Intro and request for advice on my flatlining investments in Southern CA!

[David Brooks]

OK BP friends - saying hi and looking for some advice. I'm trying to zoom out and take a look at my whole strategy (or what's left of it).

I wanted to diversify, so during COVID (a lot of stories properly start this way), I dove in on running an STR in a popular vacation destination here in my area (Lake Arrowhead). I bought a 4bd/3ba cabin in 2020 with a 2.5% 30 year loan, and it did really well right out the gate. It's an area I know, it's close enough to manage in person, I found a good cleaner/manager I can trust, and the house appreciated dramatically right after I bought it - about 40% in year one, and another 40% in year two. So far, so good.

The house was cash flowing as an STR, though just barely, but the appreciation was wild so I decided to branch out and bought some land in Yucca Valley (another popular vacation destination) in 2021 with an intent to build. I thought I saw enough opportunity left in that market, though, so I also bought a large, well-appointed house in Yucca Valley with a 3% mortgage a few months later, to capture the "big group" slice. At first, it worked really well, until it didn't. The house was a 3bd/3ba with an office and a large mud room, but under the STR licensing rules in place for the year I ran my first property (which I called to confirm before shopping and again before buying), this new house could be a 5bd property and sleep 18 people comfortably. Awesome.

And then the county changed the STR licensing rules a few months after I closed on the house. It's always a gamble with the government is involved, and I lost on this one. I know people who live in the area probably appreciate the change, and I can't really blame them. Right now, I'm back to running it as a 3bd (the new rules go strictly by county records), and the market is very saturated with houses that size - so I lost the advantage I bought the property for. Occupancy fell off to nearly zero, so I'm looking at my options. I can pivot to turning it into a more luxury destination (which is the other way to stand out in that particular market) with a series of staged investments I've got planned out if I want to keep running it as an STR, though there's no guarantee it will perform better. The market is saturated for a reason, though - it's a popular destination - but I got too excited, bought too big (and too high), and now I'm trying to see what I can do (once again - a very common story I'm sure).

My first property has also cooled off a lot, and it's value has dropped dramatically (but I'm still up about 50% since I bought it) - but the overhead is lower and I see a path to profitability there. I'm trying to decide whether it's worth switching to mid-term/long-term on the Yucca property, or biting the bullet and outfitting it as a proper 5bd house (maybe $20k, with a potential reassessment and uncertain impact if/when I sell) to reclaim that market edge, or investing to make it an upper-mid-range/lower-high-range property with a few amenity upgrades and some marketing, or whether to just try to sell the property and get out from under it before I chase the sunk cost any longer.

General advice, specific advice, kind words, pointers to professionals who can help, suggestions for how to weigh my options - it's all welcome. Happy to provide any other info I didn't know to include already, and very open to any help I can find. This is sort of my extended intro to the forums, so - hi, and thanks!