All Forum Posts by: James Carlson

@Christine Prelaz. @Matt Leonard brings up some great points. You definitely want to look at the owner-occupancy ratios. Someone can correct me if I'm wrong, but I believe FHA requires 51 percent to lend. (Though I was just at our annual meeting last night, and the attorney there said FHA may be relaxing that number, as long as some other conditions are met.) You also want to check out the reserves because not only might that affect you while owning if they have to do a special assessment, but lenders look at that and, in really bad situations, might deny funding. Both of the above issues could come into play if you wanted and you found that the pool of potential buyers was diminished.

I agree with Matt that an HOA over $400 isn't likely to bring in the rental income on a traditional long-term rental to make the extra expense worth it.

Hey @Christine Prelaz. Are you talking about investing in condos in Denver? Or are you looking for a primary residence? My wife and I have two condos in Capitol Hill (actually, three after a closing tomorrow!) I know HOAs scare some people away, but we've gone with a slightly different model and are doing well. Our rentals are a 350sf penthouse studio and - after tomorrow - a 1br condo. Both in nice buildings, walkable to tons of stuff. We furnish both and rent all utilities included for 3-6 months to traveling nurses, new Denverites, business people, etc. Even with HOAs over $300, we're cash-flowing between $300 and $400 on each. (The furnished short-term helps b/c it pulls in about 50% more than a traditional long-term unfurnished rental.) I'm not totally sure what you're including in operating expenses. I use a pretty standard spreadsheet and include PITI, HOA fees, 3% for repairs, 5% vacancy, cable internet, water/trash, electric, etc.

I'm happy to discuss condos in Denver more if you're interested. They're not for everyone, but they can definitely work.

Hey @Tyler Bosiacki. I had great success with a few short-term rentals on Airbnb. The pros and cons of are pretty well known and pretty simple in my mind:

Pros
Short-term furnished rentals, in my experience and in the experience of people I consult with, are more profitable if -- and that is a big IF:

• You're in a great location where tourists want to stay; and
• Your property is actively managed
  • actively monitoring market prices and adjusting to ensure high occupancy
  • committing to a high user experience (i.e. fast responses, impeccable cleaning, etc

If done right, they can bring in 2-3x revenue.

Cons
It's a lot of work. There are ways to automate it getting a good cleaner and using digital locks that can be recoded, etc. But you still have to set that up, not to mention furnish the place and take pictures in a way that will stand out in an increasingly crowded field. (Gone are the days of just throwing up any old "garden level" dump and raking in the money.

If you decide to pursue Airbnb further, there are plenty of resources out there and you should read up a lot before diving in. (We haven't even touched on zoning issues and the growing number of city regulations around STRs.)

Hey @Kyle Gale. Interesting post and one with information I think a lot of people are thinking about right now. Thought I'd bring in @Michael Greenberg. He has a couple vacation rentals in Scottsdale, I believe, and he's interested in breaking free of the traditional platforms.

Welcome @Kelly Nuno! You've come to the right place to learn. Bigger Pockets has a ton of great people. (And a healthy contingent of Denver people if that's one of the areas you're interested in.) You just missed Denver's BP meetup, but you should definitely come to the next one if you're in town. They'll be scheduled at this page.

Cheers!

Hey @David Lowe. Good for your for considering a vacation rental. If actively managed, it can be pretty lucrative. Here are some thoughts on a few of your questions (and one you didn't ask):

Local laws
For anyone looking to start a vacation rental or STR, the first thing to do is research the local laws. According to this story from February, 60+ Charleston residents are being sued for illegal STRs. The story says the city technically doesn't allow them outside a small district. ("Under current zoning rules, only properties in a specific district within the Cannonborough-Elliottborough neighborhood can be rented legally for fewer than 30 days.) Something to research further, for sure.

Insurance
Like @Jake Knight said, CBIZ is great. You definitely want to get a policy specifically tailored to short-term rentals. Most carriers will deny a claim on a regular tenant policy if they discover that you're actually running an STR. CBIZ is partnered with HomeAway, the parent company of VRBO. You can read their FAQs here. I've heard that All-State has started offering short-term rental coverage, but don't really know anything about their policies. There's also a startup called Slice that has a different model. They offer on-demand coverage, so you're only paying for vacation rental insurance when someone is in there. I just met them at an Airbnb meetup here in Denver. I can't vouch for them. I'd stick with CBIZ.

Vacancy rate
This one's tough, because it's going to be so locale-specific. If you buy in the hottest part of Charleston, then maybe you'll be booked 85% of the time. You might try AirDNA or Mashvisor to gather some concrete data on occupancy rates in your area.

Property management
If you're meaning full-service property management (communication with guests, booking, key handoffs, in-stay response service, cleaning) then you're looking at 20-30%, in my experience. If you have any time to devote to this, I'd suggest handling guest communication and booking yourself, finding a good cleaning person nearby the rental who you pay a little more to also be available should something go wrong. Utilize a lockbox or a digital lock that you can reprogram from your phone for each guest. That might save you some money.

Condo vs SFH
Again, this is all about locale. Do the areas that get the most Airbnb/VRBO traffic tend to have condos or SFHs? As with local laws, always check a condo's declarations. Many HOAs don't allow rentals shorter than 30 days. 

Hope this helps. And good luck!

Hi @Jenny Letto. Way to go getting in the game so early. As @Brett Goldsmith said, speaking with a lender is almost always your first step. Online mortgage calculators won't tell you anything reliable. You need to know your numbers before setting up a search for potential investments.

As far as Airbnb goes, YES! If you have the cash to furnish it nicely and the time/energy to keep up with guest management, cleaning, etc, then the returns can be fantastic. A few words of caution. One, be sure to know what your local laws are. Maybe short-term rentals are totally allowed. Or maybe they're not allowed but the city doesn't seem to be doing anything about them. Or maybe the city has totally cracked down on STRs. Just know what you're getting into. Two, as a corollary to that point, if you do plan on doing Airbnb, I'd still recommend doing your ROI/cash-on-cash/etc. calculations based on traditional long-term rental market prices. That way, if something causes Airbnb/STRs to be untenable (i.e. new city regulations), then you've got a buffer.

Good luck!

Hey @Jessica Gil. Congrats on taking the first steps toward investing. It seems scary at first, but it's not as complicated as you may think. Many of the people here have already covered how house-hacking can be good from a low-down payment side.

I would just throw out another idea. You mentioned a duplex. That's a great idea ... if you can find one. Everyone and their step-mother is looking for a duplex because of the well-known benefits. An alternative you might consider is looking for a SFH with an attic or basement that you could turn into a rental. There are places with a back entrance straight down to a basement or an attic that has a separate outside entrance. If you have the money to put in a kitchen/bathroom, then you could basically do the same thing as with a duplex. (The caveat being that you need to make sure zoning allows that type of accessory use.) A bonus is that unlike a duplex, in a SFH with an accessory unit, you can do Airbnb legally in Denver. Short-term rentals aren't for everyone. (They can be a lot of work.) But done right, the returns are amazing. And you could do that without a kitchen in that secondary unit.

And hang around here on BP. There's a lot of smart people on here. Cheers!

Great to hear @Ryan McCann! Congrats on the success. Winter occupancy rates normally dip, so the fact that you're at 85% for December says you're doing something right. 

Hey @Fraser Lawson. Do you have enough equity in the first apartment to refinance or use a HELOC to pull out some money for a second purchase?