Due diligence on STR
Hey everyone!
I am a newbie STR investor and have recently had one of my offers on a property accepted. I am in the beginning of the due diligence period. I have a general idea of things I need to look out for, but this is my first investment so I am worrying about missing something big. After already vetting the market and general deal analysis, is there anything else I should be mindful of?
Appreciate your help!
- Olympia, WA
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Hey @Chi Sonubi, gratz on the soon to be purchased. So you are good to go on the STR rules right?
The rest is just the regular inspection etc.
Give the county/city zoning office a call to make sure STR is allowed with your zoning code and what permits, taxes, etc are required
@Chi Sonubi if the property is in an HOA community read the bylaws and covenants diligently. The last thing you want is to close on the property and come to find out that HOA only allows a minimum of a 6-month lease. Which county are you purchasing in?
Here are a few things to add to your due diligence checklist:
1) Home inspection, just like on any other property you buy
2) Additional inspections depending on age of property (like scoping the sewer lines, for example)
3) Study STR regulations in your city to ensure this property is permitted for this use
4) Interview 2-3 STR property managers to understand your income potential on this home
5) Study competitor properties on Airbnb and look for what they are charging per night, how they are finished, how they are furnished, etc
6) Consider your backup plans in the event your city starts cracking down on STRs and impacts the sustainability of this business for you
You all made really great points. Will definitely do more research into the STR rules/regulations in the county.
Quote from @Scott E.:
Here are a few things to add to your due diligence checklist:
1) Home inspection, just like on any other property you buy
2) Additional inspections depending on age of property (like scoping the sewer lines, for example)
3) Study STR regulations in your city to ensure this property is permitted for this use
4) Interview 2-3 STR property managers to understand your income potential on this home
5) Study competitor properties on Airbnb and look for what they are charging per night, how they are finished, how they are furnished, etc
6) Consider your backup plans in the event your city starts cracking down on STRs and impacts the sustainability of this business for you
Appreciate this list! Interviewing STR property managers is something I hadn't thought of.
Quote from @Michael Dumler:
@Chi Sonubi if the property is in an HOA community read the bylaws and covenants diligently. The last thing you want is to close on the property and come to find out that HOA only allows a minimum of a 6-month lease. Which county are you purchasing in?
Great point! I am purchasing in Richmond county
- Contractor/Investor/Consultant
- West Valley Phoenix
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Two things: 1) Research similar properties on AIR or VRBO. Make sure that you will have the ROI that you are thinking about. 2) Check with your city/county to see if they allow STRs and what the restrictions (if any) are.
Quote from @Chi Sonubi:
Quote from @Scott E.:
Here are a few things to add to your due diligence checklist:
1) Home inspection, just like on any other property you buy
2) Additional inspections depending on age of property (like scoping the sewer lines, for example)
3) Study STR regulations in your city to ensure this property is permitted for this use
4) Interview 2-3 STR property managers to understand your income potential on this home
5) Study competitor properties on Airbnb and look for what they are charging per night, how they are finished, how they are furnished, etc
6) Consider your backup plans in the event your city starts cracking down on STRs and impacts the sustainability of this business for you
Appreciate this list! Interviewing STR property managers is something I hadn't thought of.
I love this list! Definitely what you want to do. I would really hone in on looking at the comps of the airbnb's near yours and most like yours. Find out how much they make through airdna, that will let you know how much income you can expect. And then give planning and zoning a call for the city and find out what the STR regulations are. Regarding Scott's #6, that should definitely be in place. Ie back up plans can be long term rental, boarding stay, 30 day stays, market to nurses, market to construction works, sell property, etc
I would also recommend to contact neighbors that border the property lines. Sometimes you will find a wealth of information on things going on in the neighborhood and items that may affect your property value or the operation of your STR. Doing this is the past I have discovered neighbors that are strongly against STR's, property line disputes, and a wealth of information that I would not have discovered until after closing on the property.
Beating a dead horse here but Zoning & Restrictions. That's the nightmarish scenario in the STR world and unfortunately all too common. That's one of the few things that could literally blow up your deal completely and not something you've got much influence on changing.
Storytime: I had someone I told buy in an area that I knew had restrictions (here in Branson, MO actually) and said "You HAVE To make sure it's okay, or work with an agent who knows what's up." I get a call from him a few weeks later "I found one and it's a For Sale By Owner and i'm under contract...woo hoo" I asked him "Did you check into the zoning?" He replied "Well there are people in my neighborhood doing it so I am not too worried. I'm just going to go through the rezoning and special use permit process with the county.".... 3 months later "BILL! I didn't get the permit and I can't do nightly rentals!?!? WHAT DO I DO???"