Using HELOC to Reno for Airbnb?

4 Replies

TL;DR - What's your opinion on using a HELOC to reno your personal home if you plan to then start using Airbnb?

I've been missing out on a huge market in my area - Airbnb.

I've read on the forums in the past that people seem to not like the idea of using a HELOC on your own home because that's money out of your pocket with no money flowing back to make the payments on the HELOC. I'm assuming that isn't true if your home then starts cash flowing for you, but I wanted to see what BP thought.

The majority of the to-do list would be simple things like changing out closet doors, maybe buying an IKEA armoire or something for guests to use.  However, I'd probably want to add a shower to the basement bathroom as well as a small kitchenette (sink and minifridge, couple cabinets) and additional bedroom down there.  This would allow me to either just Airbnb the 1bedroom basement, stay in the basement while Airbnb-ing the 3bed main level, or rent out the whole place.  

Plumbing is already in the basement, but I'd have to bust out some concrete for drains.  Haven't ran numbers yet, but lets say its in the $15,000 range to do it all.  A friend mine totaled $3,000 in about 7 months this year for a 2 bed, non-renovation house.  I think given our size and location differences, as well as the fact that my place is updated, I could easily double that.  The reno pays for itself in a little over 2 years and I add value to my home when I go to sell.

Apologies for the long post, but am I correct in my thinking?  Am I missing anything?

There are some details missing for specific advice, but I think a HELOC is your best tool to built a portfolio (if you aren't rolling in cash, of course.) We have used a HELOC on our primary to acquire all of our investment properties and it has served us well.

As for AirBnB, something you need to take in to consideration is that the expenses are higher and it will take significantly more of your time to manage- if you can make a great return on your time, that's awesome. You have to furnish the unit, maintain the furnishings, clean the unit, wash and replace linens, prepare, greet and serve new tenants fairly regularly, etc. My advice if you do this is to closely track the time you put in to it, depreciate the furnishings and look back after a few months and see what you are paying yourself per hour. If you are happy with that number, soldier on. If not, maybe you try something different.

Best of luck!

I Airbnb’d my studio apartment for a while and found that it was a lot of work and expense for not enough return and the studio is a 15 min bus ride to Times Square (so it was always fully booked).

You should also evaluate this scenario with the potential income you could get if it was a long term rental (which will be lower than Airbnb). Don’t forget to include permits / alterations req for making the apartment legal. If it still makes sense to you, you should do it!

@Mala S. could you elaborate on why it's not worth it? I was considering doing the same thing as the OP.
Originally posted by @Corby Goade :

There are some details missing for specific advice, but I think a HELOC is your best tool to built a portfolio (if you aren't rolling in cash, of course.) We have used a HELOC on our primary to acquire all of our investment properties and it has served us well.

As for AirBnB, something you need to take in to consideration is that the expenses are higher and it will take significantly more of your time to manage- if you can make a great return on your time, that's awesome. You have to furnish the unit, maintain the furnishings, clean the unit, wash and replace linens, prepare, greet and serve new tenants fairly regularly, etc. My advice if you do this is to closely track the time you put in to it, depreciate the furnishings and look back after a few months and see what you are paying yourself per hour. If you are happy with that number, soldier on. If not, maybe you try something different.

Best of luck!

I've read that with new tax law we can deduct HELOC interest if use for Investment purposes, like rental acquisition or rental properties renovation. We can't deduct the interest though if HELOC is used for primary residence. I wonder how that will work in this particular example, when a person still lives in one part of the house and renting the others.

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