House hacking is a great way to build your rental portfolio while cutting down on living expenses. Investors Greg and Heather are back to tell us how they decided to house hack in Colorado Springs with a detached ADU they’re renting out as an Airbnb. Thanks to this Airbnb, they’re able to build their rental portfolio much faster than expected.
- Listen to the podcast “#114: How to Build Your Portfolio Faster with Short Term Rentals” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Greg and Heather first started investing in real estate while living out of the country. Since returning to Colorado Springs, they bought six units in one year, plus a couple of out of state properties.
Finding a Property in a Competitive Market
At the time they were looking to buy, competition was fierce and there were many competing offers on properties. Since they were using a VA loan, Greg and Heather had it even rougher. During this period, many sellers weren’t entertaining VA offers, likely due to lack of education or being afraid of the appraisal process.
They found a great house with a cottage in the backyard, and agent Leah Keeling built a good rapport with the agent. Unfortunately, it went under contract to someone else. When the deal fell through, however, the agent reached out to see if Greg and Heather were still interested.
Appealing Features of the Property
This is a house with a cottage located near downtown Colorado Springs built in the 1900s. They had the option to live in either property, but since the cottage is the newer and nicer of the two buildings, they opted to live in the main house.
They renovated the main house with a balance between choosing nicer finishes for while they live here and knowing their ultimate plan of converting it into a long-term rental.
The inspection itself went well, but they found out after the fact that there were raccoons in the attic and beetles in a backyard tree. They brought in pest control to take care of everything.
Why They Chose to Airbnb
Greg and Heather originally planned on renting out the cottage on a long-term basis, but it made more sense financially to set it up as a short-term rental. The increased revenue from the Airbnb will allow them to build their portfolio faster than a long-term rental.
Short term rental regulations in Colorado Springs are stringent for non-owner occupants but much more flexible for owner-occupants. Having this option allows them to get a bigger boost to their cash flow while living there.
Since they live on the property, they decided to self-manage it. They purchased all of the furnishings, made the listing, and do most of the cleaning.
Why Guests Like the Airbnb
Guests like that the Airbnb is in a walkable area close to downtown and Garden of the Gods. Heather leaves snacks and lip balms as a personal touch to make the guests feel welcome. Since they live so close by, it’s easy for them to do small things to make the stay better, such as lending their toaster when their guests wanted one.
Heather learned the importance of taking her personal feelings out of the property, especially when it comes to reviews. While they’ve only had two negative reviews, they stung at first.
Property Financing Details
The property cost $540K, and their interest rate is 3.75%. Thanks to the VA loan, they put 0% down and only had to pay for closing costs and the furnishing/start-up costs for converting the cottage into a short-term rental.
Property Operating Expenses and Returns
Their monthly costs break down to:
- Principal and Interest: $1,250 ($2,500/2)
- Taxes: $9 ($17/2)
- Insurance: $79 ($157/2)
- Utilities: $200
- CAPEX (5%): $150
- Maintenance (5%): $150
- STR Costs (Misc. Cleaning + Supplies): $200
Estimated Total Monthly Costs: $2,038
During the summer, they had almost 100% occupancy. Bookings slowed down during fall, though every weekend was booked. They were making a profit during the busy season and have about half of their costs covered during the winter.
Their short-term rental income annualizes at $2,981, giving them a yearly cash flow of $943.
Plans for the Property
This property is a great addition to Greg and Heather’s rental portfolio and the Airbnb will allow them to build their overall portfolio faster. Due to Greg’s job, they know they’ll have to move in the next two to three years, so they plan on staying in the property until then.
Connect with Us
If you want to find your own rental property in Colorado Springs or Pueblo, reach out to us. We’ll help you clarify your strategy and goals to find a property that will help you achieve them.
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