USING ALL OF OUR SAVINGS TO BUY STR

[Shannon Smith]

We have $100,000 savings in the bank. We found an amazing and unique $500,000 house with 5,000 taxes. We can put 10% down and with closing costs spend about $75,000. We will easily spend the remaining $25,000 in misc furnishings, paint, etc. We will have to live off of our checking account and the income from this house for one year until we get a bonus check from work. This house is already generating $3,000 per month on just 1 of the bedrooms in a 5 bedroom house. I feel like it’s such a great investment cash flow wise so we shouldn’t pass it up…but I’m super nervous given we’d be spending all of our savings right now. What would you do? 

[Collin H.]

Quote from @Shannon Smith:

We have $100,000 savings in the bank. We found an amazing and unique $500,000 house with 5,000 taxes. We can put 10% down and with closing costs spend about $75,000. We will easily spend the remaining $25,000 in misc furnishings, paint, etc. We will have to live off of our checking account and the income from this house for one year until we get a bonus check from work. This house is already generating $3,000 per month on just 1 of the bedrooms in a 5 bedroom house. I feel like it’s such a great investment cash flow wise so we shouldn’t pass it up…but I’m super nervous given we’d be spending all of our savings right now. What would you do? 

 A wise fellow once told me, “If you’re going to be a bear, might as well be a grizzly.”

[Leslie Anne Morris]

I went all in when I started, but the market was very different then. Run your cash numbers very conservatively. If it still feels right then go for it. 

[Dave Stokley]

Every single speaker i heard at BPCon last week said “in this market it’s important to have sufficient cash reserves.” So if you’re listening to the experts, you’re probably in over your head on this one. 

[Paul Sandhu]

Who will spend $100 a night to share a 5 bedroom house with strangers?  Do you even know how to clean and restock the place between turnovers?  Shaking my head on this deal.

[Lyndsay Zwirlein]

Quote from @Shannon Smith:

We have $100,000 savings in the bank. We found an amazing and unique $500,000 house with 5,000 taxes. We can put 10% down and with closing costs spend about $75,000. We will easily spend the remaining $25,000 in misc furnishings, paint, etc. We will have to live off of our checking account and the income from this house for one year until we get a bonus check from work. This house is already generating $3,000 per month on just 1 of the bedrooms in a 5 bedroom house. I feel like it’s such a great investment cash flow wise so we shouldn’t pass it up…but I’m super nervous given we’d be spending all of our savings right now. What would you do? 

Can you chip away at the furnishings/paint/etc over time versus doing it all up front? On our first property, we went live and then used cash flow to update things. I would consider finding a way to save the $25k as others have said. Or a lot of people on here have said they used a 0% interest credit card for furnishings.

[Noah Laker]

Spending ALL of your savings is never a good idea. Keep a few bucks in reserves.

STR can be a great business, and props to you for thinking about by-the-bedroom... it's an underserved model and can be quite lucrative.

[John Underwood]

Quote from @Paul Sandhu:

Who will spend $100 a night to share a 5 bedroom house with strangers?  Do you even know how to clean and restock the place between turnovers?  Shaking my head on this deal.

 I agree. This sounds like a hotel.

[Andrew Still]

Nothing is impossible but this is not enough information to give any sort of feedback.  What is your plan? $3k a month sounds like long term rental.  How do you rent out the other rooms?   To @Paul Sandhu's point, who's going to STR with a stranger? Is there current tenant willing to rent with other strangers? Is this $500k house really worth $600k? What happens when something goes wrong? Sounds like you haven't shared the details of your plan which we would need to better understand this situation, or you don't have one. Would start there, but generally speaking not having a cash reserve and starting a new business and/or non-passive investment is not a good idea. You can drop the cash reserves once you figure out you are good at something and it works (judging off the way you wrote this post I assume you are new to this).

[Shannon Smith]

Quote from @Paul Sandhu:

Who will spend $100 a night to share a 5 bedroom house with strangers?  Do you even know how to clean and restock the place between turnovers?  Shaking my head on this deal.

I should have explained it better. The house is a 4 bedroom with an additional 1 bedroom apartment. Off the first floor. The 1 bedroom apartment has been rented for a year on Airbnb and brought in over $30,000. The main house has been occupied full time but we would STR that as well. 

[Scott K.]

I think there are two glaring issues.
1. If its such a good investment, why is no one else buying it? I see this all the time with people entering a new business, or are trying to be entrerepeneurs, they see 'such a fantastic idea' and think they've hit the jackpot. Reality is, its not, or someone else would be competing with them to get that idea done, and it would level out in the market to then become 'an okay idea'. The free market always levels out business plans to be mediocre in most cases unless you have a particular set of skills, or secret knowledge, or some other competitive edge that no one else does. So it sounds like you should do more research, and you sound very new to this business idea.

2. You don't have enough money. I'm telling you that right now, you simply don't have the experience to see all the repairs, all the furnishings you'll need, etc. Find a cheaper house and plan to spend $50k to get your feet wet, and then in the first few months you'll end up spending $75k and be thankful you aren't broke and destitute.

[Trent Reeve]

Quote from @Shannon Smith:

Quote from @Paul Sandhu:

Who will spend $100 a night to share a 5 bedroom house with strangers?  Do you even know how to clean and restock the place between turnovers?  Shaking my head on this deal.

I should have explained it better. The house is a 4 bedroom with an additional 1 bedroom apartment. Off the first floor. The 1 bedroom apartment has been rented for a year on Airbnb and brought in over $30,000. The main house has been occupied full time but we would STR that as well. 

not all houses would STR well. also, not everyone wants to stay in a house that is shared, even if it is a separate apartment.

what area is the house in? is there something that attracts people?

[Nathan Gesner]

Quote from @Shannon Smith:

I don't know your market, but a quick search tells me something doesn't add up. Most homes that sell in the $500,000 range wouldn't rent for $3,000 a month. How is it this place is renting a cottage for $3,000 a month and still has a 4bed house included?

[Shannon Smith]

Mountain market is very lucrative 

[Martin M.]

@Shannon Smith

Love your enthusiasm! But... you NEED reserves. Without them you likely shouldn't be making this purchase. It'd just be a bad idea. Is this property in a location where neighbors and local zoning laws could prevent you from running the property as an STR in the future? In other words, maybe it's an STR today but what if next year the local town council brings in laws that ban STRs? Could you then sell it without losing a ton of $$$? Often if a deal sounds too good to be true it is. Best of luck with it whichever path you choose but again.... you have to have reserves in place first

[Justin Winn]

If you’re going to be reAlly aggressive like this, I might encourage you to use airdna to check the analytics on this area.

[Victor S.]

Re:"USING ALL OF OUR SAVINGS TO BUY STR"

NOT A GOOD IDEA

[Ryan Moyer]

Quote from @Andrew Still:

   To @Paul Sandhu's point, who's going to STR with a stranger?

 A lot of people. It's literally the reason airbnb was invented. 

I realize it's far from their primary business model now, but there has always been a good market for it in many areas. 

[Bud Gaffney]

GO FOR IT + NEVER LOOK BACK :)

[Bud Gaffney]

Oh, and enjoy the ride :)

[James Hamling]

@Shannon Smith let's answer the question "What If". 

"What if" furnishings end up going double the $ expected? What happens then? 

"What if" 60 days into it, something goes out? Say a furnace needs replacing. What happens? 

"What if" you revenue analysis is wrong, and being new and novice, you don't do things "right" and have 11% tenancy for first 90 days. What happens? 

Leverage is a double sided blade. Leverage has immense power, but it's power is blind, everything is about how it's wielded. Done incorrectly, it will amplify mistakes and missteps. From what I read, everything must go "right". And more importantly, your new, so we know everything will NOT go right, because you don't even know what "right" is in all things, because you don't even know what "all things" are. 

This reads like a roadmap to pain and sorrow. 

Rule #1 is Never Loose $$$$.    Rule #2 is NEVER forget rule #1.     

This that I read here, it's not investing, it's gambling. What happens to those who gamble with the mortgage payment? It's not a recipe for good outcomes is it. 

[Mike Dymski]

What's the revenue for the house (based on research)?  We can't help without it...and I can't imagine you could make a decision without it.

[John Morgan]

@Shannon Smith

I went out on a limb 7 years ago when I was in a situation like yours. I spent every penny I had in savings to buy a STR. It was my first property and it was risk I was willing to take. It paid off and I've been able to grow quite a bit from putting all the earnings from that purchase back into savings, then buying more and more properties with the earnings. So I say go for it! Good luck!!

[Mel Adams]

For a first deal, this personally would be too risky for me. Not having reserves can turn into a slippery slope. I would be thinking what if it doesn’t rent at the occupancy you expect, what if the HVAC unexpectedly needs to be replaced, expensive sewage problem, etc.

Also, for a 4 bed house and what sounds like a studio (plus maybe some cosmetic work…you mentioned paint), I think $25k is also on the low end of a furnishing budget. Definitely would be doable, but also depends on what quality of furnishings your market calls for. 

Everyone is here giving their opinion (including myself), but you’re really the only person who can and should be making the decision. It’s your money. I get the feeling though if you’re here asking you’re hesitant. Just make sure you’re being 100% honest with yourself and weighing the pros and cons of not having reserves, and if you’d be comfortable with that. Don’t get hung up on trying to force a deal. There’s a lot out there :) good luck!  

[Kevin Escobar]

I would run and rerun the numbers on it and be very conservative and see if it still makes sense. Also, are there STR regulations in the area already? If not, future regulation is a risk to consider. I don't think its smart to spend all your money - even if this house works out great, what if you have an emergency or situation in your personal life and have no money left. I agree with above that if you do choose to buy it consider using 0% credit cards for the furnishings and keep the 25k as reserves.

[Dave Skow]

@Shannon Smith  -1) if buying this prop as a rental and needing financing - you  will likely need a  down payment of 15%  of the purchase price ....so  100K  x 15% =  150K   2)  if using  financing - most lenders  will require  that you have  a min of  6 months  of reserves  for  every property you own so  having a  decent balance in your  accounts  will be important  ...3) if you have any  questions / needs -  feel  free to message me