Airbnb, VRBO, and other home-sharing platforms have been giving hotels a run for their money. Many savvy investors have caught on, real estate empires have been built, and fortunes made.
Airbnb & multifamily properties are a match made in investor heaven, and they’re the secret to earning both appreciation AND cash flow.
Here are the steps to buying your first Airbnb multifamily property:
Determine the Legality of Airbnb in Your Area
Before you start doing anything else, you’ll want to make sure that Airbnb’s are allowed in your area. The laws are constantly changing so be sure to check your city’s website for current ordinances and any upcoming legislation.
In Long Beach, the short-term rental (STR) rules can be found here: https://www.longbeach.gov/lbds/enforcement/strs/
If you’re serious, make sure to read everything the city posts. If you’re in a hurry and want to know if your STR qualifies for a permit, just answer the following questions:
- Is your property located in the Coastal Zone?
- Yes: Bad news. STR’s are not allowed in the Coastal Zone at this time.
- No: Great! You might qualify for a permit. Continue to question 2.
- Is the dwelling unit qualified for STR use? (See table below.)
- Yes: Great! You might qualify for a permit. Continue to question 3.
- No: Bad news. Your dwelling unit isn’t qualified for STR use.
|Qualified for STR Use||Not Qualified for STR Use|
|Single Family Dwelling*||Rumpus Room|
|Individual Units on a Multifamily Property*||Garage|
|Maid Quarters*||Storage Room|
|Guest House*||Pool Houses|
|ADUs or Junior ADUs|
*or portion thereof
- Is your STR on the same parcel of land as your primary residence?
- Yes: Congratulations! You can (probably) get a permit! Continue to question 4.
- No: The city can issue a max of 800 non-primary residence STR permits at a time. If all 800 are currently in use, you’ll be put on a wait list. Go to question 4.
- The number of units you can permit for STR use depends on the number of units you have:
|Number of Qualified Dwelling Units on Property or Development||Number of Units Allowed for STR Use|
|2 to 10||1|
|11 to 50||10%|
|51 to 100||12%|
|101 or more||15%|
As an example, if you buy a fourplex outside of the Coastal Zone, you can:
- Unit A: Your primary residence
- Unit B: Long-term tenant
- Unit C: Long-term tenant
- Unit D: Airbnb
Be sure to check the city’s website regularly for changes and updates. Make sure you read everything carefully and know the rules. There are additional details and restrictions that may apply. From the time your completed application is submitted, it takes 2 to 4 weeks to get the permit. The permit costs $250 per year, and must be renewed annually.
Talk to a Mortgage Lender
The first step to purchasing an Airbnb investment property is to talk to a lender. If you’re not planning to pay all-cash or do a seller-carried note, you’ll need to get financing and find out how much you qualify for. A good lender should be able to guide you through the process and prepare you to be a serious buyer. Feel free to contact our in-house team of mortgage professionals at Sage Real Estate in case you have any further questions.
Talk to a Real Estate Agent Who Knows Multifamily & AirBnb
It’s important to work with a real estate agent who’s an expert in multifamily properties in your area. Anything less is a mistake. They will be able to help you analyze the different properties on the market, teach you creative ways to maximize your cash flow and guide you to the best deals.
Analyze the Available Properties on the Market
Now that you’ve started looking at the different properties you can purchase, it’s time to start analyzing them. Your agent should be able to help you determine the cash flow, cap rate, expenses and compare different deals.
There’s an excellent free online tool you can use to get a pretty accurate estimate of how much income a particular property will generate on Airbnb. Go to airdna.co, create a free account, and then choose Rentalizer on the left-hand sidebar. There, you can enter your property’s address and it will give you the estimated revenue.
The more properties you run through Rentalizer, patterns will emerge. Some neighborhoods will be raking in the dough with high nightly rates and low vacancy, while other neighborhoods will be much less exciting and hardly earn more than having a long-term tenant.
If your agent is familiar with Airbnb in your area, they can quickly guide you to the properties and locations that will give you the highest return on your investment.
Purchase the Property
Once you’ve identified the right property, it’s time to buy it. From here on out, the process is just like any other real estate purchase. Your agent will help you write a strong offer that’s irresistible to the seller. When your offer is accepted, the property will be inspected, appraised and your loan funded.
Get the STR Permit for Your Property
Now that you’re the new owner of a multifamily property that’s ripe for an Airbnb, it’s time to get it permitted. Follow the steps on your city’s website, and once you’re approved you’re in business!