Today, we have a unique deal analysis: an off-market property in southwest Denver with an ADU. The owners, first-time homebuyers Travis and Gentry, joined us to talk about their experience. Be sure to check out the podcast or YouTube video to hear their entire story, how they decided to turn their Accessory Dwelling Unit (ADU) into an Airbnb, and their tips for running it successfully.
- Listen to the podcast “#423: How to Treat Your Airbnb Like a Business” Denver 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.
Travis and Gentry have been happily married for five years. They knew they were going to be lifelong renters if they stayed in California’s Bay Area. After seeing the real estate empire their friends built, they knew real estate was a path to financial independence.
They moved to Colorado and set out to purchase their first home with the goal of house hacking and building their portfolio. Their goal is to replace their living expenses with passive real estate income in the next 8-10 years.
Investment Property Details
They started looking at multifamily properties, but the market was tight and they didn’t see many good opportunities. Instead, they pivoted to homes with ADUs, and I called them with a great opportunity.
Appealing Features of the Property
The property is located in southwest Denver with a 3 bedroom/1 bathroom main house and 1 bedroom/1 bathroom ADU in the backyard. Both units were in rough shape—there was no floor, it smelled bad, and most things would need to be replaced. However, they saw the potential in the property and how it could work for them.
How Was the Deal Sourced
This was an off-market property.
Property Contract Details
Usually, off-market deals require quick turnaround times. Luckily for us, though, these sellers were flexible.
The inspection report was lengthy, detailing everything little thing that was wrong with the house. Travis and Gentry felt overwhelmed by the amount of work that needed to be done and decided to terminate.
Coming Back Around
A week after terminating, they found a comparable property that was already fixed up. They put in an offer on that property and ended up in a bidding war. Even though they offered $107K over list price, they lost out and started to reconsider the first property. Seeing how much the property would be worth once fixed up made them realize they had a good deal.
I reached out to the seller and found that the property was still available but about to go on the market. Fortunately, the seller accepted the original offer and we were able to close quickly because the inspection was already done.
Rehabbing and Renting the ADU
Their original estimate for renovations for the main house and ADU was $50K, and they ended up spending $75K. Both units needed flooring, paint, new appliances, and most of the wiring and major units were in rough shape.
Travis and Gentry realized how much better the 500 sq ft ADU would work as an Airbnb rather than a long term rental. While setting up the property for short term rentals was labor intensive, it’s worth it now the property is up and running.
They make between $2K-$3K per month with the Airbnb, as opposed to the $1200 they’d earn as a long term rental.
Eventually, they plan to get rid of the monthly PMI, which will save them a couple hundred dollars each month. They’re currently looking into HELOCs to get some cash for more investments.
What Will the Deal Look Like Over Time?
Travis and Gentry plan on moving out of the home eventually. At that point, they’ll probably rent out both the main house and the ADU as a long term rental. To see what the numbers will look like then, I used the Rental Property Spreadsheet to analyze the data.
Travis and Gentry are pleased with how well their Airbnb is operating and are looking into their next investment. They’re under contract for a property in Tennessee that they want to rent as another Airbnb. They know it won’t be the same as having the property in their backyard, but they’re excited to adapt their systems.
Connect with Us
If you want to get in touch with Travis and Gentry, reach out to them at: firstname.lastname@example.org.
Are you interested in finding your own investment property? Reach out to me for a free investment consultation.