Negative Cashflow - STR

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Ryan MoyerBusiness Member
Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
1y

Honestly, I would sell it now while there are still an endless supply of foolish newbie investors out there that have the capital to throw around $2M with no underwriting skills and assume they'll cashflow based on bad advice from realtors and youtubers.

Eventually once everyone starts wisening up to these investment-only properties being a negative investment, prices will start falling and you might lose that equity.  I have no idea how long that will take though because there are a lot of people out there right now with more money than sense buying these deals that will never cash flow and then complaining that they can't cash flow.

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  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    2y

    What kind of loss are you talking? Do you expect it to turn around, and/or is there anything you can do to help increase revenue? 

    Sounds stressful. I would cash out if I didn't see a path to positive revenue. 

    1Reply
  • Joseph Shuster
    OP
    Member since 2024 · 11 posts · 3 votes
    2y

    Just started a few months ago so with more reviews I’m sure I’ll gain some more revenue but it’s high end luxury fully amenitized sleeps almost 30 people (so not much more value I can add that I can think of). 

    Took out a bit more debt than I should have because my rev projections were a bit too high (at least for year 1). 

    Prob losing approx $5-10k/month (on average)

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  • Noah Loveless
    Realtor · Anchorage, AK · Member since 2019 · 20 posts · 11 votes
    2y

    I would cut my loses (and potential future loses) and sell. Losing approx $5-10K per month during summer seems excessive. What will those monthly loses to be if something breaks, like a pool, hot tube or any other hospitality essentials. 

    However, if you have other investments that can carry these losses and still have positive portfolio cashflow AND gaining significant equity, maybe keep it.... 


    Cheers,

    Noah

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  • Kevin Luttrell
    Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
    2y

    Definitely sell it if you can. The market is saturated and it's unlikely demand will increase substantially any time soon. 

    It's busy season right now in the Smokies - your losses will be significantly higher when the beginning of next year rolls around. 

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  • Sunil Ghosal
    Member since 2023 · 39 posts · 13 votes
    2y

    Market Fundamentals in the Smokies are negative for the near future. If the cashflow doesn't justify the equity position then it may be best to sell. 

    The most important advice is not to get emotionally attached to properties (If viewed as an investment vehicle, Owning for personally reasons is difference). If you have equity in the property and are able to sell then you have a golden parachute out. 

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  • Joseph Shuster
    OP
    Member since 2024 · 11 posts · 3 votes
    2y

    Thanks all, only clarification is I’m making money in Summer, and apologies for miscommunication - I meant on average (annually) I’m losing 5-10k so realistically will lose $75k on it first 12 months operating (but created about $800k of equity).

    That said, I think all the points still stand. And that’s with issues and that pop up, however it’s brand new so probably won’t have too many items to fix in short term.

    Sounds like I should list it. 

    1Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    That is a lot to lose, unless you can swing it you should sell and take the equity and put it to better use.  I imagine with some more time on market and good reviews you could do slightly better, but I hear the market is still a little saturated there.  Best of luck

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  • Kevin Luttrell
    Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
    2y

    Ya and we are not seeing appreciation in the Smokies right now, unless it's forced appreciation via upgrades/renovations. So I don't see any benefit to holding on to it longer when you're that negative on cash flow. 

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  • Trevor Kupstas
    Homeowner · UT · Member since 2024 · 5 posts · 3 votes
    2y

    Hi Justin, 

    Since it looks like this property, as mentioned above, is exclusively an investment, what did you have in mind from a business plan standpoint? The first exist strategy was to flip it, but what about a second one? I assume that with the overage from the renovation, it probably ate into any extra contingency fund? How much more contingency do you have to work with


    I do not know the local market, but what are the comparable with the STR market to this place. Having a 30 person rental, from my experience, can move you away from the more typical rentals (single family). If you want to keep it, maybe it could be worth retooling on your STR market and marketing (inexpeienve) it for a Corporate Retreat or Small Destination Wedding Venue. Pair it with some local al-a-carte activity add-ons (partner with owners of these businesses Trap Shooting, Of Roading, Horseback Riding, etc...) and your rental can build its own niche...

    - Trevor

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  • Joseph Shuster
    OP
    Member since 2024 · 11 posts · 3 votes
    2y

    Trevor, we've thought of wedding venue. Do you have any experience with that? How do you go about marketing that?

    WOuld love for people to have weddings there... it has a 5 acre beautiful grass field that can easily be used. 

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    How are you losing $5k-$10k/a month?

    Are you leveraged fully on a $2MM property with all the bells and whistles?

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  • Joseph Shuster
    OP
    Member since 2024 · 11 posts · 3 votes
    2y

    $1.45M loan on a $2.2M property at 7.125%

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  • Trevor Kupstas
    Homeowner · UT · Member since 2024 · 5 posts · 3 votes
    2y
    Quote from @Joseph Shuster:

    Trevor, we've thought of wedding venue. Do you have any experience with that? How do you go about marketing that?

    WOuld love for people to have weddings there... it has a 5 acre beautiful grass field that can easily be used. 

    Sorry, I do not have any direct experience with coordinating weddings, but we have been toying with it for us. We have a property manager that we use, and they have asked about it for us.    

    The basic plan would be to use their services to do the leg work (Advertising, Booking, and managing the event) and then our property would be the location and accommodations. For the location we would get a flat fee and a guarantee for booking for all rooms in the place.  

    It could be worthwhile to see if you have any managers in your area and get their thoughts. 
     
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  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y

    If you sell it now, you could be looking at losing much/all of your equity in the home. The next buyer won't want a $5-10K a month loss, so they are going to buy the house at an appropriate multiple.  You could easily be looking at a $400-500K loss.

    If $5-10K a month loss isn't that much money to you, I'd just pay it and go on.  If it is keeping you up at night and pinching your personal budget quite a bit, that's a different matter.  Everything is relative.

    As for the market value, in six months or a year, it could be far lower than it is today. In the Great Recession, I saw large cabins selling for 25% of what they sold for just 2 years prior.  

    I don't think we will reach those lows again, but wouldn't necessarily bet against it, either.

    If you are skittish now, I'd get it on the market right now while there's still a season left, and price it to MOVE.  

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  • Jasmine Williams
    Real Estate Consultant · FL · Member since 2024 · 32 posts · 18 votes
    2y

    Hey @Joseph Shuster! I literally just helped on of my repeat investors with this exact same scenario recently. Honestly, the proper strategy at this moment would depend on a few factors that would be a bit difficult to get into on this board. Feel free to connect with me for a bit of a deeper dive! From just surface level, if your equity is high and your cash flow is negative, those are clear indicators that it may be time to sell for a gain while you can. Again, you'd want to take a deeper look at it first. But, if you do end up selling please definitely connect with me! I may have a buyer. We work with buyers and seller around the world.

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Joseph Shuster:

    $1.45M loan on a $2.2M property at 7.125%

    That's fine, just how do you sit in general? What % of this payment is your monthly salary or income?

     How much cash do you got on the side? Paying up for your monthly cash flow is more or less paying more up front rather than being leveraged, it's not terribly different. It's just personal. 99% of folks here cannot survive $5k/monthly deficits, .5% here would not know if it was a rounding error, .5% would make them look twice but not make them do anything besides try to manage it a bit differently. Which are you?

    FWIW, I am one of those investors that are looking for folks overleveraged on properties north of $1.5MM in the Smokies and I'll come with a bid that suits me here later this year once I get some family obligations off my chest. So for this one, I would be probably $1.3-$1.4MM highest- of course all cash. So the "high equity" thing may just be paper, go get it realized. You may need to price it at $1.89 and see if someone just bites immediately on it. When it gets to investors like me, I am not here to pay what an appraisal shows I am here to make it make sense. 

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  • Joseph Shuster
    OP
    Member since 2024 · 11 posts · 3 votes
    2y

    As you should be a disciplined investor. There is major value add potential on the land itself with more amenities to build. 

    It would move immediately at 1.89M. Going to see if I can get over $2M for a bit first though. 

    Someone that can come in with high % equity (maybe 1031) it would be great long term and short term cash flow with a lower loan amount.

    I’m in the realm where I can afford it not a big enough dent where my life is being changed at all really. So it’s not a big deal. 

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    2y

    Losing 5-10k/month? During the busy season in a good economy? I’d cut bait and sell that thing. People are still traveling and spending $ like there’s no tomorrow. When we go into a recession and people cut back on spending, you’ll be dead in the water with a lot more negative cash flow than that.

    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Joseph Shuster:

    As you should be a disciplined investor. There is major value add potential on the land itself with more amenities to build. 

    It would move immediately at 1.89M. Going to see if I can get over $2M for a bit first though. 

    Someone that can come in with high % equity (maybe 1031) it would be great long term and short term cash flow with a lower loan amount.

    I’m in the realm where I can afford it not a big enough dent where my life is being changed at all really. So it’s not a big deal. 


     Then try to sell at appraised, otherwise hold. 

    0Reply
  • Mike Sebastian
    Investor · Louisville, KY · Member since 2019 · 50 posts · 21 votes
    2y

    I had a similar one in Ellijay. There are so few affordable long-term houses in those markets that I was able to turn it into a "by room" long term rental and it's doing better than STR ever did. I just left it furnished to increase the LTR revenue a little bit. Might look into that.

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Joseph Shuster. With such significant losses you are essentially just living in hope that one day the property will cash flow enough to provide a NOI profit. There is a ramp up period for a str business. But you've got a steep hill to climb. It's not often that a low producing property recovers that much. Meanwhile, you have made a lot of money on that with equity build.

    A 1031 exchange would allow you to sell the property and use all of that equity and deferred tax from the profit to purchase something that would produce better cash flow from the beginning. Or maybe several smaller properties with better overall cash flow.   Falling in love with a property costing you $10K a month is an expensive romance.

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  • Michael CalveyPro Member
    Head of Sales at BiggerPockets · Denver, CO · Member since 2023 · 124 posts · 154 votes
    2y
    Quote from @Joseph Shuster:

    I finished a BRRR in the Smokies- now I'm short term renting it out. Losing money but created a ton of equity.

    House is amazing and I want to hold long term but hemerging a bunch of cash right now.

    What do I do?

    Thank you 🙏 

    It's great that you've built equity, even if cash flow is currently negative. To improve your situation, have you considered diversifying your marketing strategy beyond just Airbnb?

    Here are some ideas that might help:

    1. Multi-platform listing: Use a channel manager like Hospitable to list on multiple platforms (Airbnb, VRBO, Booking.com) to increase visibility and bookings.
    2. Hospitable.com can also create this for you. Create a dedicated website for your property to accept direct bookings. This can increase your profit margin by avoiding platform fees. Are you using Hospitable now? 
    3. Social media marketing: Develop an Instagram strategy to showcase your property. Consider collaborating with local influencers or travel bloggers for exposure.
    4. Local partnerships: Connect with local businesses, wedding venues, or event planners for potential referrals.
    5. Targeted advertising: Use Facebook/Instagram ads to reach potential guests interested in Smoky Mountain getaways.
    6. Seasonality strategy: Adjust your pricing and minimum stay requirements based on local events and peak seasons.
    7. Long-term rental mix: Consider mixing in some medium-term rentals (1-3 months) during off-peak seasons for more stable income.

    Have you tried any of these strategies?

    What's working well for you so far in terms of marketing and bookings?

    @Miles Hobson Does this seem like a good approach?

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  • Miles HobsonPro Member
    Toronto · Member since 2024 · 20 posts · 14 votes
    2y

    I agree with all of those points @Michael Calvey!
    I'd also ask if you're using a dynamic pricing tool such as PriceLabs @Joseph Shuster? Are you fully booked but maybe not charging as much as you could or are you failing to fill your calendar (maybe you're not pricing competitively enough).
    If you aren't booking up your property then a tool like RankBreeze could help you increase exposure of your Airbnb listing while also doing some of those strategies Mike suggested.

    1Reply
  • Chris Barrett
    Investor · Madison WI · Member since 2021 · 140 posts · 103 votes
    2y

    Joseph - did you not have a business plan in place on what you were going to do with the property once the reno phase was finished?

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  • Joseph Shuster
    OP
    Member since 2024 · 11 posts · 3 votes
    2y

    @chris of course I did. Plans only work until they don’t… due to a ton of unforeseen costs in a major renovation and revenue targets not hitting even our conservative metrics it doesn’t cash flow.


    Chris, I recommend taking your questions elsewhere. You’re not helpful.

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