Successful first STR, to scale or to slow?
Two years ago I bought my first property which was my primary residence for 2 years. I was able to completely BURR this property (minus the refinance) and have recently put it up on Airbnb to find that it’s done really well the past 3 months with 300% returns on mortgage, and bookings are staying consistent through the future.
In regards to current financial situations, the Airbnb itself should bring in about 35k of net revenue by next summer. This will be about 3x my down payment for the current STR I own. Here's my question— having not done a refinance on my home (which is valued at about 2x of the purchase price 277k>545k), the rationale I have is that my rates are locked in at 2.875 and the property is cash flowing. It seems like the best option if I wanted to scale this business quicker would be by using a heloc loan to purchase another STR property. Does this thought process make sense?
what’re some other options people in similar situations have explored? New to the forum and hoping to bounce ideas off here, but my main goal in real estate investing is to scale as quick as possible!
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#1 Short-Term & Vacation Rental Discussions Contributor
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- Greer, SC
A new Heloq will not be at the fixed rate you got on the original purchase.
It comes down to the numbers on the next property. Can you make a good return at today's home prices and today's interest rates? If so then go and and find and buy the next place with a regular mortgage.
Depending on your Short Term Rental (STR) location, I'd recommend building least 3 months of reserves for slow periods, maybe up to 9 months. Just look at COVID to see why. Personally I've gotten excited about some of our success and then realized it's better to pay the mortgage if the government says we can't rent it for X months rather than lose the property.
To your question, we did a HELOC instead of refinance in large part because of the flexibility. The rate is adjustable but you can tap into it multiple times (up to your credit amount), especially if you end up paying down the principal early on.
Oh and to piggyback on John - our first STR was 2.75%, 2nd one is 5.875% and the HELOC to fund the 2nd one is 8.25%
You might consider using the HELOC for the down and leveraging OPM (bank financing) so as not to tap all of your home's equity.