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How much it costs to start on Airbnb - THE TRUTH
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- Опубликовано: 17 авг 2024
- This is how much money it will cost you to start investing in Airbnb properties!
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The most common question I get from people, by far, is how much does it cost to start on Airbnb? This is the most difficult question to answer, because there is no perfect answer! The truth is, there are multiple different strategies you can deploy. You can start with as little as $0 or it could take over $100,000, or anywhere in between.
In this video, we review the following strategies:
1) Buy and Hold Investment.
This is most likely what comes to mind when first considering an Airbnb property. You take on a loan from a lender, put a down payment on the property, spend money to furnish it and then set up your Airbnb listing - and you're off to the races. This is the most expensive strategy to start on your own, but you reap the most rewards! You will reap the benefits of:
- Cash Flow
Revenue minus your operating expenses and mortgage = cash flow. Cash flow is what can set you financially free - meaning your monthly residual income surpasses your monthly living expenses!
- Principal Paydown on the Loan
Part of your expenses each month is your mortgage. A portion of the mortgage goes towards interest (the bank keeps as their incentive and reward for lending you the money) and the rest towards principal (equity that you keep in the property). The guests are essentially paying off the house for you, and you get to keep the principal portion! This is separate from cash flow, and this is how you build your wealth and net worth over time!
- Appreciation
Although you may only put down 10-20% as a down payment, any and all appreciation that occurs on the property is yours to keep, 100% of it! This is the beauty of leverage! This also hedges your wealth against inflation.
- Tax Advantages
Cash flow is taxed differently than ordinary, earned income! You can write off depreciation of the asset, interest paid on the mortgage, miles driven in your car, and any other related expense to your business! This reduces your overall tax liability and is a huge income saver!
2) Rental Arbitrage
This is an AMAZING strategy! You essentially sublet out an apartment, condo or house on Airbnb. You NEED to sign a corporate lease agreement, where it explicitly states that you can sublet on Airbnb. This strategy has pros and cons (mostly pros!):
Pros:
- Takes far less money to get started than buy and hold. You have to pay to furnish the place - which can range from a few thousand to many thousand dollars, depending on the size of the property, and any other costs associated with setting up your lease agreement and utility bills. But NO DOWN PAYMENT
- Less/no credit score required. You don't need to qualify for a loan based on your income or credit score.
- You can scale way faster doing this than buy and holds. You can acquire many more arbitrage properties in a short period of time, than buy and holds, b/c it takes less capital to start. Also, you don't have to wait 30-45 days to close on the property.
- You are NOT responsible (in most cases) for maintenance and repairs on the property itself. You may be, if you agree to pay for certain items, written in the lease agreement.
Cons:
- This is a pure cash flow play... Meaning you won't get the added benefits of principal paydown and appreciation and certain write offs, like depreciation, etc.
- You don't control the asset... Meaning you cannot make changes to the property in most cases (new paint, change the carpet out for vinyl plank, etc.)
- If your landlord does not want to renew your lease, even if you are crushing it on Airbnb... You are out of luck and must close this listing.
3) Co-Hosting on Airbnb
You manage someone else's Airbnb for them, and you get paid a specified % of the revenue it brings in. You basically act as the property manager. This strategy is the most difficult to start, because you have no experience and you have to network like crazy, but it takes $0 out of pocket!
4) Real Estate Partnership Agreement
You partner with one or more people on the investment. You can essentially deploy any of, or a combination of, the first three strategies mentioned! This is great because there are a ton of ways to carve up a partnership. In this agreement, you specify who is contributing what amount of money, who gets what % of equity, who is responsible for what, and how the cash flow is dispersed, etc. I recommend speaking with a lawyer and having them draft an official agreement. It's honestly a very straightforward process and simple to do!
Best of luck!
What questions do you have? What locations are you most interested in for Airbnb investing?
I am interested in the New Orleans area
Can you do a video that explains the financing of your properties in more detail? How much cash did you put up each time? How did you secure financing for a STR? What type of lender, bank, credit Union, etc.? What do lenders look for/ask? Thanks!
@@ryanmartin1720 for sure thank you for the suggestion!
@@melefante6 I’m excited to watch!
Your co-hosting topic peeked my interest! I have been watching all of your TikToks, and RUclips videos to figure out how to get started at my age of 22, and co hosting seems like a great way to do so since I don’t have enough to buy a long term investment property. I live in the Bay Area, is there any recommendations you have for ways I could get into co hosting? Thanks in advance! I most likely will purchase your financial freedom university course sometime soon to learn more!
I love the transparency. If you’re traveling are you paying a property manager. I live in the NYC area and it’s too expensive near me that I need to buy elsewhere. The thing that stopping me is the price of property managers.
We self manage currently. May pay a PM down the road but most of it is automated so we don’t spend much time managing the properties. And to be honest it’s not worth paying a PM 20-40% of revenue for what can take 1-2 hours per week of time
Currently looking for a cabin in Gatlinburg but the market is so crazy right now that everything is selling super fast and for more then what it's probably worth!
Yes, it is crazy! I am personally looking at properties that need some cosmetic work (new paint, new flooring, etc) and are not turn key. Less competition on those types of properties. Competitive regardless - I just recommend being tight on your #'s and as long as it's meeting your cash on cash return expectations, even with over bidding on a place to get it, the investment still makes sense! :) best of luck!!
@@melefante6 Awesome, Thanks man. Love all your videos. They are SUPER helpful! Keep them coming!
Very nicely done. 👏🏼 I know it's difficult to own short term rentals here in Hawaii unfortunately.
I bet! Hawaii seems like a booming market, but I'm also sure it is competitive with hotels, resorts and cost barrier of entry.
@@melefante6 You got that right. And I think with certain laws/policies the government favors the hotels ,etc.
Will be purchasing your course soon!
Awesome! Pumped for you and can't wait to hear about your success!
What are your thoughts on pulling equity out of your primary residence for a down payment on another property and the cash needed for renovations and furniture?
I’ve done a cash out refi to fund an investment and honestly it’s amazing because a cash out refi is not a taxable event. IRS views this as a new loan and not income. I like the idea of putting underutilized equity to work in a cash flowing asset :)
@@melefante6 Thank you so much!
Can you do a cash out refi with equity in a rental property?
This is great thank you!
:)
Your story is inspiring and thank you for sharing! We are looking for our 1st property atm, can you help us please.
I have a few options if you’d like assistance through the process! See below:
stanwith.me/melefante6
Hey Micheal did you rent a place that you lived in while your rented out your primary? Can you tell us where you lived and the order you purchased each property and how you SPECIFICALLY leveraged your assets into
More and where you lived during thank you
I may have touched in this in previous videos (how we became millionaires in our 20s) but I can certainly touch in this in future content! Thanks for the suggestion
do you refi your properties once it appreciates (whether forced with capex or just through market demand)? Curious how you cash out to roll the gains into new properties. And if you have a property booked back to back days with different renters, while you're out of town, how do you get comfortable that cleaner is going to get in and out in time and how do you plan for issues like replacing towels, sheets, things broken, etc with such little time between two renters?
Yes we have done a cash out refi once and rolled it into a new investment. Will consider it moving forward also. Great communication with cleaners is critical. They should let you know when replacements need to be sent and you should consider having 2-3 sets of towels and linens to make same day turns easier if the cleaners do not provide linens themselves
Where do I get info on your course ?
Who would you use or how would you go about getting a commercial lease for a residential property??
*corporate
@@campoften8452 the landlord should be able to draw one up for you, but you could always look on legal zoom or speak with a lawyer to have one drawn up and ensure you have all your bases covered!
Thanks for making a video on this 🙌 I remember asking this question on your TikTok lol. Just wondering when you bought your first STR property, were you renting somewhere else at the same time to live at yourself or no, and do you think that would that be manageable? I guess what are your thoughts on buying an STR before you have a place for yourself? (I still live with my family).
We bought our first STR property at the end of 2019. I am all for getting an investment prior to primary residence - especially in the hot real estate market we are currently in. Having the investment can produce cash flow and offset your monthly living expenses to allow you to save up faster for the next investment or your primary house. You could also look at house hacking - I wish I would have done this!
@@melefante6 awesome sounds like it’s best to get started as early as possible, that’s what I was thinking. Do you think it would be doable to manage your first STR property remotely? I live in CA so I would need to start elsewhere where prices are more attainable. Yeah house hacking definitely seems like a great move too, I’m debating on doing that or STR first. Now to decide where!
@@johnkeithaicher1828 yes 100% - one of the people who just took my course lives in San Diego (he did a testimonial that I posted on IG and Tik Tok) he bought in Nashville and just got his second in Sevierville TN and manages remotely :) they’re cash flowing multiple thousands per month
Is the market different in Europe. Because I live there and you’ve been talking about the USA. I’m curious if you know anything about rules in the EU?
I am not familiar with the rules or regulations there for short term rentals
Who do you recommend for lending or financing? I've heard of Host Financial and considering using them but wasn't sure if there were other companies I should be looking at.
I've heard of host financial, but have yet to use them personally. Another one that seems to be on the rise for short term rentals is Visio Lending. I've used a few different lenders - never big banks for any of my loans. Mortgage Investors Group I have had a great experience with - their only downside is they have been swamped the past year and aren't the most responsive during the early stages of the process.
@@melefante6 Awesome I'll check a few of those out that you have recommended 👌
how much money did your partner lend you to get started?
None. We bought our first 3 properties on our own. The 4th one we had a great opportunity to partner with someone who had a skillset in building/flipping homes. He managed the rehab, we managed the design, selected the furniture and furnished the house, and manage the Airbnb listing. We split everything 50/50.
@@melefante6 a better question would be how much did you spend on your first property? Including the down-payment to the furnishings.
@@kingnaira8648 (every investment is unique and different) but our first one we did a 15% down payment on a $495k property. We got the seller to pay for nearly all of our closing costs (I believe we came out of pocket around $2k for closing costs) and we spent just over $30k on furniture and misc. furnishings/decor for the property.
@@melefante6 so you had to come out of pocket over $100,000 just to get started? Wow Jesus Christ. So you already had a lot of money when you began.
@@kingnaira8648 Yes, I worked my wife and I both worked our butts off, changing jobs several times and side hustling to save up as much as possible to make this investment. All investment strategies and each individual investment is very different. I could have started earlier with less money, but I was still learning and saving up in the meantime. Hence why I made this particular video, to outline the various strategies and associated costs. You can co-host for $0, you can do rental arbitrage for far less than a buy and hold investment. And each buy and hold investment and loan terms can vary drastically. Real estate partnership agreements allow you to deploy a combination of these strategies and you can carve them up in any way you desire. The message I am trying to get across, is that you can start TODAY, regardless where you sit financially. And in the meantime, I encourage everyone to focus on boosting your earnings/income as it will allow you to invest larger amounts of money in a shorter period of time than purely saving money on current job, if that's the case.
Lastly I will note that in 2016, after college, I had NO money and was working a job that paid me $35k per year in a large city, where I was barely able to scrape together a few hundred dollars in savings per month. Anyone can do it if they set their mind to it and deploy an effective strategy! :)