Here’s a fun fact: I’ve bought and sold over $2 million in real estate…all of that in flip houses.
I assist buyers and sellers in real estate all the time. Buying a house to me is like buying toilet paper for most other people.
But, I’ve never bought a house to KEEP as a vacation rental until now. And let me tell you, it was the first time I was shaking in my boots at closing.
If I’m accustomed to buying real estate— investment real estate no less– what had me shaking in my boots?
That was the amount of my down payment and closing costs. All cash. Yes, you can get into houses for 3.5% down, but here’s the fine print sooo many people ignore: The less you put down, the higher your mortgage payment. The higher the mortgage payment, the smaller the profit. It’s basic financing, so I chose to put 20% down plus closing costs. Before I ever had my first guest, I shelled out a lot of money.
But the spending didn’t stop.
This is the amount I spent out of pocket to furnish the Airbnb. From mattresses to soap and everything in between, as an Airbnb host, I am responsible for furnishing the entire property. This is obviously different from being a landlord where I just supply the home, and they furnish everything themselves. If I opted to ever long term rent this house (my plan B if another crash happens), I could have avoided this cost.
If you’re purchasing a separate property for the purpose of Airbnb, you will have substantial extra out of pocket cost to furnish everything.
This is the total amount of pocket. It’s a very healthy all-in investment. It’s not every day I drop that much cash on a house. With flips, I’m not so concerned about a cheaper mortgage payment because I don’t plan to own them long enough to care, so I’m able to put minimal to no money down (or pay cash). But like with Flip 5, I put 20% down to give me some breathing room on the monthly finances.
But here’s the math that sold me on shelling out over $28,000. If I chose to be a landlord on this property, I could reasonably expect to gross $900-$1,000 in monthly rent based on neighborhood comps. That’s a small profit margin but a lot of headache. I’ve said it before, I’m still not sold on the desire to be a landlord, so I keep rejecting that option.
But the other numbers are where the potential lies in this investment. If I rent the Airbnb just 40% of the month, I can reasonably expect to gross $1,000-$1350 (variance based on peak season). I think starting out and building a reputation as a host, this is a reasonable first year expectation. Not a huge profit, but still more than long term renting.
If I was able to rent the property 100% of a month, I could expect $2250-$4,000/month. I don’t expect a lot of months to have 100% occupancy, but if they did, I’d be grossing FOUR TIMES the long term rental amount.
Keep in mind, these numbers are GROSS. I still have to pay state and local taxes, income taxes, utilities, and supplies each month. Real estate investing is a gamble. With house flips, I know the end result. By the time I pull the trigger on a flip, it doesn’t even feel like a gamble. This investment property feels very much like a gamble! I have finished staging the house, and it’ll be open for business this week! I’ll be doing a post with links to the listing, after pictures, and even some coupons!