Buying STR with current rates as a retirement plan?

New York, New York
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Buying STR with current rates as a retirement plan?

Kiko Mattoso
Member since 2021 · 28 posts · 6 votes

Hi everyone,

I want an honest answer about something. I own only one STR property upstate NY that gives me around 11% cash on cash return. This means, I get like around 10k per year, net. But reading some posts here on Biggerpockets, this deal will sound bad to a lot of investors who say they only consider deals that can generate at least 20%.

My long-term goal is to buy enough STR properties that will generate a cash flow of 20k/month, so I can retire in the next 15 years with live with this cash-flow money.

BUT, in NY the homes are expensive and with current interests rates, I am not sure now buying STR properties is the way to go. I probably can get 10% investing in stocks. Not sure I wanna go that route, though.

My thoughts: I could buy another house now that would generate another 10% Cash on Cash return, and get around 700 dollars per month in cash flow, but then I'd have to buy 25 properties to reach those 20k. I'd need to buy 2 per year, to achieve that, but I don't have the time or money to do that.  

I know some of you will say " find better deals, maybe not in NY" but how when you're on a 9 to 5 job?

Any advice? What is the best free tool to help me find the deals? I love real estate, so would prefer to find ways to make it right, than to invest in stocks.

Thanks a lot in advance!

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Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
3y

One more unoriginal thought here - slow and steady still wins the race. 

Try to find your unfair advantage. Ours is that my wife is an interior designer. She does that for a living and has worked in $10M homes...she is actually a designer for a living, not "has an eye for design." It's a bit of a cheat code when buying short and medium term rentals. What is yours? Do you have specific hobbies or travel destinations that the masses do not know about as well as you? Do you have any advanced knowledge in construction? Do you have family member or close friends any interesting markets that will be helpful when building out boots on the ground? Find that unfair advantage, lean into it, and slowly, year by year, get the snowball rolling down the hill. 

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    @Kiko Mattoso Why are you buying at retail prices?

    It'll take you FOREVER to reach your goal - as you've figured out!

    Start networking and looking for off-market deals.

    [email protected]248-209-6824
    Logical Property Management4.9460 Reviews
    WebsiteView Page
    1Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y

    yeah, I'd have to find time to do it, after work or something, which makes since tougher. Is that the only way? Can't I just rely on Zillow/Realtor etc?

    0Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y
    Quote from @Bernadette Trafton:

    If your main focus is monthly cash flow, you may want to reach out to landlords who are sick and tired of dealing with long term rental tenants. The moratorium on evictions during covid, left many frustrated (at least in my area). If the property is in an area that supports STR, you may be able to lease or even lease/option it with the agreement you will be able to sublet the units. It's a win for the owner because you will be managing the property for them without charging them 10%, they won't have to deal with tenants, they will get their rent on time every month, STR is far less wear and tear on the property than LTR and will cashflow better, you and they won't have to deal with traditional landlord/tenant laws as STR's don't have the same rights as LTRs, it's a win for you because you don't have to come up with a huge down payment, pay closing costs, high interest rates, broker fees, etc and if 65% occupancy leaves enough monthly cashflow for you, then it's a deal. We have a training on the Boston AREIA site and it works everywhere if you are interested dm me and I will share it. The training is free to watch. The speaker is selling a course (as many do), but, if you are comfortable with STR's the training should give you quite a few golden nuggets you can use without buying the course. In any case, you can use this strategy until this market is in a better place to buy/hold. And, always see if an owner will entertain terms.


     Yeah, that's an option too, thank you so much for taking the time to write.  But do you think I'll never achieve my goals using Zillow/Realtor etc? Is that a waste of time?

    0Reply
  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
    3y

    @Kiko Mattoso look to buy property/s in states with more favorable weather for year round STVR occupancy. Find a builder and or management company that will build and then lease from you property they have built/ located that they will pay you 20%+ ConC ROI.

    This solves the obstacles facing most STVR investors:1. Marketing properties without any expertise 2.time constraints, being a passive investor instead 3. Locking in higher ROI and business management risk passed on to a management company while giving you a guaranteed rate meeting your goals.

    0Reply
  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
    3y

    @Kiko Mattoso look to buy property/s in states with more favorable weather for year round STVR occupancy. Find a builder and or management company that will build and then lease from you property they have built/ located that they will pay you 20%+ ConC ROI.

    This solves the obstacles facing most STVR investors:1. Marketing properties without any expertise 2.time constraints, being a passive investor instead 3. Locking in higher ROI and business management risk passed on to a management company while giving you a guaranteed rate meeting your goals.

    0Reply
  • Bernadette Trafton
    Flipper/Rehabber · MA/NH · Member since 2014 · 38 posts · 6 votes
    3y
    Quote from @Kiko Mattoso:
    Quote from @Bernadette Trafton:

    If your main focus is monthly cash flow, you may want to reach out to landlords who are sick and tired of dealing with long term rental tenants. The moratorium on evictions during covid, left many frustrated (at least in my area). If the property is in an area that supports STR, you may be able to lease or even lease/option it with the agreement you will be able to sublet the units. It's a win for the owner because you will be managing the property for them without charging them 10%, they won't have to deal with tenants, they will get their rent on time every month, STR is far less wear and tear on the property than LTR and will cashflow better, you and they won't have to deal with traditional landlord/tenant laws as STR's don't have the same rights as LTRs, it's a win for you because you don't have to come up with a huge down payment, pay closing costs, high interest rates, broker fees, etc and if 65% occupancy leaves enough monthly cashflow for you, then it's a deal. We have a training on the Boston AREIA site and it works everywhere if you are interested dm me and I will share it. The training is free to watch. The speaker is selling a course (as many do), but, if you are comfortable with STR's the training should give you quite a few golden nuggets you can use without buying the course. In any case, you can use this strategy until this market is in a better place to buy/hold. And, always see if an owner will entertain terms.


     Yeah, that's an option too, thank you so much for taking the time to write.  But do you think I'll never achieve my goals using Zillow/Realtor etc? Is that a waste of time?


     Kiko, I never think spending time with Realtors is a waste of time.  Make friends with more Realtors.  They control 90% of the inventory out there, whether it's on the market or not.  My last 4 deals were off market deals brought to me by a Realtor.  And, Zillow is a tool.  Just be careful because its not always accurate.  

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Bernadette Trafton:
    Quote from @Kiko Mattoso:
    Quote from @Bernadette Trafton:

    If your main focus is monthly cash flow, you may want to reach out to landlords who are sick and tired of dealing with long term rental tenants. The moratorium on evictions during covid, left many frustrated (at least in my area). If the property is in an area that supports STR, you may be able to lease or even lease/option it with the agreement you will be able to sublet the units. It's a win for the owner because you will be managing the property for them without charging them 10%, they won't have to deal with tenants, they will get their rent on time every month, STR is far less wear and tear on the property than LTR and will cashflow better, you and they won't have to deal with traditional landlord/tenant laws as STR's don't have the same rights as LTRs, it's a win for you because you don't have to come up with a huge down payment, pay closing costs, high interest rates, broker fees, etc and if 65% occupancy leaves enough monthly cashflow for you, then it's a deal. We have a training on the Boston AREIA site and it works everywhere if you are interested dm me and I will share it. The training is free to watch. The speaker is selling a course (as many do), but, if you are comfortable with STR's the training should give you quite a few golden nuggets you can use without buying the course. In any case, you can use this strategy until this market is in a better place to buy/hold. And, always see if an owner will entertain terms.


     Yeah, that's an option too, thank you so much for taking the time to write.  But do you think I'll never achieve my goals using Zillow/Realtor etc? Is that a waste of time?


     Kiko, I never think spending time with Realtors is a waste of time.  Make friends with more Realtors.  They control 90% of the inventory out there, whether it's on the market or not.  My last 4 deals were off market deals brought to me by a Realtor.  And, Zillow is a tool.  Just be careful because its not always accurate.  


     I am on other way around, the only way to make money is thru zillow/realtor when property in CA, but I'm not investing for cash flow anyway.

    0Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y

    Very useful answer Todd, thank you!

    0Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y

    For sure, thanks Bernadette!

    0Reply
  • Sara Levy-Lambert
    USA · Member since 2022 · 879 posts · 109 votes
    3y

    If you're looking for out of state deals look up awning top vacation rentals, these are on market properties with STR analysis, that way you don't have to analyze hundreds of markets, just browse the top listings according to cap rate, return, etc.

    0Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y

    I will, thanks a lot for the tip!

    0Reply
  • Vincent Samaha
    Member since 2023 · 12 posts · 1 vote
    3y

    I'm new here, so I have zero experience, but I'm a numbers guy. I plan to take the advice on one of the recent episodes of BP and just make low-ball offers. I'm working on a calculator (modified from Robuilt), and whatever price point puts my CoC return at my goal is what I'll offer.

    Housing affordability hasn't been this low in general since 2006. You can even go look at price histories on Zillow and find some crazy appreciation over the past 3 years. Sometimes they're asking 100-200% over what the property sold for in 2020, even with higher interest rates! 

    Sooner or later sellers will come to terms with reality, but the price that works for you is what it is regardless of what insane number they throw up on Zillow. Make offers, get rejected, let them stew on it, and see what happens. 

    0Reply
  • Lisa Beard
    Rental Property Investor · Charleston, SC · Member since 2017 · 39 posts · 12 votes
    3y

    If you're wanting to stay fairly local, look for properties that have sat on the market for a while, attend local auctions, check FSBO and Zillow for FSBO properties. I found one of mine just driving around - A woman had a sign in her yard just to see if anyone was interested. Go to local REI groups, socialize on here with other investors or wholesalers. There are so many different avenues to finding property! Focus on the STR niche, if you're good at it, and go from there. Don't settle for 10% CoC return - There are plenty out there with 20%, 30%, 40%.

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y
    Quote from @Vincent Samaha:

    I'm new here, so I have zero experience, but I'm a numbers guy. I plan to take the advice on one of the recent episodes of BP and just make low-ball offers. I'm working on a calculator (modified from Robuilt), and whatever price point puts my CoC return at my goal is what I'll offer.

    Housing affordability hasn't been this low in general since 2006. You can even go look at price histories on Zillow and find some crazy appreciation over the past 3 years. Sometimes they're asking 100-200% over what the property sold for in 2020, even with higher interest rates! 

    Sooner or later sellers will come to terms with reality, but the price that works for you is what it is regardless of what insane number they throw up on Zillow. Make offers, get rejected, let them stew on it, and see what happens. 

    Hmmm, I don't really disagree with lowballing offers, but if you could clarify:

    If a house was worth 200k in 2020 and sold for that, but now the appraised value is $500k and is priced at that for sale, you would offer 200k because that is what it was worth in 2020 and that is the reality? Or something that just meets your requirements for CoC return?

    The reality of sales prices are what they are right now. If the comps support that 200% increase in values then that is the reality.


    0Reply
  • Vincent Samaha
    Member since 2023 · 12 posts · 1 vote
    3y
    Quote from @Michael Baum:
    Quote from @Vincent Samaha:

    I'm new here, so I have zero experience, but I'm a numbers guy. I plan to take the advice on one of the recent episodes of BP and just make low-ball offers. I'm working on a calculator (modified from Robuilt), and whatever price point puts my CoC return at my goal is what I'll offer.

    Housing affordability hasn't been this low in general since 2006. You can even go look at price histories on Zillow and find some crazy appreciation over the past 3 years. Sometimes they're asking 100-200% over what the property sold for in 2020, even with higher interest rates! 

    Sooner or later sellers will come to terms with reality, but the price that works for you is what it is regardless of what insane number they throw up on Zillow. Make offers, get rejected, let them stew on it, and see what happens. 

    Hmmm, I don't really disagree with lowballing offers, but if you could clarify:

    If a house was worth 200k in 2020 and sold for that, but now the appraised value is $500k and is priced at that for sale, you would offer 200k because that is what it was worth in 2020 and that is the reality? Or something that just meets your requirements for CoC return?

    The reality of sales prices are what they are right now. If the comps support that 200% increase in values then that is the reality.


    I'd use numbers that result in my target CoC. Prices should be more in line with expected returns.

    I don't expect the prices of anything to return to 2020 levels unless supply somehow catches up to monetary debasement or there is a crash. 

    But prices maintaining high levels while interest rates continue to rise isn't sustainable. Market conditions change, but sellers (of anything) are always hoping to do as good or better than past sellers and are reluctant to capitulate to reality. Eventually they will capitulate and accept a more reasonable gain or just pull their property off the market.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y
    Ok, makes sense on the CoC target price. What is your target CoC? That probably dictates whether or not you will be offering and getting shot down over and over.
    The biggest issue with this strategy is that you will get a reputation and eventually agents won't work with you or take you seriously. It can be a razors edge to walk.

    What you think is reality might not match up with actual reality. I know that if I had a place to sell I wouldn't even respond to an offer 25% under ask (for example) and would simply ignore anything else that came from that "buyer".

    You will also be competing with people looking for family homes, forever homes etc and they will be more than willing to pay closer to asking or even a hair over if it is the perfect house for them.
    1Reply
  • Vincent Samaha
    Member since 2023 · 12 posts · 1 vote
    3y

    At 20% for an STR seems to be what I should aim for. But at current rates, that would result in a very low ball offer, like you mentioned. So it might be best for sellers to start lowering their prices in their own.

    I get the feeling some places are listed just to see if someone bites. If Zillow says your property appreciated 100% in 2 years, you may as well throw it up there on the chance that someone will buy it. And if no one does, they might just pull the listing. 

    0Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y
    Quote from @Lisa Beard:

    If you're wanting to stay fairly local, look for properties that have sat on the market for a while, attend local auctions, check FSBO and Zillow for FSBO properties. I found one of mine just driving around - A woman had a sign in her yard just to see if anyone was interested. Go to local REI groups, socialize on here with other investors or wholesalers. There are so many different avenues to finding property! Focus on the STR niche, if you're good at it, and go from there. Don't settle for 10% CoC return - There are plenty out there with 20%, 30%, 40%.


    Thanks. So clarify one thing if you don't mind, I'm very bad with numbers. 

    Not sure how to calculate CoC return in general, because in the first year I renovated it entirely, spent like 70k. That ruined my cash on cash return, but then in my second year (which is beginning now) I won't be spending that money again, so will my cash-on-cash return go way up? Because the cash-on-cash return people talk about only seems to be about the first year, right? Am I missing something? Because in the second year you don't have to spend money furnishing it and doing the heavy renovations.

    Make sense? Don't make any sense?

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hey @Kiko Mattoso, were you able to get the first year deduction on that 70K? Did you do a cost segregation?

    Your CoC is the amount of income made on a property annually in relation to the amount invested into the same property.

    Check out this BP blog post - https://www.biggerpockets.com/...

    0Reply
  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
    3y

    @Vincent Samaha I think you are missing an obvious alternative to buying existing properties for a STVR. Build or have one built.

    If the cost to build per sq foot is less than the cost of existing homes the choice is clear in regards to achieving the highest ConC return.

    New construction of a STVR has these advantages over existing structures: 1. More efficient structure in regards to purpose. Eliminate costly garages. 2. Build down ,basement,instead of up, less construction labor cost 3. Use eye catching interior wall and counter top coverings (epoxy resin)to imitate stone ,accent walls, amaze with entrance appeal 4.Lower long term maintenance and utility costs by using ICF construction 5.No renovation costs , property built to your specifications 6. Lower pool and hot tub costs using ICF construction

    With the beginning of the building recession there should be plenty of builders looking for new business.

    0Reply
  • Cole SchlackPro Member
    Realtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes
    3y

    Simply buying for CoC returns is silly, so many more factors. Having assets that cashflow enough to cover costs while they appreciate and provide a tax benefit should be the plan. Buying in areas with good appreciation should be the goal and you enjoy. I recommend Hawaii, limited supply and massive future demand.

    0Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y
    Quote from @Michael Baum:

    Hey @Kiko Mattoso, were you able to get the first year deduction on that 70K? Did you do a cost segregation?

    Your CoC is the amount of income made on a property annually in relation to the amount invested into the same property.

    Check out this BP blog post - https://www.biggerpockets.com/...


    Thanks Michael. I’m taxes right now, I hope they can help pay zero tax on this little income I had in 2022. I’m not familiar with cost segregation but I hope my accountant is! This is my first year doing taxes as a home owner. 

    So Michael, so since CoC is done annually it can change drastically from the first year to second year, right? So because I've spent so much fixing and renovating, my CoC this year is around 11%, but next year, without this 70k, it should go around 20% ( just guessing). I must make around 35k gross per year I'd say. Is this making sense?

    1Reply
  • Kiko Mattoso
    OP
    Member since 2021 · 28 posts · 6 votes
    3y

    Hi Cole, but a property that doesn’t make cash flow, what’s the big advantage comparing to stocks? I get the appreciation but then you have to wait years and years to gain something right? 

    Let me know, I’m just starting on this…

    0Reply
  • Ju Davis
    Glendale, CA · Member since 2016 · 6 posts · 3 votes
    3y
    Quote from @John Underwood:

    Thats a lot of money and work for 10k profit. I can buy a house cash for 30k and net 10k profit with a lot less work.


     Where can you buy a house for 30K?

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @Ju Davis:
    Quote from @John Underwood:

    Thats a lot of money and work for 10k profit. I can buy a house cash for 30k and net 10k profit with a lot less work.


     Where can you buy a house for 30K?


     SC for one place. I can rent a 2 bedroom house for $1200 also. Not as high as CA I'm sure, but still pretty good.

    0Reply
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