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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: nkt0 on September 21, 2018, 01:48:51 PM

Title: Rent vs. AirBnB vs. Sell
Post by: nkt0 on September 21, 2018, 01:48:51 PM
We are planning to move and currently have a mortgage on our house. We both love our house and have various scenarios about what to do with it in the short and long term.

850 sqft rowhouse in a desirable neighborhood
Purchase price (2011): $257,000
Current estimated value: $310,000
Outstanding mortgage principal: $184,084 @ 3.5% (~17 years)
P&I: $1212
T&I: $393

Scenario A: Rent to long-term tenant
I did some back-of-the-envelope calculations for renting our house to a long-term tenant. Here's what i came up with

Monthly Expenses:
T&I: $393
Management fee (10% rent): $150
Mortgage: $1212
Vacancy (10% rent): $150
Repairs: $150

Monthly Income:
Rent: $1500
Equity: $600

Net Income: $195/month, $2340/year

I'm not sure if most people calculate their net income from rental properties this way, especially with respect to equity.

The pros of this scenario are that we keep the house, which we love, and could eventually move back at some point in the future. The cons are that we wouldn't have access to the house in the short term for trips back to our current city.

Scenario B: Short-term rentals/AirBnB
I haven't calculated the expenses of this scenario because i'm not sure i have a good handle on the demand for short-term rentals in my area. We would hire a manager for the house, and i'm also unsure if they will cost more than your typical property manager. My uneducated guess is that we would break even (accounting for equity gain). The pros of this scenario are that we would have access to the house whenever we wanted to be in town. The cons being that the more time we spend in the house the less we earn from rental and wear and tear could be an issue with short-term renters.

Scenario C: Sell house
We love this house, but it's entirely possible we may never want to move back depending where life takes us. The house has appreciated some, but it is also quirky and not updated, so it will not fetch as much as some comparable neighborhood houses with full gut-jobs. If we sell, we can expect to pull about $100k out in current equity, which would could use as a downpayment on a different house or just sock away in investments. Another pro of this option is that it's one less thing to worry about/manage in our daily lives.

I'm legitimately torn with these options. Does anyone have perspective on any of these that might help tip us in one direction or the other?
Title: Re: Rent vs. AirBnB vs. Sell
Post by: smallstache on September 21, 2018, 02:07:02 PM
Your long term rental calculation is a money-drain.  During your best months, when the house is occupied, nothing breaks, and if no management break even.

I'm sure people out there make money with short-term rentals.  I tried it in Colorado and failed miserably.
Title: Re: Rent vs. AirBnB vs. Sell
Post by: nkt0 on September 21, 2018, 02:15:51 PM
We might be able to do better than $1500/month in rent, but i was trying to be conservative.
Title: Re: Rent vs. AirBnB vs. Sell
Post by: waltworks on September 21, 2018, 10:45:32 PM
We hit peak AirBnB a while ago - *everyone* (including me) thought it was a path to instant riches over the last few years.

Unless you are in a super desirable spot (right next to the ski lift/concert venue/main drag) you won't do that great with nightly rentals and you'll piss off your neighbors to boot.

Long term it sounds like you're setting yourself up to lose a lot of money and potentially make your life miserable too.

You have a capital gains exemption right now.

You should sell your house.

Title: Re: Rent vs. AirBnB vs. Sell
Post by: MJseast on September 23, 2018, 05:05:21 PM
Have you looked at similar Airbnbs in your neighborhood to see how much they cost and how booked up they get? How often do you realistically think you'd want to go back there to stay (in the Airbnb scenario)? Are you able to keep the house furnished for short-term rentals without having to buy all new furniture for your new place?

How far away will you be living from the house? Do you absolutely need someone to manage it for you in a long-term rental scenario? Have you checked Craigslist or Zillow to see what long-term rentals are going for? I don't think you should count equity in this scenario. If you're paying out more per month than you're bringing in, it's probably not a good idea. But if you can get someone else to pay your mortgage costs, plus cost of repairs, and maybe a little as buffer, it may be worth it if the option to move back there is really that important to you. This would mean getting rents of at least $1800/month (with self-managing). You can always decide to sell later, and depending on your area, your value could increase in the meantime. The nice thing about renting or AirBnb is that most maintenance and repair costs will be tax deductible.

After your research, if you think you can make more money than you pay out with Airbnb option, and you can keep it furnished, you should try that for a 3-6 months. I think your success is going to depend on your location. Also, late spring seems to be the best time to put a house on the market so it would at least buy some time until then.
Title: Re: Rent vs. AirBnB vs. Sell
Post by: Alanwatts on September 27, 2018, 03:36:37 AM
Is it a long-term investment?
Title: Re: Rent vs. AirBnB vs. Sell
Post by: nkt0 on September 27, 2018, 06:01:34 AM
@Alanwatts It is in the sense that we want to keep it.

@MJseast I have not yet researched short-term rentals in our neighborhood except very cursory. I need to explore in more detail. We don't know where we'll be living yet, but it will be in another country (aka America's Hat :). We will definitely need someone to manage.

It's looking like the choice is between staying put or cutting ties completely and selling, but i need to do some more research.
Title: Re: Rent vs. AirBnB vs. Sell
Post by: Drole on September 27, 2018, 07:12:47 AM
I'd say sell. 

Your mgmt fees might be off.  In one market, I pay 1 month's rent for placement and 10% per month after.  In another, I pay 8% month and also less on the initial placement. 

Some mgrs also charge for managing repairs (10% added to top)....

In my less expensive market, I have a very hands on manager who does a lot herself and that saves money on repairs.  In the other, I pay like $100 to "rekey" locks that have that type of lock where you only need a new key and don't have to actually unscrew anything. 

Also, is the house in good condition and can you handle seeing it get beat up quickly?  It was sad seeing my once tidy home after one family lived there.  (I rarely see it now....especially on the inside so I that keeps me a little happier).

I wouldn't include any sort of equity into the rental calculation.  Its about cash flow. 

I have not done air bnb but have done the calculation on higher end and lower end properties and I simply can't make the numbers work.  If you realistically set aside the money you will need to repair and replace furnishings and the like, the likely very high AC/heating/electricity bills, and the regular cleanings needed, it never seems to make more than a plain LT rental for me. 

Sell, pocket the money.  Then the equity is becomes real. 
Title: Re: Rent vs. AirBnB vs. Sell
Post by: genesismachine on September 28, 2018, 04:38:14 PM
Definitely sell, it's all about cash flow and there is none here even if you self-manage and nothing goes wrong. I wouldn't count on long term appreciation either. You have the capital gains exemption for now, don't let that slip away.
Title: Re: Rent vs. AirBnB vs. Sell
Post by: sailinlight on September 28, 2018, 04:46:36 PM
I have several short term vacation rentals and have found that in my area, Airbnb is very good at figuring out your potential monthly income. They have a calculator somewhere on their site for it. Your management fees will be much much higher for a short term rental than 10%, at least 35%.

It's a terrible long-term rental so don't even think about that.

If the short term rental numbers don't come out to at least 15% ROI not including mortgage paydown I would sell
Title: Re: Rent vs. AirBnB vs. Sell
Post by: afox on October 01, 2018, 10:49:45 AM
Look into the insurance costs for your airbnb estimates.  Pretty sure all or most standard HO insurance policies now exclude short term rental usage of the property. 

I often wonder how many airbnb hosts actually know if they are really making any money or would be better off selling or with long term rentals.  Its too difficult for most to calculate the difference between monthly cash flow and long term ROI.  I suppose this can be good for airbnb guests.  I have had several recent experiences where I have been enjoying a house I rented on airbnb and I look up the property on zillow and see how much they paid for it and its zestimate and am often shocked at how cheap Im renting it for.  The math doesnt makes sense.  So, I think of airbnb as a community service or a hold me over to stop the hemmoraging of money when someone has a bad home ownership situation.