Should I sell my STR

Question

Purchased a 2nd home in Maine in 2018 and turned it into a STR a year later. Bought the property for 350K. The property could now sell for 700k! The property cash flows around 40K per year after all expenses.  The market feels like it might be in a bubble with current prices and I'm considering all my options.

Should I:

1) Hold and continue to rent the property for the long run and hope it continues to appreciate or at least hold its current value.

2) Hold and refinance, to get cash for another investment.

3) Sell, Hold profits for a pull back in the market and pay the long term capital gains.

4) Do a 1031 exchange into another investment.

Thoughts?

Patrick

Dan Weber · Answer

@Patrick Ryan there's a couple things to consider on this one. Firstly, you need to determine what your short and long term goals are. That can really help guide you as you make your decision. If you want to build a larger portfolio of long term rentals then I'd suggest cashing out via the refi or utilizing the 1031 to roll the profits into something else that aligns more with your goals. I'd run the calculation for your "Return on Equity" and try to figure out if you are happy with that return or if you think you could get a better return on that equity elsewhere. My only issue with the refi and pulling cash out is what will your cash flow look like after that? If it's not going to be that great then the 1031 would be the better way to roll your profits into a better deal. Or, just hold it and let it keep performing awesome. Maine is a great place to do STR and looks to continue being a strong market going forward. Good luck!

Patrick Ryan · Answer

@Lien Vuong @Dan Weber Yes, I agree with both of you.  Currently I've been expanding in the area.  Bought and rehabbed another house last year and am building a 3rd from the ground up currently. All short term rentals.  Because the area has gone up in value so much, each new property costs much more than the last obviously. A 1031 in the same area would probably be a lateral move as opposed to taking the profit and finding another area with more room to grow. Mainly I want to be ready to make a move when/If things settle down. I'm leaning towards keeping the property and doing a cash out refi, If I can. I've got a 3.875 interest rate so maybe if I can refinance to a slightly lower rate and take some equity out, I can be ready for the next deal. My goal is to diversify my Maine STRs with Multi-family long term rentals, most likely in the greater Boston area.

Jody Moscrip · Answer

Hi Patrick,

Not sure where your STR is located in Maine but you may also want to consider and monitor what is going on w/ STR regs in your area. Even if not in place now, the landscape may change down the road. Kennebunkport (where I am located) just approved proposed STR regs which means a cap on the number of STR's that will be allowed go forward. If you sell with the intention of re-entering STR industry at later date, it may not be as easy.

Patrick Ryan · Answer

Thanks @Jaron Walling. I think a cash-out refinance might make the best sense while rates are low! Would love to keep the property.

Lien Vuong · Answer

100% return in 3 years time is amazing! Kuddos to you! It definitely sounds like it's in a strong position either way but before you consider selling I'd echo a lot of what @Dan Weber is saying with knowing your next steps and evaluating what you can actually exchange it into. Contact a local expert that can give you a price opinion on the property you have as well as what a cash out refi would get you and/or figuring out what upgrading the asset would look like.

Begin with the end in mind.

Jaron Walling · Answer

@Patrick Ryan Can you or would you want to weather the storm if the STR market fell out? Obviously your location is good because the appreciation you have experienced is amazing. Ask your self what other invests can you buy with the money? If it's a popular summer vacation place I wouldn't sell, just leverage it.

I'm not in the STR game but I'll you I'm locking in as many looooooow interest, fixed rate loans as I can, and preparing for the next DEAL. You could leverage that rental, keep it cash-flowing, and start looking for the next property. Take a smaller LTV 65-70% and maintain a nice amount of equity for safety. That's what I'd do since you understand the vacation rental game.

Jody Moscrip · Answer

@Patrick Ryan. Bethel is a beautiful are! The Bethel town offices should have info available for you. Code Enforcement is typically the dept in charge. There are several sites available as well that are tracking what is going on. I have not found them to be complete for Maine but they are continuing to update as new info is received.

rentresponsibly.org

VRMAadvocacy.com

vrolio.com

Doing a Google Search with town name and STR regulations may garner some useful info as well

Another thing to check for when selling is whether or not the license (if required) is transferrable. This can impact perceived value.

Meeting International Building Life Safety and Good Neighbor standards are key components of existing and proposed regs.

Patrick Ryan · Answer

@Jody Moscrip That's interesting! I'm in the Bethel, ME area.  Where are you able to monitor upcoming regulation changes?

Should I sell my STR

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