If you’re anything like me, you’re constantly searching for creative ways to add to your real estate investment portfolio and maximize the amount of (semi)passive income you receive from your properties. For many folks these days, that might very well mean ALL of their properties…including their primary residence.
Thanks to the conveniences provided by services like AirBnb and VRBO, there’s been an ever-growing trend of homeowners turned landlords creating a new side hustle by working to convert their basement into a mother-in-law suite, adding an apartment space to their garage, or something of the like, all in the name of setting up shop with their very own bed and breakfast (so to speak).
At face value, it seems like a silly proposition. Who would want strangers flowing in and out of their property several times a month? What about all the work that it takes? The cleaning and the maintenance alone must be enough to make you want to rip out your hair! What if the guests are loud and destroy the place! There've been so many horror stories…but has there really?
It’s not for everyone that’s for sure, but I can say in my own experience it’s honestly been a breeze. You set all expectations up front through your house rules and policies, which you can set to your liking. Tenants are easily vetted through the app, meaning you can read reviews from their past stays and chat with them before you approve their booking. That way, if anything feels off…say they don’t have any reviews, or they question your rules…then you simply don’t approve their booking. In the event something were to go wrong, AirBnb provides a $1 million liability policy and a $1 million dollar damage protection policy free of charge (VRBO only provides a liability policy). Regardless, the guests I’ve had have all been extremely pleasant and respectful and the worst thing I’ve come across is a little mud in my sheets from some kiddos.
Oh, and I should mention. It is a CASH COW if done right. So much so that even folks that don’t lift a finger and hire a short-term property manager at 20% can end up with returns that would make you wish you could rent all of your properties short-term (you can’t). There is a catch. There’s always a catch.
At this point every county and pretty much every city within those counties will have or are in the process of making their own rules as to how they will govern short-term rentals. By and large though, short term rentals will only be allowed on property that is legally held as your primary residence and you must maintain a license with regular audits to keep your short-term rental running. This limits you to Accessory Dwelling Units (ADU’s aka apartment units) or rooms/areas of your own home. The penalties for utilizing a non-primary residence are no joke either so don’t get any fancy ideas…as in felonies have been handed down to the worst offenders.
Anecdotally, I showed a home near Sloan’s Lake recently that had a newly built 3 car garage with a nice modern 1 bed 1 bath unit built on top which had grossed about $33,000 from January to August and showed an NOI of around $27,000. For 8 months of the year that’s about $4100/month income with around $750/month expenses. Not bad for the cost of building a garage and apartment unit behind your house (probably in the ballpark of $250k-$350k to build?). The results vary of course, but again, if done right and it’s something that one can find tolerable it can be a great way to convert your primary residence into a true cash-flow investment.
On top of that this is a great house hack for this market in general. Something to consider if you’ve been wanting to make a move up (to the mountains perhaps?) but want to avoid increasing your mortgage payments. Homes are coming for sale more and more frequently that have already been converted for short-term rental use in one way or another, so if you’re in the market or simply want to replace most, if not all, of your mortgage payment with an income generating machine be sure to give me a call! As always, I’m happy to share with you my resources and expertise to keep you ahead of the game!
Remember, if you own too much real estate, or not enough… I can fix that for you!