Short term rental's cash flow is not great, should I walk from the purchase agreement
Nashville, TN · Member since 2023 · 7 posts · 8 votes
Short term rental's cash flow is not great, should I walk from the purchase agreement
Most Popular Reply
Real Estate Agent · Orlando FL · Member since 2021 · 33 posts · 36 votes
2yQuote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning. Thanks in advance!!
First off, great job with at least trying! So many don't even make the jump and Im glad you are actively moving forward in your journey!
Analysis wise - theres a ton of variables that come into play when seeing how well a home will perform. A perfect example from my day today, lol, I showed two homes, 2-bed A-frames next to one another, one was producing 120k, the other under 70k (Both with views). Production depends on the owner and the home. Have you considered getting a pricelabs subscription and getting a little more in depth #'s on amenities, management experience, review count, pools, view vs non-view, etc? AirDNA I find to be somewhat Lackluster on homes that have unique features if the home you have fits that. Pricelabs provides much more information from the Market dashboard tool.
Also, ask your agent! See what they have to say and if they have data you can review! An agent cant do analysis for you, and I never encourage you use someone elses #'s, but you can at least get info from every source possible.
You did the exact same thing I do. Napkin math on offers to get a rough idea, then a deep dive when under contract. If things don't work out, protect your $! Become more familiar with your analysis, take a beat and digest that info, and if you decide to back out its on to the next one.
Smokies is awesome, I hope you join the club! Hard barrier to enter, but its a very resilient market. Great when it comes to being an owner long-term.
30 Replies
- 2yDustin TuckerBusiness MemberLender · Savoy, TX · Member since 2020 · 195 posts · 80 votes
Hello Emily, Its definitely nerve racking purchasing your 1st property, a couple things to consider.
1. I assume you have looked up your property on Air DNA, this is the best way to determine STR annual income.
2. I also assume that you have an option contract, where you get to do an inspection, and general feasibility.
3. Based on a 2/2 Air DNA projections it looks like the area is getting 55% annual occupancy, with expected rental income around $39,619.
4. If you can tell me the purchase price and down payment, I could figure out your cash on cash return.
5. One additional item to consider is to buy an outdated property, rehab it and refinance it, this way you would have less cash into the deal and higher Cash on Cash Returns.
- Real Estate Agent · Orlando FL · Member since 2021 · 33 posts · 36 votes2y
Quote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning. Thanks in advance!!
First off, great job with at least trying! So many don't even make the jump and Im glad you are actively moving forward in your journey!
Analysis wise - theres a ton of variables that come into play when seeing how well a home will perform. A perfect example from my day today, lol, I showed two homes, 2-bed A-frames next to one another, one was producing 120k, the other under 70k (Both with views). Production depends on the owner and the home. Have you considered getting a pricelabs subscription and getting a little more in depth #'s on amenities, management experience, review count, pools, view vs non-view, etc? AirDNA I find to be somewhat Lackluster on homes that have unique features if the home you have fits that. Pricelabs provides much more information from the Market dashboard tool.
Also, ask your agent! See what they have to say and if they have data you can review! An agent cant do analysis for you, and I never encourage you use someone elses #'s, but you can at least get info from every source possible.
You did the exact same thing I do. Napkin math on offers to get a rough idea, then a deep dive when under contract. If things don't work out, protect your $! Become more familiar with your analysis, take a beat and digest that info, and if you decide to back out its on to the next one.
Smokies is awesome, I hope you join the club! Hard barrier to enter, but its a very resilient market. Great when it comes to being an owner long-term. - Nashville, TN · Member since 2023 · 7 posts · 8 votes2y
Thanks for the reply Dustin! Yes, I have subscription to AirDNA and the analysis states expected income at 63.5K. I do have the actual rental income for the past 3 yrs at 69K, 55K, and this year 40K to date as of beginning of Aug. It was built in 2021; purchase price 615; was planning downpayment of 25% or possibly 30% if rates better.
- Nashville, TN · Member since 2023 · 7 posts · 8 votes2y
Thanks for the input @Wayde Hall. I do have a subscription to AirDNA but have not looked at pricelabs at all. I will look into. I agree that the production seems to depend on the marketing of the property mgmt company and connections ; reviews, etc. The property has very good reviews - all 5s but if I take over to self list, I am not sure if I can transfer of keep any of that data. Any input you have on transferring an existing AirBNB or rental to keep within the algorithm... similarly, I would like to cross market where the existing or the property mgmt company lists to get more interest. Do you use a property mgmt company in the smokies area or recommend best / value ?
Finally, any leads you have to off MLS opportunities coming that you have access to?
- Real Estate Agent · Orlando FL · Member since 2021 · 33 posts · 36 votes2y
You know, im not really one to believe in property managers, but I do respect them. The first property I purchased was a 3 bedroom in Disney that was producing around 52k and it was impeccably run. With some slight changes we brought the production to 75k. Theres a time and a place for PM's but if you have the opportunity to self manage and are willing to learn, it can really help you with cash flow early on. I spend about 20-30 min a week for each home, the rest is completely automated to give you a bench mark.
If you take over - ABNB, VRBO, Booking - will be your priority platforms. Most managers are on just these sites and perhaps their direct websites, but the others are realistically the primary source. Once you get familiar enough and perhaps create a booking page you can go to FB pages as well for direct books. I get quite a few from that route but it takes time.
You can not transfer previous reviews or bookings when buying a home. ABNB does not allow it, VRBO it depends, and im unsure on Booking but 99% sure they don't, if someone else knows please comment. The manager though will most likely refuse to transfer them anyways though, wanting to keep the revenue and have the booking moved to another home under management. - 2yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning. Thanks in advance!!
If you will PM me the details, I'll give you a thumbs up/down. I am very familiar with that market. Although I didn't know there was an island! ??
- 2yGarrett BrownPro MemberRental Property Investor · Houston, TX · Member since 2024 · 515 posts · 553 votes
Hey Emily! Welcome to the forums. You have already gotten some great advice here. AirDNA is a great tool, but I tend to find it slightly underwhelming, like @Wayde Hall mentioned for unique properties. It is a good ballpark measure, though. Rabbu, Pricelabs, and Mashvisor are other good comparisons. AirDNA told me one of my sites would make 22k, and we put two homes on the lot. Now, one makes 100k, and the other makes 80k, for example.
That doesn't mean they are wrong, but each place is different, especially with higher-quality hosts and marketing efforts.
Avery Carl teaches the "Enemy Method," which I think is great advice for looking into competition revenue. She has written the STR book for BiggerPockets in the bookstore, which has amazing information.
Our BiggerPockets STR calculator can help see what expenses may come and quickly pencil out deals. It can also use STR data tools in unison, like AirDNA. https://www.biggerpockets.com/airbnb-calculator
Let me know if you have any specific questions we can help with! - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Dustin Tucker:
Hello Emily, Its definitely nerve racking purchasing your 1st property, a couple things to consider.
1. I assume you have looked up your property on Air DNA, this is the best way to determine STR annual income.
2. I also assume that you have an option contract, where you get to do an inspection, and general feasibility.
3. Based on a 2/2 Air DNA projections it looks like the area is getting 55% annual occupancy, with expected rental income around $39,619.
4. If you can tell me the purchase price and down payment, I could figure out your cash on cash return.
5. One additional item to consider is to buy an outdated property, rehab it and refinance it, this way you would have less cash into the deal and higher Cash on Cash Returns.
option in the offer to purchase is unique to Texas I have never seen that in any of the other states I have worked in.. OP the option period is just your due diligence period. in Texas its common to put up 100.00 non refundable for a 2 week option.. if you dont like it you back out and lose your 100.00 - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
@Emily Poerio you're doing it wrong.
You're new to STR, never done it before, so that means everything is an unknown. Maybe you love it, maybe it's like dental work, who knows.
And your gambling a LOT of $ on trying something out, via purchasing a property to try the waters. That's kind of like buying a plan to try out sky diving isn't it.
So bisect the venture.
Start with what matters most, the actual operation of being a STR host. meaning DONT buy to try, RENT to try.
Start by trying to lease a property, with sublet rights to run it as STR. Yes, that's a very real thing.
There is a LOT of properties out there that would do awesome as a STR, but are only leased on standard lease, because the owner is clueless on doing STR and has no interest doing the hosting duties and activities.
The most common response I get from these landlords is "yeah, I thought about doing something like that, but ugh, then there is all those move-in/out every week or few days, and checking things constantly, then what if this or that happens, and all that, it's just too much for me, I don't have the time for that". Yeah, well great-fit for a person who IS keen on being a host.
Now, your capital risk is on the lease, not purchase.
I see it WAY too often person who got a property, analysis based on STR revenues, found out they suck at hosting, revenues are never what expected, feels like work, and than when try to shift to standard rental there deep in the red because standard rents are a fraction of that hopeium STR revenue, but there "stuck" with a property, a mortgage bill, and are than searching to break even or paying $ to get rid of property......
START by leasing a property and testing your hosting biz.
Than, when you get good at hosting, like it, your going to know what property is a best fit AND will have that revenue position to better buy the asset.
Or, who knows, maybe just scale up.
It can be a great win-win, simply by bisecting the property and hosting operation. It's an OPM model for scalability.
- 2yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
I would rely on locals like @Collin Hays for market specific guidance. However, with the rates where they are now but likely heading down, I am advising my clients to buy now. At least in Tampa which is in high demand, when rates go down value will go up. You will have an opportunity to refi sometime in the future where you can increase cash flow and/or recoup down payment. To me cashflow is important to cover unexpected expenses but I buy for wealth creation and tax benefit, not to supplement my income.
Vacation Rentals of Florida53 Reviews - 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning.
Thanks in advance!!Natural to be nervous, but you need to embrace that.
If location is truly great, learn to optimize the cash flow or be prepared to weather a minor cash flow storm. Come from a position of financial strength. If you're capable of that, lean in on the great location. Those are the true prizes.
- Rental Property Investor · Lenoir City, TN · Member since 2020 · 3 posts · 5 votes2y
Hi Emily,
I have 4 2 bed cabins in the area and really like the location you picked. I would signup for pricelabs. It’s extremely accurate and I cross referenced my cabins and it was spot on. Also, pricelabs does not include cleaning.
One thing to consider is the ongoing expenses is more than a single family home. Taxes, insurance, pest control, utilities, software, etc comes out to around $13k per year each for my 2 bedroom cabins.Also unplanned capital expenses will add up. Last year on one cabin I had to replace the roof, hvac, & tile shower which came out to $22k. Since you are buying a newer cabin you will not have to worry about this as much.
My strategy is buying cabins in great locations that need major updates and completing the majority of the work myself. It’s tough finding good help in the area.
If you love the area and don’t need the cash flow then go for it. There has been so many new builds lately and the competition is tough. I would base my decision on a conservative $50k year.
If you want I can share some of my past 2 bedroom performance. They range from 50k to 70k per year without cleaning. My sales are down 5% so far this year and I was also 6% down in 2023.
I am still investing in the area and just finished a new build in Gatlinburg that I took over from a builder that quit halfway through the project.
Good Luck
- Member since 2022 · 272 posts · 253 votes2yAssuming this is purely for investment sake, $55k on a $615k property isn’t a good use of your $$$. You want to target homes/markets where %15-20 of the purchase price in yearly revenue in possible. Meaning this place would have to do $100k/yr in revenue
Quote from @Emily Poerio:
Thanks for the reply Dustin! Yes, I have subscription to AirDNA and the analysis states expected income at 63.5K. I do have the actual rental income for the past 3 yrs at 69K, 55K, and this year 40K to date as of beginning of Aug. It was built in 2021; purchase price 615; was planning downpayment of 25% or possibly 30% if rates better.
- 2yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Have you factored in tax savings on this? That impacts your ROI. It looks like this is STR property and can provide significant tax savings.
If the cash flow on this property looks tight with a 7.5% interest rate, it’s worth reconsidering. While the location is great and close to key spots like Dollywood, it might be better to walk away if the financials don't work. Cash flow is crucial for a successful investment, and relying on appreciation is risky, especially for your first deal. Trust the numbers—if they don’t add up, don’t force the deal. If you’re unsure, getting advice from a mentor or experienced investor could provide helpful insights.
INVESTOR FRIENDLY CPA®5241 Reviews - 2yKaren WanamartaBusiness MemberInvestor · Knoxville TN · Member since 2024 · 55 posts · 17 votes
@Emily Poerio where is your realtor and what do they think about this? Did you have different property managers run analyses on the income of the property? Is 615k negotiable? Sometimes you're better off buying a cheaper Airbnb with the same number of bedrooms.
Southern Charm Homes562 Reviews - Real Estate Agent · Gatlinburg, TN · Member since 2015 · 67 posts · 70 votes2y
Quote from @Collin Hays:
Quote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning. Thanks in advance!!
If you will PM me the details, I'll give you a thumbs up/down. I am very familiar with that market. Although I didn't know there was an island! ??
Pretty sure she is referring to The Island in Pigeon Forge just off the Parkway near Light #3 (between the Parkway and Teaster). https://islandinpigeonforge.com/
- 2yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Jay Fradd:
Quote from @Collin Hays:
Quote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning. Thanks in advance!!
If you will PM me the details, I'll give you a thumbs up/down. I am very familiar with that market. Although I didn't know there was an island! ??
Pretty sure she is referring to The Island in Pigeon Forge just off the Parkway near Light #3 (between the Parkway and Teaster). https://islandinpigeonforge.com/
Yeah, never heard back. thanks for letting me know about this!
- Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes2y
Why are you buying real estate? Is it only for the cashflow? Sounds like the cashflow is decent to me.... the tax benefits might be more beneficial to you, and appreciation, and the guests are paying your mortgage down hedging inflation... etc, etc, etc. And the BEST part.... you get to use the property while creating true wealth!
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
@Emily Poerio did you end up moving forward?
- New to Real Estate · Member since 2020 · 220 posts · 107 votes2yTake a year, travel to the area a few times and get to know the market. It’s not what it used to be in 2022-2023.
Quote from @Emily Poerio:
I am new to investing and after a few deals that had multiple other offers that I didn't win out; I did execute a purchase agreement last weekend but doing more analysis on the property and potential rates being 7.5%, appears to be very tight to limited cash flow. I am getting into investing for a few reasons: flexibility, build diversity in investments and tax benefits. The location is great on this property (2 miles to the Island / 5 mile to Dollywood), no HOA and sq ft ~ 335 (2bd / 2.5 ba) but getting very nervous as will be first deal and would love some input here or mentor input as continue down the path of investing and learning.
Thanks in advance!! - Nashville, TN · Member since 2023 · 7 posts · 8 votes2y
@Nicholas L - No, I ended up terminating the contract and still searching / running numbers on various markets for next deal.
@Melissa Nash - Yes, there are multiple reasons that I'm getting into Real Estate but with the updated picture of the ADR for the past year, the cash flow was not as good as they were indicating initially. I am looking to build portfolio of multiple properties and also benefit on the tax side as well as market appreciation.
Appreciate the comments and dialogue! - 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
I think that was smart. This one was a TON of cash to shell out to get it. Good luck!
- Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes2yThis eastern tenn area is a different beast. You aren't going to be able to rent a cabin and do arbitrage on it. Thats just not an option. If people own a cabin out here, they are not renting them out long term at all.
Quote from @James Hamling:
@Emily Poerio you're doing it wrong.
You're new to STR, never done it before, so that means everything is an unknown. Maybe you love it, maybe it's like dental work, who knows.
And your gambling a LOT of $ on trying something out, via purchasing a property to try the waters. That's kind of like buying a plan to try out sky diving isn't it.
So bisect the venture.
Start with what matters most, the actual operation of being a STR host. meaning DONT buy to try, RENT to try.
Start by trying to lease a property, with sublet rights to run it as STR. Yes, that's a very real thing.
There is a LOT of properties out there that would do awesome as a STR, but are only leased on standard lease, because the owner is clueless on doing STR and has no interest doing the hosting duties and activities.
The most common response I get from these landlords is "yeah, I thought about doing something like that, but ugh, then there is all those move-in/out every week or few days, and checking things constantly, then what if this or that happens, and all that, it's just too much for me, I don't have the time for that". Yeah, well great-fit for a person who IS keen on being a host.
Now, your capital risk is on the lease, not purchase.
I see it WAY too often person who got a property, analysis based on STR revenues, found out they suck at hosting, revenues are never what expected, feels like work, and than when try to shift to standard rental there deep in the red because standard rents are a fraction of that hopeium STR revenue, but there "stuck" with a property, a mortgage bill, and are than searching to break even or paying $ to get rid of property......
START by leasing a property and testing your hosting biz.
Than, when you get good at hosting, like it, your going to know what property is a best fit AND will have that revenue position to better buy the asset.
Or, who knows, maybe just scale up.
It can be a great win-win, simply by bisecting the property and hosting operation. It's an OPM model for scalability.
To me, this is exactly what he should be doing. Run your numbers and if they look ok, pull the trigger and take action. That being said, I'm not sure if I'd put down 25% to break even. I don't like that hes paying retail. Thats not investing to me.
But if you break even on a 600k purchase and end up with a 450k loan, you're going to get about 20k a year in depreciation to gain about 4k in tax benefits. You'll have about 5k a year in principal paydown. And if you get 3 to 5% appreciation, you're gaining another 25k a year in appreciation.
So whats your true return on that investment? 34k on 150k investment? 22%? Thats pretty good. And here's the other thing. In 10 years as your rents have gone up and maybe its making 20k a year in profit (tax free after depreciation), and the principal paydown in year 11 is close to 10k a year, and the cabin is making 40k a year in appreciation, you're talking a a pretty good return.
In 10 years, that cabin might be worth 850k to 900k and he'll owe 375k? I would take that all day long.
I still don't like that he's paying retail. But I don't see how you can go wrong investing in real estate over the long haul. - Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes2y
I'm assuming you meant the square footage was 1334 and not 334 like your post stated. If so, then paying 600k seems a bit on the high side or at the very least, it seems close to retail. But the numbers for rents look about right. 2 bedroom cabin should be between 55k and 65k right now. The bigger cabins took a huge haircut on the rents the last two years but the smaller ones seem to be doing fairly good actually.
Three years ago the one bedrooms were in the 40k to 45k range and now they're doing 50k to 60k - which is one of the reasons why the one bedroom prices have gone up from 450/sq ft to 500/sq ft and more. Two bedrooms i think have somewhat stabilized so they're still a good bet too.
That being said, Don't worry if your cash flow will break even. That doesn't mean its a bad investment. For one, I think your interest rate is a little high. You can do way better these days than 7.5%. You need to knock a full point off that as you should be able to do 6.5 to 6.75 right now on a dscr loan. That alone should add 5k a year to your profits.
But keep in mind, your return is more than cash on cash. Lets say you move forward on the 600k purchase and you put down 25%. You've now got 150k into that deal and a loan of 450k. Lets say you end up with a yearly profit of 5k. You'll also pay down that loan about 5k a year for the first few years anyway. So that is added to your return. You'll have depreciation of roughly 20k a year for the next 27 years so that means your 5k profit will be tax free plus you can offset your regular income and maybe save 3k in taxes there. Finally, appreciation at 3 to 5% a year will add roughly 20k to 25k a year to your returns.
So what is your true return on the 125k investment:
5k rent profit, 5k principal paydown, 3k tax benefits from depreciation and 22k appreciation. Total 35k total return on your investment: 28%.
But here's the thing you should remember with real estate. Your returns actually grow over time. Your rental profits will grow because your payment will stay the same but your rents will go up. Your principal paydown amount goes up over time as the further into the loan you go. And your appreciation compounds so 3 to 5% today on 600k is X but 3 to 5% in 10 years might be double. And btw, if rates fall even more over the next year, maybe you refi down from 6.5 to say 5.5 which would make you another 4k a year in profit.
What I like to do is look at the investment 10 years from now.
1) 20k Rental profit should go up from 5k to about 20k to 25k a year in year 10/11 if you figure historical rent increases out there and the fact that your mortgage stays the same - even with services like cleaning and property management going up some too. And all of this pofit will be tax free because your depreciation is still offsetting every penny
2) 10k. Principal paydown in year 10/11 of your loan will be roughly 800/mo so thats close to 10k a year in principal paydown.
3) 35k. Appreciation. You will now be gaining 30k to 40k in appreciation because your cabin will be worth 850k to 900k in 10 years and you'll be gaining 3 to 5% of appreciation off that number now.
So what does that look like for returns now: 65k return on that 125k investment?
And what does that really look like. You will have put down 125k as an investment and your loan will be paid down to 375k and it'll be worth 850k to 900k? That 125k investment is now worth 500k in 10 years and it will be generating 65k a year in returns going forward (and that will continue to increase over time).
I would add that I don't like ever paying retail for real estate as I've always been a believer in the adage that you make your money on the buy side. But the fact is even if you pay retail, the numbers on real estate work better than any other invesmtnent you can think of - unless you can tell me you know which stock will be the next amazon or microsoft boom. Outside of that, real estate is far more predictable and reliable with the greatest returns of any investment there is. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Mike H.:
This eastern tenn area is a different beast. You aren't going to be able to rent a cabin and do arbitrage on it. Thats just not an option.....Quote from @James Hamling:
@Emily Poerio you're doing it wrong.
You're new to STR, never done it before, so that means everything is an unknown. Maybe you love it, maybe it's like dental work, who knows.
And your gambling a LOT of $ on trying something out, via purchasing a property to try the waters. That's kind of like buying a plan to try out sky diving isn't it.
So bisect the venture.
Start with what matters most, the actual operation of being a STR host. meaning DONT buy to try, RENT to try.
Start by trying to lease a property, with sublet rights to run it as STR. Yes, that's a very real thing.
There is a LOT of properties out there that would do awesome as a STR, but are only leased on standard lease, because the owner is clueless on doing STR and has no interest doing the hosting duties and activities.
The most common response I get from these landlords is "yeah, I thought about doing something like that, but ugh, then there is all those move-in/out every week or few days, and checking things constantly, then what if this or that happens, and all that, it's just too much for me, I don't have the time for that". Yeah, well great-fit for a person who IS keen on being a host.
Now, your capital risk is on the lease, not purchase.
I see it WAY too often person who got a property, analysis based on STR revenues, found out they suck at hosting, revenues are never what expected, feels like work, and than when try to shift to standard rental there deep in the red because standard rents are a fraction of that hopeium STR revenue, but there "stuck" with a property, a mortgage bill, and are than searching to break even or paying $ to get rid of property......
START by leasing a property and testing your hosting biz.
Than, when you get good at hosting, like it, your going to know what property is a best fit AND will have that revenue position to better buy the asset.
Or, who knows, maybe just scale up.
It can be a great win-win, simply by bisecting the property and hosting operation. It's an OPM model for scalability.
Care to put some $ on that bet?
Beware, I will be in TN again soon, and I WILL prove you wrong if you feel like tempting fate.
Look, just because you can't, which in truth is you don't or won't, has zero bearings on other persons ability to put in the work and make things happen.
There is cabins out there people personally own for personal use, fact. I know because I've been "boots-on" in TN. And for some of these, they use them a lot less then they once did, some I have spoken with as little as 3/4 times a year. But they can't come to part with it and don't really trust handing it off to some PM to run it for STR that doesn't have "skin in the game".
THAT is the ready target market. A person can lower there cost of ownership, help protect and defend the asset, help with maintaining it AND your not just some PM, you've got skin in it, you suffer if they suffer, you win when and only if they win, your interests are aligned.
Will everyone do it? Heck no, but ya don't need everyone, ya just need those right few.
Or how about those who are burnt out on there existing PM how's charging them a mint? yeah, can convert those over because again, your interests as a person arbitraging are MORE aligned with there's, not just a fee-machine like some PM's are.
So yeah, you couldn't be more wrong Mike but I hope that's obvious to everyone because it was yet another statement of "it's IMPOSSIBLE, there is NO deals out there" type argument.
You buy the ticket, cover my expenses and I will go out to ANY market in the US and i guarantee in 7 days or less I will have found deals, GUARENTEED. Because there is deal literally EVERYWHERE, all that changes is how they are constructed and how you find em, that's it. And to do that is via effort, putting in the work, connecting with people, interacting, talking, asking around, putting self out there.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.