I put an offer on a house for STR and I'm freaking out

Upstate New York, New York
Short-Term & Vacation Rental Discussions
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I put an offer on a house for STR and I'm freaking out

Isan Monfort
Member since 2022 · 4 posts · 1 vote

The offer was for $465k 5% down, the counter $475, I think its over priced, I should probably had offer less from the get go. However Airdna says it'll produce $135k year, but with interest rates rising my monthly expenses would be close to $5k/mo, or $60k year.

The house still needs $30-$40k, pretty much all the money I'd have left, for a few renovations if I want to take the nightly rate high enough to compete in the area and have a chance to reach those $135k. 

Also afraid to be all in and launching in the begging of the winter. Apparently the coldest winter in the history of NY is coming. 

Do the numbers sound good enough? 

I'm thinking of getting several new credit cards at 0% the day after closing on the house and max them out so I can do the renos + furnishing. All in baby, but it's scary AF

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Lisa Marie
Member since 2021 · 56 posts · 120 votes
4y

Everybody else is focusing on the issue of not having adequate reserve and etc., which is a very real concern.  But in addition to that, does it sound realistic in today's market that you can buy a house for under $500k and generate $135k income?  In most of the vacation markets (whether it's beach house or mountain chalet or ski resort), if a house can generate $135k income, even if it includes cleaning fees, that house will be selling $1M+.  If this house is available for under $500k, then either you have found the bargain of the decade, or it's too good to be true.  

Another way to verify the income estimate is to go ground up: assuming 250 nights rented, in order to generate $135k, the daily rate will need to be $540. Have you checked Airbnb and VRBO to see how much a comparable house is charging? 

Sorry to rain on your parade, but nowadays there just isn't any property in the market that can produce 25% cap rate. Don't get blinded by the glitz of other people's STR success story on Youtube or Tiktok. It's no different if somebody is trying to sell you a stock that is supposedly to yield 15% dividend rate. You really have to ask yourself "what's the catch?"

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  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Isan Monfort:

    The offer was for $465k 5% down, the counter $475, I think its over priced, I should probably had offer less from the get go. However Airdna says it'll produce $135k year, but with interest rates rising my monthly expenses would be close to $5k/mo, or $60k year.

    The house still needs $30-$40k, pretty much all the money I'd have left, for a few renovations if I want to take the nightly rate high enough to compete in the area and have a chance to reach those $135k. 

    Also afraid to be all in and launching in the begging of the winter. Apparently the coldest winter in the history of NY is coming. 

    Do the numbers sound good enough? 

    I'm thinking of getting several new credit cards at 0% the day after closing on the house and max them out so I can do the renos + furnishing. All in baby, but it's scary AF

     I wrote a post on this a few days ago, https://www.biggerpockets.com/...

    I've said this numerous times on here, but make sure you are manually excluding the cleaning fee from AirDNA (they include this in the projection.) For a large house this can be as much as 20k a year that needs to come off the projections.

    I don't know the Upstate NY market to tell you if it's a good deal, but make sure you are relying on information other than just AirDNA. If you are concerned because of the timing of when you are launching (the winter), you may be in over your head on this. 

    Also, are you positive it is eligible to be a STR.

    I also question last years numbers in upstate New York. Covid restrictions in nyc led people to flee. Covid is over now

    2Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    4y

    Sounds a little iffy. You didn't mention the most important part however: good location or no? $135k at what occupancy rate? I'd only do it if it works at a very conservative occupancy rate, and it's in a good location. I'd also double the rehab budget and timeframe, because that's just the way it usually goes.

    3Reply
  • Dave StokleyBusiness Member
    Property Manager · Cleveland, OH · Member since 2015 · 705 posts · 799 votes
    4y

    Sounds like you are over-leveraged.

    And where are you getting an investment property loan for 5%?

    2Reply
  • Isan Monfort
    OP
    Member since 2022 · 4 posts · 1 vote
    4y
    Quote from @Steve K.:

    Sounds a little iffy. You didn't mention the most important part however: good location or no? $135k at what occupancy rate? I'd only do it if it works at a very conservative occupancy rate, and it's in a good location. I'd also double the rehab budget and timeframe, because that's just the way it usually goes.


      Location seems good, water front into the river, occupancy not great compared to other markets nationally but average for the area. Around 55

    0Reply
  • Isan Monfort
    OP
    Member since 2022 · 4 posts · 1 vote
    4y
    Quote from @Dave Stokley:

    Sounds like you are over-leveraged.

    And where are you getting an investment property loan for 5%?


     typo that was supposed to be 15%

    0Reply
  • Kevin Pillow
    Realtor · OK · Member since 2020 · 139 posts · 165 votes
    4y
    Quote from @Dave Stokley:

    Sounds like you are over-leveraged.

    And where are you getting an investment property loan for 5%?

    😂 I was more concerned about finding out his lender than the rest of the post.
    3Reply
  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    4y

    You can’t rent a home with a 5% loan. Sorry. 

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    15%? Does that seem high? I know rates are going up but 15% seems high even from commercial.

    @Isan Monfort, I hate to be a buzzkill here, but I agree with the others. You are on the knife's edge.

    1Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Michael Baum:

    15%? Does that seem high? I know rates are going up but 15% seems high even from commercial.

    @Isan Monfort, I hate to be a buzzkill here, but I agree with the others. You are on the knife's edge.

    @Michael Baum  I think what he means is he put 5 percent down, but then corrected and said 15 percent down (not 15 percent interest 😂…not quite there yet!) it is funny though that the thought of 15 percent was somewhat plausible, the times we are in now! Still though doesn’t change the overall premise, this looks like a “YOLO” purchase, and honestly this confirms to me that the bubble is likely popping now. 

    In all seriousness though, take the advice of everyone here, and really think about this. If you have the conviction go for it, if not, look at options to terminate the deal if it won’t work out for you. Best of luck 

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y

    I don't like that you're relying on AirDNA for the data. I think computer algorithms are useful for researching markets, but you should do your own research to see how a specific home will perform.

    The biggest red flag for me is that you're buying a $475,000 property that still needs renovations and you're going to fund those renovations with credit cards. I don't care if it's 0% interest or not: you are borrowing money to borrow money.

    If you had experience and some solid rentals under your belt, maybe it would make sense to take a chance. This is your first rental, prices are at a peak and starting to slow or drop, vacation rental performance for the last two years is unusually high, and you're putting every dime into this investment.

    Knowing what I know from your post, I would not move forward.

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    6Reply
  • Lisa Marie
    Member since 2021 · 56 posts · 120 votes
    4y

    Everybody else is focusing on the issue of not having adequate reserve and etc., which is a very real concern.  But in addition to that, does it sound realistic in today's market that you can buy a house for under $500k and generate $135k income?  In most of the vacation markets (whether it's beach house or mountain chalet or ski resort), if a house can generate $135k income, even if it includes cleaning fees, that house will be selling $1M+.  If this house is available for under $500k, then either you have found the bargain of the decade, or it's too good to be true.  

    Another way to verify the income estimate is to go ground up: assuming 250 nights rented, in order to generate $135k, the daily rate will need to be $540. Have you checked Airbnb and VRBO to see how much a comparable house is charging? 

    Sorry to rain on your parade, but nowadays there just isn't any property in the market that can produce 25% cap rate. Don't get blinded by the glitz of other people's STR success story on Youtube or Tiktok. It's no different if somebody is trying to sell you a stock that is supposedly to yield 15% dividend rate. You really have to ask yourself "what's the catch?"

    8Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    4y

    Don't over think this. KISS, keep it simple stupid. Don't worry about the weather, worry about the numbers. If they don't work move on!

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Ok @John Carbone, that makes a lot more sense. Thanks man!

    0Reply
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