Rent, Owner finance or AirBnB?

Question

Hello BP,

I am trying to decide what steps to take with my primary home in the next 6 months. The house was built in 1925 and while functional, it needs a lot of updating. In the current condition, can probably rent for about $1,350 and cash flow approximately $250 every month. If I decide to sell with owner financing with10% down, 8% interest rate and 30 year amortization, payment is over $1600 which is pretty high for that neighborhood. I have not done any research on AirBnB but have heard of a lot of people have success using this strategy.

Any suggestions/feedback will be appreciated.

Ramon Cuevas · Answer

@Cameron Tope @Blair Russell Thank you both, you guys made some very valid points and gave me a lot to think about. I would agree that Airbnb might not be the best choice right now. It will come down to either trying to rent the property or selling via owner finance. I will continue to learn and consider all the pros and cons before deciding what to do in the next 6 months.

Cameron Tope · Answer

@Ramon Cuevas I've never owned a property for Airbnb so I don't feel qualified to speak on the pros and cons. However, I do have rentals and owner financed properties. The two questions you should have a long think about are (1) do you expect a lot of appreciation you would like to capture? and (2) how is your debt to income?

When you owner finance you don't have to worry about toilets and repairs but you give up any and all appreciation. The second piece is when applying for a new loan an owner financed property will need to be seasoned for 12 months before the payments will count on your income side of your debt to income. Said differently, a bank won't count the owner financed revenue as income for 12 months, thus making your DTI higher than normal (this has been my experience in Houston working with various banks).

Best of luck!

Blair Russell · Answer

@Ramon Cuevas

I don't think any of your ideas are bad it's just about what you want to do. Keeping in mind if you're trying to build up capital, putting money down on additional renovations, or on getting a property ready for Airbnb might not be the best choice. Also if you're looking to get into apartments soon will you still want to have this place on your hands?

Some other thoughts:

Would you be willing to take on the house hacking strategy while also running another rental/Airbnb? What about when you have apartments will you still want this place? (Are the places in the same area?)

Do you plan on moving the furniture from your current house to your next house? (You will have to refurnish for Airbnb, or likewise buy new furniture for yourself.)

I've turned multiple personal properties into Airbnbs. There is a lot of startup costs, you basically will still have to do the renovations you would for a traditional rental, but probably even better ones if you really want to be competitive. So that 20k will become 25-30k. Airbnb is also work, and if you don't do it yourself then you are probably paying someone a lot to do it for you which can destroy any profit.

I guess there are a lot of factors you want to consider but it basically comes down to your goals and what you want to take on.

Ramon Cuevas · Answer

@Cameron Tope Good question! We sold our live in flip last year after living there for 3 years. I kind of regret selling that property, had about $100k in equity and if I could do it all over would have probably done a cash out refi and rented the house instead. This time around we bought and older home in an up and coming area. It probably needs another $20k in rehab, we have put up a perimeter fence, added insulation to attic, connected to city sewer and addressed a few electrical issues due to age of home. My goal would be to cash flow without having to take on a big rehab. @Blair Russell We are looking into possibly buying a small 2-4 multi unit and house hack for a while with the ultimate goal of building up enough capital to start investing in apartment buildings in the near future. In June I would have met the 12 month owner occupancy requirement and would be free to explore other options.

Blair Russell · Answer

What @Cameron Tope said.

All those strategies will require very different plans of action as you know. Why is your situation with your primary house changing? That may help you decide.

Cameron Tope · Answer

What is your goal with the property?