What You Can't Predict When Buying Your First Airbnb

You're getting into real estate and tourism and want to set up your first Airbnb or short-term rental (STR). How do you know what to buy? This question shouldn't hold you back, but it does take a bit of strategy to avoid big problems buying the wrong property and stalling out your growth.

Here are some starter tips that helped me, and things to consider so you know you're not missing some piece of the puzzle, which I found most stressful even over learning curves regarding taxes and business strategy.

I'll also go over some challenges I ran into and how to overcome them, to save you time and risk. Let me know if you have questions or if I missed something on my list!

Things To Consider When Looking At Airbnb Properties or Multifamily/Hotel Investment Properties

1. Loans often come in the form of business loan or personal mortgage for a smaller Airbnb purchase, while larger buildings require some collateral or investment partners for credibility as well as good credit and a plan for getting a property off the ground so a bank will lend you the money.
2. Know your budget up front vs. cash flowing a property, and do your research on local rental rates so your projections are realistic.
3. Also talk to banks about how they would lend you money, because you can often get better rates on a personal mortgage, but that adds liability and complicated financial structure to some deals.

Tips To Save You Problems Business Planning

1. Hire a local realtor who specializes in your type of property (bed and breakfast vs. airbnb vs. residential property) so you can get the tea on local politics, zoning quirks, and hottest upcoming locations.
2. View different types of properties in different price ranges and for different purposes (longterm vs. short-term rental, hotel vs. mixed use) but run some numbers along the way of what types of properties you might want to invest in and the benefits of being hands-on vs. hands-off or all in on one or two properties vs. diversified. Your budget will be very different if you are managing your own Airbnb vs. hiring someone (25-30% profit margin cut in our case, which made it much harder to get in the black quickly!). Look up ways to analyze properties that give you a sense of how quickly you can recoup your initial investment. It can be a lot easier to predict revenue than to predict timeline to profitability (oops).
3. Ask for help analyzing properties: find an agent or someone else to mentor you in real estate investment OR get on real estate investment podcasts and learn how to analyze properties. The equations you need to run on how to calculate if an investment is a good idea are completely different from residential real estate. Rented properties are sold as businesses based on 10x rental revenue, not market value of the building.
4. Have backup plans for if your first investment goes sideways so you won't knock yourself out of the game. Our realtor suggested our first property be a house in location where we could use it as an STR but also get longterm winter renters if we needed them to cash flow. When I did the math, I could see the wisdom in steering clear of remote properties at first because they were a huge money sink until we got a steady stream of renters. Turn-key properties might be the exception because they come with a client list.
5. Do your own research on local real estate rules about hospitality properties or multifamily apartment buildings or hotels. Hotels have extra taxes, inspections, and standards for kitchen cleanliness for food prep. bed and breakfasts might require you to live on site and involve a lot of heavy work if you can't afford housekeeping staff. Apartment buildings and airbnbs or hotels are managed by different types of managers. Don't be that guy who bought a beachfront home only to find out the city just limited STRs. It happens all the time. Our STR rules changed within a WEEK of us buying the property, and I had to get an exception and stay up on the latest law changes to get into the STR registry in Muskegon for Silversides House.

Challenges Buying My First Airbnb and How I Overcame Them

1. At first, anything seems like it will cash flow with enough creative business ideas for revenue, but it's not easy to calculate up front how much energy you have to manage all these projects. I realized as we viewed large and small properties that it would be wise for me not to pin our success on me being able to manage everything myself.
2. When we considered bigger properties, the renovations also blew our budget out of the water. Just like with a residential personal property, it's cheaper up front to buy something turn-key and roll all your expenses into a mortgage. Banks won't let you roll renovation costs into a lot of loans anymore, and construction loans are a lot harder to get than 20 years ago when we built our own personal residence owner-builder with a lumber yard financing. Knowing this change completely altered our plans.
3. Our new city STR rules meant we found out late that we were required to have a local contact managing the property who lived within 30 minute drive. This meant a huge chunk of profit (i.e. all of it at first) goes to managing our property, leaving negative margin for slack. We are still solving this challenge but are working with the managers to advertise the property, which they do very well already without us. They handle advertising, maintenance, bookings, financials, and tax reporting. It's pretty well worth it, honestly, leaving me free to focus on business revenue growth and marketing and content. Having professional managers also got our bookings up a lot faster than we could have done ourselves. I guess that's my last tip: don't underestimate opportunity cost!

I hope this helps if you're considering real estate investment as your remote business or side gig. Let me know if you have questions!