Single Family Deal -- How would you do it?

Question

Hi BP -- I'm in the process of closing on my 2nd real estate deal (central Ohio). I have several directions I can go with this property and wanted to ask your opinion.

Property

• SF Home 3BR 1BA 
• $125k cash deal
• ~$500 closing costs 
• -- $6,000 for new furnace (most likely as it's end of life)

1. Standard College Rental

• - Cash out refi with a 30 year fixed, get 70% of my money back (possibly more as I'm buying it under market value) 
• - Rent to local liberal arts college students for $1200/mo and (according to the rental calc) cash flow positive around $300/mo 
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2. BRRRR

• - Spend another $5-6k sprucing the place up with new pergo flooring fixtures
• - Spend additional $20-30k adding a 4th bedroom to the back porch area (I'm a noob, so not sure how well I'd do price wise first go around) 
• - Refi at the value of an updated 4BR comp and pull out 70% of that
• - Rent for a likely higher cash flow (figure around $500/mo)

3. AirBnB Rental

• - The college and bustling little downtown has provided a decent AirBnB market
• - According to AirDNA report I can average about $1100/ mo doing short term rentals (good occupancy rate and solid demand) 
• - There is intrinsic value here being that my brother lives 20 min away (I'm in NJ) so my family can use it as a place to stay when they visit him.

Overall, I'm happy that I'm under contract and barring any crazy inspection issues, I think this is a good deal in the fastest growing county in Ohio. Would love your feedback!

Peter Ricca · Answer

@Brenden Mitchum excellent points, Covid is definitely looming concern here, but I didn't want to stop me from grabbing what appears to be a good deal.

Great point on keeping it flexible so I can pivot. The "College Rental" concept was solely because the city has a popular liberal arts college in it, so I'm assuming a lot of my rental demand will be students, but I think I could also find some solid post grad tenants, young professionals, etc.

Thanks for the advice on adding the bathroom first, I hadn't considered that and will focus on the bathroom.

Peter Ricca · Answer

@Ondrej Brown Thanks man! The AirBnB option is tempting, but is a bit much to manage since I won't live in same state as the house, and I will have to shell out cash to furnish it so I'm leaning towards yearly rental.

One thing I suggest is checking AirDNA for good AirBnB data on your market. Will give you really good insights into how much you can expect to generate. If you PM me I'll send you the one I got for my market (showing about $1k/mo for my property).

Congrats on the house hack!

It's very worth it. My suggestion is to consider the pros and cons of your 2 options.

1.  How much of your free time and personal space do you value in your house? The AirBnB route gives you the option to have stretches of time where you have the whole house to yourself, yearly roommate tenants are there the whole time.

2. One is less predictable income, the other is more stable steady income though (although AirBnB may have higher upside depending on your market).

Good luck and looking forward to hearing about your success!

- Peter

Ondrej Brown · Answer

Sounds pretty solid to me. If I would choose I would think about Airbnb Option first ! I think you would cash flow pretty good with that. Just have a good cleaning crew to keep your property in motion in your good. I'm also in a similar situation with a SFH 3B 1Bath under contract. I'm trying to figure out the best option for myself with house hacking it; I dont know to rent the rooms out or airbnb it out. Keep me updated on our progress man.

Brenden Mitchum · Answer

Hey @Peter Ricca

I wish I could give you personal experience here but one big question did come to mind after reading your options - What has covid taught us about airbnbs and college rentals?

Yes, colleges appear to be opening back up in the fall and airbnbs are getting some occupancy back. Perhaps by the time you are done with the rehab these two strategies will be optimal again. But then what happens if a second wave hits in winter and your occupancy drops to zero? I would say the safe bet right now is to renovate the property in a way that provides you with the most flexibility so that you can easily pivot from one strategy to another. This is what I would do. Cash has always been king but right now resilience and flexibility is just as important.

Oh and I just realized you said it's a 3x1 and you're adding a 4th bedroom? No one wants to live in a 4x1. I would add a 2nd bathroom first.

Hope this helps a bit. If you have other questions or just want to chat, please feel free to message me anytime!