Short Term Rental, HELOC & Cost Segregation Question

[Lily Tang]

Currently in the market shopping for a home that has Airbnb / STR potential to be put in service for 2025. I will be materially participating to qualify for the 100hr+ rule to claim a few of the tax benefits through cost segregation/bonus depreciation to offset my current W2 income. This home should also have good mid-term rental and long term rental to maximize flexibility after 2025 tax year. The tax savings would be significant to offset my W2 and I'm already running numbers to make sure future years cashflow can offset or be higher than monthly costs. Located in Seattle.

I'm planning to fund the purchase through cash for 20% down / closing costs but plan to use HELOC on existing primary home (based in another city) to fund STR related furnishings & upgrades. My understanding is I can deduce the interest on HELOC based on its usage for STR.

I'm very new to this and have always been passionate about RE investing & going down RE route. Anything else I need to consider? Also looking for a RE-focused CPA if anyone has recommendations.

I'm also building out a financial model to model this out - let me know if an existing template is out there somewhere!

[Sean Smith]

@Lily Tang there's a lot to consider when stacking a few strategies together like this (HELOC to fund down payment + STR + MTR/LTR potential).

A few things I'd be thinking about:

- Focus on high bedroom-count properties. Right now short term rentals that offer unique stays for large groups often outperform the standard SFHs. Hotels and other STRs struggle to compete with a 5 bed house with a view for example. Plus, a large bedroom-count property cash flows much better using the MTR/co-living strategy over a standard 3bed 2ba.

- When analyzing STR revenue use multiple data sets, not just one. Unless there's proven STR revenue from the seller, AirDNA is what most lenders will use to underwrite a STR deal. Stack together AirDNA, Awning, Mashvisor, and others to get a healthy look at Revenue, ADR, and Occupancy.

- 20% down on a SFH in Seattle proper will be tough to cashflow if you go LTR. But a SFH property with a DADU already built? That'd give you a better shot. Able to swing a small multifamily? I see multifamily deals pencil for LTR fairly often and can diversify your income streams.