroom OR configure your property in a way that you can rent the entire place out for a weekend or two every month (lock on your closet door, lock on your pantry, etc.).
This is a house hacking strategy that I have been doing for years. I rent out my house for 1-2 weekends a month and stay with a friend or take a weekend trip out of town, and the payouts usually cover my mortgage/expenses plus some!
Anyway, might be a good idea for you to try out to get your feet wet. Don't be scared off by people in this thread telling you not to mess around with STR's if you don't have experience... The only way to gain experience is to take action! You'll learn as you go. I was in your shoes 4 years ago, with no STR experience at all, now I have almost 30 of my own properties and an internal team built up to manage them for me. If I had listened to the naysayers, I would still be working for someone else!
I say educate yourself, put together a plan, and execute! Best of luck!
Airbnb is just a listing site it's not a type of property. You've got to decide if you want to rent an "Airbnb" which typically is referring to a weird space that wouldn't normally be rented, or a VACATION RENTAL that you're listing on airbnb and the rest of the short term listing sites.
Condo/Townhome sounds like it would NOT be a VACATION rental (unless its literally on the beach) and you'll be listing a unit with neighbors on "Airbnb" and this is a bad idea. Your neighbors will call the cops because your guests are partying and you'll end up with a bunch of headaches. You're also competing with hotels with billions of dollars and you can't beat them. Most metropolitan areas are just not a good idea when it comes to "airbnb"
If it won't cash flow as a LTR explore other options, of which there are MANY.
There are a lot of folks making money with airbnb in inner cities, at least I think there are. They just don't hang out here on BP.
@Luke Carl great info, thanks! I’m glad I asked first. There’s clearly a lot I have to learn haha. That all makes sense too, I can see why hosting a vacation residence in a metro area wouldn’t be a good idea. Would a single family home be better for something like that? Or should I focus on a different kind of investment strategy entirely?
for now I would forget about the airbnb part of the story you're over thinking
Find a SFH that will rent for around 1% of what you paid for it per month. If you can buy it with an FHA for next to nothing and live in it for one year then move out and move a tenant in you're golden!!!
I would only buy a vacation rental that has a draw for people to want to come there. These type properties snapped back quickly after the virus first kicked into high gear.
In this environment I would be worry of buying g something in town that doesn't have good reasons for a family to want to book for a vacation.
People who don't really understand short-term rentals have no business getting into them. What you need is quite a few months of immersing yourself in the many issues. Reading back in this form a few months is a darn good start. It is the exact opposite of good cash flow for the ignorant...
@Joseph Barnes I can’t think of a reason not to do it provided there is plenty of demand for short term rentals wherever you are planning to buy and one of you are available to respond to guests in a reasonable amount of time once you turn the property into a str. You can juice your returns by self managing and it’s a little more work than a LTR but in the right market with demand the returns can definitely be worth your time.
One more thing to add is be careful of the regulatory environment. I know Scottsdale has some regulations and I assume Phoenix would as well. It'd be a major headache if you went to all the trouble of buying a house, living in it, then being unable to STR it.
Luke had a good suggestion with his 1% rule... Make sure it'd be viable as a LTR in case the winds shift. (Or put your money someplace else that is more STR friendly)
The best advice I can offer is to understand your local market! Here in Phoenix, there are a few areas that are hot for AirBnB rentals. These areas have taken a hit during COVID, but tend to perform well otherwise. Scottsdale is really popular in the spring. Tempe is popular throughout the school year (parents, visiting professors, etc.) Start by learning about different areas around town and finding a place where (1) you and your wife actually want to live for 6 months to a year, and (2) has good potential for AirBnB rental.
happy to answer any questions I can about Phoenix short term rentals!
@Brian Gerlach: Until March I would have said scottsdale, hands down. Many owners could pay their entire annual mortgage from 3 months of rentals in high season (the spring, with the Phoenix Open, Barrett Jackson and spring training). Of course COVID changed everything. A ton of owners sold right away rather than losing a single high season.
Of course, the prospects for next spring look much different. And places like Tempe have good, steady rentals all year long. Personally I would look toward downtown Phoenix, Chandler, Tempe, Gilbert. These have a little better diversity in rental options, which helps owners weather unexpected circumstances better.
Str's are great, but you need to be aware of how it works. If you rent a place by the month, they generally bring their own furniture and pay the utilities. With str, you are doing both. The returns have to be good, or it doesnt make any sense. Add in cost of cleaning, etc, and it gets to be a big chunk. If you cant keep it busy, it is much easier going long term.
My rule of thumb is that your monthly rate for a LTR should be your weekly rate for an STR. I rent my STRs by the week, not by the day or weekend. Most of my tenants are ruffians. Refinery contractors. You have to deal with ruffians as if you are a bigger ruffian. Don't be afraid to give them the boot and tell them to g.t.f.o. of there.
So I was a highly successful five star Airbnb four times over host. I would only enter into this if the MathWorks, meaning are you there you live close to the property or you hire somebody that does everything from septic tank‘s, to lakefront property water issues to dock issues too everything other than cleaning. Because believe me it’s not just cleaning the unit it’s so many other things that people over looking are clueless about. If you are close within 20 minutes you can make a killing in certain areas as long as they’re away from large cities and have multiple states interested in your lakefront property. I got tired of driving an hour every time to do turnovers, but If I decided to live in that lake community I could’ve on five properties and made a killing.  
A lot of townhomes or condos homeowner associations require minimum 12 month lease so u can't do STR legally. Be sure to watch this. Some other offered this advice...probably want to dig into STR quite a bit before u make it your first purchase. I stayed at STR a couple times a year for the last 10years. You can learn a lot from being a customer. Best of luck.
@Joseph Barnes, sounds like you need to connect with @Pamela Sandberg. As she mentioned, good investments begin with encyclopedic knowledge of the market you're investing in...or being advised by someone with that knowledge.
The AirBnB model works well, but it requires more initial management. Good operators build a great infrastructure to keep the machine running smoothly. You need to keep your crew humming along and keep your rental clean, and match the experience they might have at a comparable hotel while providing a financial benefit for renting from you.
Keep your ADRs up while still providing that value add experience and hopefully you'll fill your calendar.
As a side note, I'm a middle market multifamily guy...but talk to owners in my market all the time following the program having great success...managing 100+ doors all on that model
Always great to have an alternate worst case scenario plan..in case your municipality does away with STRs...If the City of Boca Raton allowed them, I'd acquire way more deals..
And yes, as @Randy Bloch and @John Andrews mentioned, regulation from both HOAs and municipalities can throw a wrench into your plans. The Phoenix area is generally one of the most lenient areas in the country for STRs. That is changing, however - I went to a fascinating legal conference about how they are dealing with that in Sedona. It's important to know what changes are in the pipeline.
Hi Joseph, I tend to disagree with most of the replies to your post. There is can certainly be an opportunity for you if you educate yourself before purchasing the property. #1 make sure that there are no short term regulations or HOA rules that would prohibit you from operating an STR.
If you find one that makes sense for you, I would recommend using the "Rentalizer" tool on at Airdna.co, it's a free tool that allows you to estimate the potential revenue that a property could generate. It can be high or low, depending on the comparable listings, but it will give you a general idea. You can use this link to go directly to the tool for Phoenix, no need to create an account: https://www.airdna.co/vacation-rental-data/app/us/arizona/phoenix/rentalizer
If you are planning on living there for the first year, there are a few benefits, but I would recommend thinking about "house hacking" to get a good idea of whether you'd like to continue on as an STR or a LTR when you decide to move out. You could rent out an extra bedroom OR configure your property in a way that you can rent the entire place out for a weekend or two every month (lock on your closet door, lock on your pantry, etc.).
This is a house hacking strategy that I have been doing for years. I rent out my house for 1-2 weekends a month and stay with a friend or take a weekend trip out of town, and the payouts usually cover my mortgage/expenses plus some!
Anyway, might be a good idea for you to try out to get your feet wet. Don't be scared off by people in this thread telling you not to mess around with STR's if you don't have experience... The only way to gain experience is to take action! You'll learn as you go. I was in your shoes 4 years ago, with no STR experience at all, now I have almost 30 of my own properties and an internal team built up to manage them for me. If I had listened to the naysayers, I would still be working for someone else!
I say educate yourself, put together a plan, and execute! Best of luck!
I'll start off by saying this not an area I have experience in, but I have done a lot of research on and think its a great area to be looking.
I am sure someone else also said everything I am going to say, but I have a few suggestions to keep in mind, the biggest being your local regulations. Many cities do not like AirBNB because they don't get the opportunity to collect the tax revenues that they would receive from hotels, is that something your city is concerned about? If you're not sure, a good way to tell is if your area already has an appeal of being a vacation rental area (think of like a myrtle beach or Asheville NC)? Another thing to consider is the off season. I am sure people go to AZ year round, but there has to be slower times and what will you do to have people going to your rental when there are "more options available"?
I think the STR model has great ability to quickly become a scalable business opportunity, especially since smart home technology has become relatively affordable so that might be another area that will be expensive now, but payoff well down the road.
Regardless, you made your first step by asking for assistance and that more than most people will do so kudos to you! You'll hit waves where you're super excited, and others where you wish you never started but just keep pushing through!
Something you'll need understand about being a landlord versus being a short term rental host is that as a STR host you're crossing over into another industry: hospitality, on top of being a property owner.
A short term rental is expected to be fully furnished as well as fully stocked with a coffee brewer, pots, pans, utensils, dishes, cups / glasses, flatware, towels, soap / shampoo, other bath items, bed linens, ... even some basic food items like breakfast cereals, canned items, etc. The AirBnB site can explain what provisions you'll need to provide for your guests.
... and yes, they're guests, not tenants. So, the rules change a bit, depending on your location.
There is an investor who I follow on IG - "youngretireeby33" - who has a mix of SFH and I think a few vacation rentals. Once COVID hit, the HOA on his vacation rental, by all accounts a poorly constructed group with limited legal knowledge, tried to enact a no-AirBNB bylaw as a means of enforcing health and safety of its other residents. It was a fiasco to say the least.
The vacation rental industry, which is an old dog, and the AirBNB-insta-vacation industry, which is DISRUPTING vacation rentals, are at odds. Always trying to get their piece is the government, which in NJ has an AirBNB tax of 6.625%. Disruptors are great in many ways, but they anger folks who perceive or experience impact to their business -- you can call us a capitalist society if you want, but this country has industries which are anything but capitalistic in nature. You can expect more oversight, more taxes, more laws, and more headaches.
But, that can be said for all of our investments at this point.
In general, I think knowledge and experience is key. You can start with a vacation or AirBNB property, but that's a niche start. Demand can flux, some of the disruption is creating a lot of moving parts (read: costs and oversight) that might be difficult for a newbie investor to handle.
My recommendation -- assuming your wife are on the same page -- is to start with a duplex or househack situation. If you can reduce, remove, or even profit on your main living expenses (which for 99% of us, is our biggest expense), it'll teach you every aspect of the business, a lot of headaches to deal with, all while improving your financial situation to help springboard into more investments, or just live more comfortably and not deal with the largest expense for the general population.