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USING ALL OF OUR SAVINGS TO BUY STR
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?
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#3 General Real Estate Investing Contributor
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Quote from @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!!
Every Casino across the nation has hundreds of people who hit that jackpot, followed by tens of thousands a day who didn't.
You risked it all, in a high risk situation, and won. Where thousands who try the same, reap the odd's and fail at great cost. It is neglectful and dangerous to direct all to step into a casino and risk it all, because a very few will win.
The odd's of financial failure and ruin are very high, with odd's of wining exceptionally low.
Most investors I buy out there portfolios at pennies on the dollar due to a default situation, sing the same song; how once upon a time they risked it all and it came out ok, even a few more times sometimes, until it didn't, and ruined them.
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#3 Legal & Legislation Contributor
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Quote from @James Hamling:I have a W2 and would have been able to tap into Roth IRAs if necessary if something bad happened. Some people aren’t ok with taking risk and some are. As long as you have a plan B or C in case things go south, I think it’s ok to take some risk.
Quote from @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!!
Every Casino across the nation has hundreds of people who hit that jackpot, followed by tens of thousands a day who didn't.
You risked it all, in a high risk situation, and won. Where thousands who try the same, reap the odd's and fail at great cost. It is neglectful and dangerous to direct all to step into a casino and risk it all, because a very few will win.
The odd's of financial failure and ruin are very high, with odd's of wining exceptionally low.
Most investors I buy out there portfolios at pennies on the dollar due to a default situation, sing the same song; how once upon a time they risked it all and it came out ok, even a few more times sometimes, until it didn't, and ruined them.
Quote from @John Morgan:
Quote from @James Hamling:I have a W2 and would have been able to tap into Roth IRAs if necessary if something bad happened. Some people aren’t ok with taking risk and some are. As long as you have a plan B or C in case things go south, I think it’s ok to take some risk.
Quote from @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!!
Every Casino across the nation has hundreds of people who hit that jackpot, followed by tens of thousands a day who didn't.
You risked it all, in a high risk situation, and won. Where thousands who try the same, reap the odd's and fail at great cost. It is neglectful and dangerous to direct all to step into a casino and risk it all, because a very few will win.
The odd's of financial failure and ruin are very high, with odd's of wining exceptionally low.
Most investors I buy out there portfolios at pennies on the dollar due to a default situation, sing the same song; how once upon a time they risked it all and it came out ok, even a few more times sometimes, until it didn't, and ruined them.
i mean, he even used all caps to tell us that's everything he's got, so there is not plan B, let alone C.
@Shannon Smith if you don’t have 3-4 months of reserves after all expenses, you are on thin ice. Projections of rent are just assumptions. What if there are mass layoffs? What if interest rates go to 9%+? What if the home has a major repair needed and you can’t collect income for a month or more? Make sure you can cover all these contingencies first before going all in.
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?
Buy it.
Forget the naysayers. Sounds like an incredible opportunity.
I had to sacrifice a lot for my first couple of deals during the great RE crash. Folks said I was nuts. Not experienced, not ready, don't understand the market, etc.
Well doing the deal is the first step in all of that. 150+ doors later, I look like a genius.
If you've done your research, so will you.
Gary
@Shannon Smith I started my short term rental adventure this year, with two properties. Id like to get another but a down payment would wipe out my reserves. You WILL have more unexpected expenses come up. I was thinking of getting another property but it would wipe out my reserves and truthfully I would be terrified to get any other properties without cash reserves.
I am looking for a partner or at least an emergency source of funding if something terrible happens. My advice would be you do the same. That being said you should go for it... this is, after all, the second best time to start real estate investing!!
Quote from @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.
I agree with Leslie, run them conservatively, and leave out any ambitious mindsets to make sure the deal is going to make sense before doing it.
If it doesn't, there's always another deal around the corner.
Super easy solution! If it really has a potential, find a investor!
ask for $25,000 to furnish and who knows this person may know a great handyman and cleaning crew. The door is wide open you just need to find the right key
Quote from @James Hamling:
Quote from @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!!
Every Casino across the nation has hundreds of people who hit that jackpot, followed by tens of thousands a day who didn't.
You risked it all, in a high risk situation, and won. Where thousands who try the same, reap the odd's and fail at great cost. It is neglectful and dangerous to direct all to step into a casino and risk it all, because a very few will win.
The odd's of financial failure and ruin are very high, with odd's of wining exceptionally low.
Most investors I buy out there portfolios at pennies on the dollar due to a default situation, sing the same song; how once upon a time they risked it all and it came out ok, even a few more times sometimes, until it didn't, and ruined them.
James,
Respectfully, are you really comparing RE investing during sky high inflation to casino gambling? Buying hard assets in times of runaway inflation is among the safest bets of all. The odds are heavily stacked in your favor.
Casino's not so much.
Gary
@Shannon Smith why would u do this? We’re heading into recession. Whatever numbers you are told that the room or rooms have and will rent for are not going to be true moving forward. I would hold on to that $100k until economy trends better.
Quote from @Gary L Wallman:
Quote from @James Hamling:
Quote from @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!!
Every Casino across the nation has hundreds of people who hit that jackpot, followed by tens of thousands a day who didn't.
You risked it all, in a high risk situation, and won. Where thousands who try the same, reap the odd's and fail at great cost. It is neglectful and dangerous to direct all to step into a casino and risk it all, because a very few will win.
The odd's of financial failure and ruin are very high, with odd's of wining exceptionally low.
Most investors I buy out there portfolios at pennies on the dollar due to a default situation, sing the same song; how once upon a time they risked it all and it came out ok, even a few more times sometimes, until it didn't, and ruined them.
James,
Respectfully, are you really comparing RE investing during sky high inflation to casino gambling? Buying hard assets in times of runaway inflation is among the safest bets of all. The odds are heavily stacked in your favor.
Casino's not so much.
Gary
I did not realize easy it was for people to give advice without having enough information before reading this forum. I also did not realize how easy it is for people to speak in generalities before reading this forum. 1) The nature of this casino comment is not wrong. There is a risk associated with investing in real estate, stocks, or any business, and to belittle that by making a sweeping statement like "the odds are heavily stacked in your favor" is a very poor way to give advice. The risk of losing may be lower but the bet is astronomically larger. 2) Statistically speaking, there are no "odds stacked in your favor here" because that statement assumes there is a controlled environment and essentially 1 variable, to place a bet or not (i.e. a casino table game with fixed rules). There is no controlled environment here, there are different rules in different locations, rules change (e.g. interest rates), and the biggest variable of all is the person behind the bet... @Shannon Smith could be the smartest least experienced person this network has ever seen and could easily make a mistake by working too quickly and end up losing "ALL OF OUR SAVINGS". Especially now, with the risk of a looming recession.
@Shannon Smith - Not trying to be a downer, but nobody should be telling you to "go for it, have fun" based off the little information that's been provided. There are better questions for you to ask and for the group here to ask you before any real advice could be given. Suggest you start by asking more specific questions or providing a lot more detail.
Quote from @Shannon Smith:How many deals have you done? My guess is zero
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?
Generally a very bad idea for a newbie to go all in, it usually ends up in a trainwreck - that's all the stories you don't hear about. I guarantee there's more trainwrecks than successful stories
Quote from @Ryan Moyer:Fair, I should have said "how will you find this person". My point was what's the plan?
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.
I have to go with those who say to hang on to your cash reserves.
My suggestion would be to explore rent arbitrage - that is, rent the house from the current owner with the understanding that you will be STR-ing it out. Then, use your cash for furnishings (much less then $75,000).
It's important to understand that STR is not real estate investing, it's the hospitality industry and while real estate is a major component, your primary focus will be on your guests and their experience while staying in your property. It helps to have experience in hotel / motel management and housekeeping / sanitation. It's a 24x7 job unless you can afford to hire out (delegate) some responsibilities.
My upstairs neighbor is STR-ing his portion of a 2 bedroom, 1 bath split-level house which has been duplexed. I live in the lower level. He's learning some hard lessons about the business as you read this. He is also doing rent arbitrage - he has the same landlord (property manager) I have.
My $0.02 ...
@Shannon Smith does it also work as a LTR or MTR?
I would make sure to analyze at 2019 numbers. Like other posters I don't think it's a great time to go all in on STR. I'll buy one here shortly but only one that's a great deal and covers itself as a MTR or LTR. We're in a recession that is going to get worse before it gets better IMO.
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@Shannon Smith
When you say you can put 10% down, have you already confirmed this with a Lender based on your credit, asset,etc?
You said $5,000 taxes do you mean PITI?
if it's PITI, how long will it take you to have the place fully ready? Can you afford the carrying costs in the meantime? How long could you carry your monthly obligations plus that for this house, worst case scenario?
You said you could live off your checking account for a year? Did you mean credit cards as your checking account technically is savings or did you mean your monthly checking accounts from your jobs?
Do you have other sources of income other than a W2?
We bought a house Dec 21 in the higher $500's and remodeled the basement. Had carrying costs for almost $4,000 monthly while work that should have been completed in 6 weeks took over 3 1/2 months. We lived in the property so collectively we shared the bills and it was OK.
Enjoyed another month and half by ourselves then rented it out. Option 1 was $225/ night STR, which is very conservative for our area. Option 2 continue what we know and rent per room with one room given as a bonus for everyone so 3 persons for the place. Option 3 rent a family for $3,000 monthly.
We chose to stick to what we know and rent 3 individuals min 3 months so technically $90 nightly. Then we rented another from the main house albeit on another level of the house. So we cover $3,675 and get to live in a beautiful house occupying 3/3 baths with a spare for guests. So house-hacking at minimal costs.
Can we move, rent out the main, loft and basement separately on the low end of almost $7,000 monthly or on the high end of over $11,000 calculated at $550 for 20 days to 2 separate parties? Yes these are quite doable.
Yes this is a Primary comparison which means we had lower entry costs with higher mortgage when purchased. You would have higher entry costs with approximate PITI based on increased interest rates.
If we simply lived in the property without hacking, yes we could carry the costs. We could also put expenses on a 0% credit card if we needed to.
I've shared all the above with you, so you can look at your deal from many angles and also look at other exit strategies if the market changes to see if it's viable.
Finally, you would be carrying the utilities, ask the present owner for a year's utilities to fully understand your costs per season.
Like others have said, you've not provided sufficient context regarding your experience so I've provided a real life example to help you make a decision.
All the best to you. Happy investing and learning.
Quote from @Andrew Still:
Quote from @Gary L Wallman:
Quote from @James Hamling:
Quote from @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!!
Every Casino across the nation has hundreds of people who hit that jackpot, followed by tens of thousands a day who didn't.
You risked it all, in a high risk situation, and won. Where thousands who try the same, reap the odd's and fail at great cost. It is neglectful and dangerous to direct all to step into a casino and risk it all, because a very few will win.
The odd's of financial failure and ruin are very high, with odd's of wining exceptionally low.
Most investors I buy out there portfolios at pennies on the dollar due to a default situation, sing the same song; how once upon a time they risked it all and it came out ok, even a few more times sometimes, until it didn't, and ruined them.
James,
Respectfully, are you really comparing RE investing during sky high inflation to casino gambling? Buying hard assets in times of runaway inflation is among the safest bets of all. The odds are heavily stacked in your favor.
Casino's not so much.
Gary
I did not realize easy it was for people to give advice without having enough information before reading this forum. I also did not realize how easy it is for people to speak in generalities before reading this forum. 1) The nature of this casino comment is not wrong. There is a risk associated with investing in real estate, stocks, or any business, and to belittle that by making a sweeping statement like "the odds are heavily stacked in your favor" is a very poor way to give advice. The risk of losing may be lower but the bet is astronomically larger. 2) Statistically speaking, there are no "odds stacked in your favor here" because that statement assumes there is a controlled environment and essentially 1 variable, to place a bet or not (i.e. a casino table game with fixed rules). There is no controlled environment here, there are different rules in different locations, rules change (e.g. interest rates), and the biggest variable of all is the person behind the bet... @Shannon Smith could be the smartest least experienced person this network has ever seen and could easily make a mistake by working too quickly and end up losing "ALL OF OUR SAVINGS". Especially now, with the risk of a looming recession.
@Shannon Smith - Not trying to be a downer, but nobody should be telling you to "go for it, have fun" based off the little information that's been provided. There are better questions for you to ask and for the group here to ask you before any real advice could be given. Suggest you start by asking more specific questions or providing a lot more detail.
Nonsense.
@Shannon Smith the folks who have suggested you should be very cautious are correct. In general, it's a sketchy idea to invest ALL of your savings in any one thing (which is why having a diversified portfolio is one of the most fundamental rules of investing).
Also, the STR market is slowing and changing very quickly right now--last I checked, there was a lot of data suggesting that the STR market had become saturated, and that STR vacancies are way up in many markets. ...not to mention, AirBnB recently changed their platform to focus on top-end, very unique properties (meaning that properties that are not extremely high-end, unique, and managed by the top-tier professionals are getting the short end of the stick).
There are many indicators that we are in, or are entering a recession, and the first thing people cut from their budgets in a recession is discretionary spending (like spending on vacations and STRs). ...in a recession, the STR market often gets hit much harder than the LTR market.
Plus, as far as I can tell, it sounds like you have no experience running a STR (or any property)?
In a nutshell; most competent folks would rightfully suggest that you don't invest 100% of your savings in any singular investment, especially if it's a type of investment that you don't have significant experience with, and especially at a time when we're entering what could be a major market downturn.
Having said all that, there are plenty of RE opportunities starting to pop up in the markets right now, and skilled investors are probably about to have a field day.
Good luck out there!
This feels like the wall street bets forum
"YOLO'd my 401k into Gamestop"
Just kidding....real estate is a bit different.
I would do the deal-assuming you are still working? How are you getting approved the loan without income? Does the bank know you don't have income, and this is your only source of income? My guess is you won't get approved.
Just based on the info I have...
You're making me nervous talking like this.
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?
Pull out a credit card with 0% apr for 12-16 months and put the remaining expenses on their to keep some cash on hand for reserves. As the property proceeds cash Flow use that money to pay off the credit card or refi in the future to pay the credit card off. I maxed out my cards on my first flip to have enough leverage to make the proper return and it panned out well.
I would strongly recommend against putting your entire savings into an STR with a high LTV. Real estate investing should be done from a position of financial strength. I think this is especially true when it comes STR, because of the seasonality that's often involved.
I think it's very unlikely you'll be able to furnish/decorate the house properly for only $25K, unless you plan on doing a lot of Facebook marketplace type shopping. Our average 4 bedroom costs $40K to get up and running, ignoring rehab costs. I've had clients spend close to double that, when targeting the higher end of our market.
You have a good chunk of cash saved, and I'm sure you could find a deal that would work well that wouldn't commit 100%+ of your funds. We regularly find opportunities in the $300K range in my market (I'm in San Antonio), and I'm sure there are plenty of other places with similar opportunities.
In general, I don't see a great reason to go all in, when you have plenty of opportunity to place a smaller bet to start.
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I would make sure I had access to more emergency money before doing this deal.
This could mean access to borrow against a 401k, cash advances on credit cards, HELOCs on other properties, but ideally if you are cutting it close it may be an indication that you need more hard savings before taking the plunge.
Mike
Quote from @Shannon Smith:
We have $100,000 savings in the bank. . . .
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.
…but I’m super nervous given we’d be spending all of our savings right now. What would you do?
That's tight for cash. The taxes will go up based on the purchase price unless those are the new estimated taxes. You can definitely spend over 25k in get-ready funds, too. That would leave you with no reserves for when the water heater pops or something else silly happens.
Are you not able to live off your income? That would make me nervous!
The 3k/month probably wouldn't 5x when you rent it as a full house, so don't use that as your estimated cash flow. Unless you will be renting it room by room.
Nerves are normal for a first purchase. No matter what it's usually a huge cash expenditure and no matter what research you've done. But super nervous may be a sign that you should wait for something you're a little more sure of.
Just my 2 cents -- we'd really need a lot more information to give really useful advice.
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@Shannon Smith
On my 3 STR's, my setup cost all ended up exceeding what I originally budgeted. If done properly, STR's can generate a lot of income but I have found the first year to be high on expenses. You also don't know what you'll uncover and have to fix after the inspection. Just based on the numbers you provided, I wouldn't do it. You need to have reserves and not depend on this property for income until it's stabilized.
