🚨 Part 1/6: Airbnb Overview Strategies - How To Start Airbnb Investing 🏠
This is going to be a 5 part series on all things Airbnb.
We are going to start with an overview of all the strategies
The financing and money portion followed by
Analyzing Deals
standing up your first property
and handling the management of your first property.
So what I want to make sure, you guys get out of this series. This is a starter kit to take action. ASAP!
Body & Strategies
Here are my favorite 4 strategies to start doing Airbnb right now.
In my opinion - they are the easiest to start with and all things I have done or am in the process of doing.
10% down 2nd home loan - favorite
Airbnb arbitrage
Co-hosting
Buying a traditional rental property
Let's get into these strategies and what they mean. They are all good but some may be better for you depending on your situation.
1. Vacation Homes with 10% down and putting on Airbnb
This is one of the coolest strategies right now. And at the top of the list for a reason.
There are tons of gov't backed loans to purchase property that are very underrated - almost hidden.
But basically, you can use these loans to your advantage. So there is a loan that is actually called a vacation home loan. It’s completely legal and backed by government lending - where you can put 10% down on a vacation home in a destination area and use it when you want and put it on Airbnb when you're not there.
You can learn about this loan by speaking to your local lender and the requirements, but if your credit is over the mid 600s and DTI (Debt to Income) is below 43% - you should be able to qualify. And then the purchase price will be different for everyone based on savings and income, but it's an incredible strategy I have done 3x this year.
So What are the Pros and Cons:
Pros
insanely low-interest rates. at least as of right now. Way lower than investment property loans.
There is something called PMI but it goes away when you hit 20% equity - this is incredible and doesn't happy on many other loans with PMI. PMI is mortgage insurance that lenders require when you are under 20% down
Cons
This is usually only for areas that are considered destinations. It's not really possible to get this loan in an urban area.
This strategy has become way more popular - meaning more competitive. Before covid - no one knew about this but now many people are looking for vacation homes.
You need to have pretty strong credit and typically a stable w2 to secure this type of loan.
I love this strategy and think it's still really underrated.
2. Airbnb Arbitrage
Sort of a hot-button topic these days. Regardless of what you think about it - it's a growing business that's completely legal and a great way to make money with very little capital.
Airbnb arbitrage is the process of leasing a property from a landlord and then listing that property on booking sites and making the difference.
For example, you can rent a 1 bedroom for $1000 and if you can list it for $100 per night on Airbnb, you can make a nice profit after expenses. A lot of people have a rule of thumb of around 1000 dollars in cash flow per bedroom - which I think that's completely doable.
So What are the Pros and Cons:
Pros
It requires very little money to get started compared to purchasing
I really believe this is one of the highest returns you can make in real estate right now. I typically see cash on cash over 20%
It's less competitive than buying something on the MLS right now - fewer people know about it
Cons
It requires a lot of hustle and salesmanship. You are calling buildings/landlords and pitching yourself. This is difficult for a lot of people
Since you do not own the property so you do not reap as many tax benefits or appreciation benefits
If you have issues with your landlord or guests, your landlord can non-renew you and now you have to move out / lose the reviews that you had with the property
Not always but In most cases - you need business credit - which takes time to build
I think this strategy is amazing for anyone who has a little bit of capital and willing maybe a sales background. This isn't as hard as people think, but it can be tough getting rejected a lot by landlords at the beginning.
3. Co-hosting
This is a fancy word for property management in the Airbnb world.
But it's a great strategy for beginners. In some cases, property managers in this space can make up to 20%. It's technically active income instead of passive.
But it's a good way to learn the business and build systems while making money. I know plenty of people pursuing this as a full-time strategy and will be able to leave their jobs because of it
So What are the Pros and Cons:
Pros
Requires virtually no money to get started.
In most cases - if you use smart technology - the entire thing can be done from a laptop. You can be a virtual worker.
You do not need a credit or a job.
Cons
It will require a lot of effort to land your first contract
You may have to start out working for free
Until you build systems, you will have to be on call for a while to make sure things go smoothly
For people who do not want to buy or have enough cash to do arbitrage, this is an awesome strategy if you're a go-getter
4. Buying a traditional investment property yourself
This is pretty much what it sounds like - you are buying a property with 15-20% down as an investment property, furnishing it, and then listing it on Airbnb.
It's a great option for a lot of areas where you will not qualify for a 2nd home.
So What are the Pros and Cons:
Pros:
You own the property and have full control of it (if you don't buy an HOA property).
This means You don't have to deal with landlords for arbitrage or owners you're managing for. you essentially don't answer anyone
You get all the tax benefits and net worth growth of owning real estate
Cons:
Most of the strategies mentioned can be dissolved fairly easily. Either the contract ends or you break a lease. With ownership, if you have a problem property, you have fewer exit strategies which aren't great.
You may encounter much higher expenses if things break or there are unexpected CAPEX items like a roof or water heater.
Home buying is crazy competitive right now. We use a lot of strategies to find off-market deals but most decent MLS deals go the same day over ask right now. Not fun.
5. Buying with a money partner
This is a really underrated strategy. And some people may not agree.
But - as I've talked about in other videos - there are tons of ways to partner with people. As long as both sides are bringing something to the table.
It's a common misconception that both people need to be on the loan to be 50/50 equity partners.
Not true.
So if you have very little money you can find a partner to get the loan in their name and then negotiate an equity partnership. In some cases the person who didn't get the loan in their name will have less equity - in other cases, it can be 50/50.
If the person brings the down payment and the loan in their name, I think a fair strategy is to have them pay back their downpayment with cash flow over the first few months or years until they get back to 50/50 equity.
Another option.
if one side is willing to get the loan in their name - and one side is willing to find the property and manage the day-to-day - that can be a solid way to potentially partner with someone.
So What are the Pros and Cons:
Pros:
you may need no money upfront to gain 50% equity ownership of a rental
after the first year you should be making nice cash flow - and since you may have not put money up - you are making a potential infinite return
Cons
this takes a bit of time to build a relationship with someone and explain this concept
You may not make cash flow for a while
Conclusion
The bottom line - there are some great options to get started investing in real estate and specifically Airbnb. That doesn't require a lot of money. It’s just a matter of picking one, getting educated, and seeing if it’s the right strategy for you.
