2. Next strategy to discuss financing for: Cohosting or managing Airbnb for other people
And It really doesn't require any money at all.
You don't need an LLC but if you become more established it’s worth creating one.
You don't need a website, business cards, or software to start either.
The only true cost may be some training if you want to buy a course or hire a coach - but not necessary if you are tight on funds. Essentially the only cost to doing this is the time cost of the time it will take to get started and then to manage the properties. We will have a separate breakdown of how to get clients for this in a future part of this series. But ultimately you don't need any money to start managing Airbnb for other people and making 15-20% of their revenue.
If you have decent systems for this and get a few decent clients, it’s enough to leave your 9-5 office job with no problem and be a laptop nomad.
3. Airbnb Arbitrage
This is the strategy where you rent a property from a landlord and then list it on Airbnb. Now obviously the cost to do this will depend on where you live and the cost of rent/local furniture.
But conservatively you really only need about 5-7k to get started with this. You will typically need 1 month's rent upfront, deposit payment, and furniture. And sometimes you need the last month's rent.
These will all vary based on location and property type.
I will be releasing in the next blogs breaking down the cost of furnishing in parts 4 or 5 and in that blog will provide a checklist of the furnishings I recommend.
4. Buying a traditional investment property with a residential loan
This may be self-explanatory for some but this is the process of buying a rental property with traditional rental property financing and putting it on Airbnb.
These single-family homes typically require 15% down. There will also be some closing costs of 1-2% and then likely the cost to furnish the property.
As mentioned, We have some guides on all the furniture we use to build out, but from a high level, a 3-4 bedroom is anywhere from 12-20k.
5. Buying with a money partner
It's annoying when people say the term " it can be done so many different ways".
I hear people say that a lot when they are asked how to structure partnerships. That's true but the problem is it's not tactical. But there is a general way that I think is fair for people to partner.
As I mentioned in the last blog, it really just depends on what each side is bringing to the table so that it's a fair partnership.
And this depends on people's experience, level of involvement, and ability to get loans!
The main scenario I've seen and done and think is very fair is this. And it’s ideal for a scenario where one person (probably you) has more time and energy and not so much money but can link up with someone who has more money, and maybe less time and energy. Maybe a family member or friend who likes what you are doing. They can get the loan in their name and you can be the deal finder or the manager.
As for the split of the down payment, that depends on how well you negotiate and how close you feel to that person. I have seen one side bring all the money and then it still is a 50 / 50 partner because the other person found the deal and will manage the partner.
And I've seen it where someone gets the loan in their name and then the other person needs to pay them back to 50/50 equity.
This is sort of back to what I mentioned before, and why people say there are so many ways to do it - but the ways I just mentioned above are a fair starting point and then you can negotiate from there.
Actually wanted to end the blog there but there is another one I need to mention
Optional part 6: Commercial loans
This is definitely an option but it’s a distant 6th for a reason for me. I think it's a good option to consider after the options above have been considered or used. And it makes more sense if you don't have a job. Because the loan is based way less on you as a person and more on a business view. But also because of that, the terms are less attractive. Typically higher down payment, higher interest rate, and in some cases higher fees than residential loans.
Bonus Tip:
One last thing to note - is that anytime you are furnishing a property, a little trick that I recommend is opening a new credit card. By doing this you do 2 things. You can likely defer the cash cost of the furniture 12-18 months due to a card open bonus and by doing that, you can pay the furniture back with cashflow instead of hard upfront cash.
Also - for my credit card hacker friends - its a nice opportunity to get a travel bonus by standing up a new property.
Conclusion
There are amazing ways to get started on Airbnb with virtually no money. It just depends on your situation and which of these strategies piqued your interest.
I can tell you what I did and what I typically recommend to most people
If you have a job, I recommend maxing out your residential loans until you use up all of your DTI or debt to income while you have that job.
This is because these are only in place while you have a job. So it doesn't really make sense to leave a current job unless you use these up - especially if you're in sales because the penalties are so harsh for salespeople changing jobs with lenders.
So I used up three 2nd home loans in the last 2 years before leaving corporate.
I purchased a property with a partner who got the loan in his name.
And now getting more into Airbnb arbitrage since I have some friends with apartment buildings
So just an example that they are all good strategies and can be used at different times.