Anyone analyzing deals for AirBnB potential?

Question

I'm looking at a deal to buy a triplex in Denver. Based on local cap rates it's nothing special, but if I took one unit for myself and rented out the other two via AirBnB, it would pay the mortgage and kick off 4-600 dollars in free cash every month.

I'm basing the analysis on $70/night for 20 days a month. The neighborhood average for a full unit (i.e. not a spare bedroom) the neighborhood is well over $100.

Garry C. · Answer

Agreed with Bill, James Carlson is the man to talk to regarding STR in Denver. I know there are some rules that might make it a bit sticky, such as the primary residence rule. Sounds like you'll be living in one unit, but I'm not sure how that works with other attached units.

When I consider a deal as an STR, I always make sure it will work as a standard rental as a backup plan (they often do not, at least in Denver). If not, then the only other exit strategy is a sale. So if the deal is 'nothing special', you should proceed with caution or maybe keep looking.

James Carlson · Answer

Thanks for the mentions @Bill S.  @Garry C.  and @Drew Fein

So, @Derek Scruggs . It's a great idea ... and one I wish were allowed. But as others have already indicated, what you're describing isn't allowed in Denver.

I assume when you say Denver, you mean the city of Denver and not another nearby town. If so, Denver's new Airbnb law allows you to conduct a short-term rental only in your primary residence. This means you can rent out just a room while you're there, you can rent the whole place while you're gone, or you can rent a basement apartment or accessory dwelling unit such as a carriage house. (I love the latter because it's a great way to live mortgage free or close to it.)

Unfortunately, the law does not allow you to rent the other side of a duplex (or in your situation, a triplex). An easy way to think about it is if a place has a different legal address than where you're living, you can't rent it out for less than 30 days. In addition, you can only have one license and only operate one short-term rental, so your idea of renting the other two of your triplex is also going to run afoul of the new rules. We can debate the merits of the "primary residence" provision, but it is what it is.

I could go into all kinds of details on how they define primary residence, how you prove it should they audit you, and how the enforcement efforts are going in Denver, but I won't bore you too much. If you're looking for more info, PM me or attend my monthly happy hour event where I go into detail about the laws in Denver.

Drew Fein · Answer

@Derek Scruggs, definitely talk to @James Carlson before doing any STR, but as @Garry C. said, you can only airbnb (or STR) your primary residence in Denver.  The other two units, assuming they have different addresses, won't be your primary residence.

Selena Walsh · Answer

@Derek Scruggs have you checked out airdna.co? they have some data available on pricing and occupancy. I have 3 airbnb units in Mpls and haven't found their data to be exact but its better than nothing and if you validate against real-time airbnb pricing and availability calendars it can be useful - I typically use the more conservative numbers (i.e., 66th percentile performing properties)

Steve K. · Answer

Derek, are you sure this isn't an acceptable rental profit margin for Denver? All of the house-hackers would love to have a quadraplex wherein the rent from 3 units pays for the mortgage on 4 units. (ie. rent is 133% of the mortgage for each of 3 units). Aren't you saying you have a triplex wherein rent from 2 units pays the mortgage on 3 units??? (i.e.150% of the mortgage from each tenant). Don't you have better economics than most, aside from the uplift for AirBNB??

Bill S. · Answer

@Derek Scruggs you should connect with @James Carlson as the whole short term rentals thing is his specialty. @Garry C. has also done it a bit in the mountains as well. There are a few others but I can't remember their names.

Andrew Johnson · Answer

@Derek Scruggs You could always wait a current tenant to vacate Unit B before you invest in the rehab and go with AirBnb.  You then get to test while still having "steady" income from the Unit A while you live in Unit C.  If you end up hating living next to rotating tenants you at least have a backstop.

Derek Scruggs · Answer

@Andrew Johnson Good point. The properties currently are grossing $1800, and all the tenants have been there at least five years. I think with $10-12K improvements they would easily gross $2,700 if I rent all three. But if I live in one that goes down to $1,800, which would cover the mortgage but not much more.

Anyone analyzing deals for AirBnB potential?

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