3-unit STR/MTR $107k NOI on $187k REV

Tacoma, Washington
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3-unit STR/MTR $107k NOI on $187k REV

Brandon VukelichBusiness Member
Real Estate Broker 路 Tacoma, WA: 馃彚 27 LTRs 馃彙 3 STRs 路 Member since 2018 路 549 posts 路 458 votes

Curious how our self-managed 3-unit STR/MTR performs with industry expectations. Front two units are full time STRs with a rear studio operating full time MTR. We're looking at 2024 gross around $187k with NOI at $107k. Seems a bit high on the exp ratio near 43% but we do pay a premium for our solid cleaning lady, she also stocks supplies, runs errands and other duties for no "extra" charge. No surprise but property taxes (up another 16%), insurance and utilities are all bumping significantly. Other than comps for 3-unit properties (which are typically not furnished and operating as STRs), how would most seasoned STR investors look at valuing the property?

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Michael BaumPro Member
Olympia, WA 路 Member since 2016 路 8k+ posts 路 7k+ votes
1y

That is hard to answer @Brandon Vukelich. Is it good for Tacoma? Seems like it.

Is it good for Tahoe? Who knows.

If you are happy with the return and everything is smooth, that is what really matters IMHO.

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  • Michael BaumPro Member
    Olympia, WA 路 Member since 2016 路 8k+ posts 路 7k+ votes
    1y

    That is hard to answer @Brandon Vukelich. Is it good for Tacoma? Seems like it.

    Is it good for Tahoe? Who knows.

    If you are happy with the return and everything is smooth, that is what really matters IMHO.

    2Reply
  • Bonnie LowPro Member
    Lender 路 Asheville, NC 路 Member since 2016 路 1k+ posts 路 1k+ votes
    1y

    If you're left with $107k across all 3 units after ALL expenses are deducted (some people don't include PITI when they discuss NOI) then I'd say it's darn good. But if your PITI is $105k, then not so much. I'd happily accept the former, though the 16% YOY property tax increase would be a non-starter for me.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    1y
    Quote from @Brandon Vukelich:

    Tell us all the numbers. Is $107k your true net, or do you have any other expenses (mortgage, taxes, lodging taxes and fees, insurance, utilities, landscaping, WiFi, etc.)? I would also like to know the purchase price and current market value.

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  • Brandon VukelichBusiness Member
    OP
    Real Estate Broker 路 Tacoma, WA: 馃彚 27 LTRs 馃彙 3 STRs 路 Member since 2018 路 549 posts 路 458 votes
    1y

    @Michael Baum yep, we're good. Just looking to sell in the near future and trying to wrap my head around what a potential STR buyer will expect. If the $107k NOI was an 8% return, I'm looking at a rough $1.33MM value, possibly?

    @Bonnie Low I was not including debt as I want to know how a cash buyer would look at the deal. Yes, our prop taxes went flat in 2022 but ramping back up again.

    @Nathan Gesner See above. I removed our debt (P&I) all other expenses have been factored. We purchased for $1.1M in 2020. It is a unique property with unobstructed water/bay views in the best neighborhood of Tacoma. I'm a broker and can run comps all day long for straightforward LTR properties, I know small multifamily in our market. I'm just not a pro at STR valuations. As I mentioned to Michael, I'm attempting to see if our returns and operations are relatively inline with the expectations of experienced STR operators. We would like sell when we believe the value is close to $1.4MM or better.

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  • Michael BaumPro Member
    Olympia, WA 路 Member since 2016 路 8k+ posts 路 7k+ votes
    1y

    Hey @Brandon Vukelich, so I have posted several times and in a big post about valuation of a STR. The lenders will only lend on what the comps say the value is.

    If you have plenty of comps in the area that meet the 1.3m valuation, then it won't be a problem. If comps for a 3 unit property are in the 950k range, then that is what it will come in at.

    The revenue from the STR will have no bearing on the value of the property itself.

    People argue about it from time to time, but I spoke with 10 different lenders, banks, credit unions, private lenders, etc etc and they all said the same thing. They do not take into account the revenue from the STR in valuation.

    Just because you are doing well with it doesn't mean it will work for the buyer. Past performance is no indication of future returns.

    EDIT - Ok so I just did a quick scan of the greater Tacoma area and right now you valuation seems high at 1.4m. There are not a ton of triplex or 4 plex properties available but the best one is a 6 unit, 3 building property at 1.9m in Steilacoom. There are several 4 plex properties under 1m and a nice 3 plex, fully renovated for 900k.

    Not saying that you won't see some increase in valuation over the next year or so, but it might be tough to get that 1.4m number.

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  • Nathan GesnerBusiness Member
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    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    1y
    Quote from @Brandon Vukelich:

    Question: why would you sell an asset that generates a profit today and will generate a more significant profit in the future?

    If it's worth $1.3 million today, it will be worth $3 million or more in 20 years, you'll have paid off the debt (or most of it), you'll earn at least $3 million in cash flow over those 20 years, and you'll have tax benefits.

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  • Brandon VukelichBusiness Member
    OP
    Real Estate Broker 路 Tacoma, WA: 馃彚 27 LTRs 馃彙 3 STRs 路 Member since 2018 路 549 posts 路 458 votes
    1y

    Thanks again @Michael Baum. Yes the lack of identical apples-to-apples comps has been an issue in the area for years. Appreciate you taking a quick look but Steilacoom is a different market than North Tacoma. The unobstructed water views for both front STR units can be challenging to determine additional value compared to other 3-unit properties without views. With the massive increase in STR properties in the US, I am hopeful that lenders and appraisers will evolve to apply income/exp metrics to STR deals specifically, on top of generic property comps.

    @Nathan Gesner Yes, I'm fairly confident if we were to hold long term, we'll do just fine. I want to exit as I don't get any personal use from the STR being 20 mins from home and would rather apply the capital to another opportunity in multifamily (LTR) or another STR in Hawaii where my brother is a broker and now manages STRs. My regret is not buying one in Hawaii or somewhere else where my family could spend some vacation time. Plus STRs are not the model for me. We bought it because it is a beautiful property in solid location and I wanted to learn the STR model. It's too much like the hospitality business rather than a rental. If I didn't have two amazing biz partners, I would have already likely sold it.

    BTW, I could have mentioned earlier, when we refi'd in 2022 the appraiser came in at 1,300,000 and verbally told me that he struggled as he believed the property was likely worth more based on the location, views, income. I was able to push back and provided more data, he adjusted to $1,335,000.

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  • Nathan GesnerBusiness Member
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    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    1y

    If you buy a vacation rental in Hawaii, then you're tied to that location. I've seen a lot of people try this, and they rarely use the home. I would rather invest in safe markets that produce a good return, then I can use that income to pay for a vacation anywhere in the world.

    I'm very pessimistic about the STR market in Hawaii. They were perfectly acceptable 20 years ago, but now many areas are limited to one guest per calendar month.

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  • Michael BaumPro Member
    Olympia, WA 路 Member since 2016 路 8k+ posts 路 7k+ votes
    1y

    Roger that @Brandon Vukelich, but I don't see lenders adding STR revenue to the actual property valuation in the future.

    In the end, buyers would overpay for the actual property based on earnings. If those earnings didn't stay the same or increase, that could leave the lenders with folks that go bankrupt trying to pay for a property they can't make perform like you did. Or the rules change and the greater STR revenue is lost and you have to switch it to a LTR and hope for the best.

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  • Steve K.
    Realtor 路 Boulder, CO 路 Member since 2016 路 3k+ posts 路 5k+ votes
    1y

    Being 3 units, the valuation will come from comps not from cap rate/ income based approach. What are other similar triplexes selling for in the area? That is what yours will probably sell for. Income-based valuation only comes into to play once you get into commercial property (5 units and up). 

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  • Enrique Jevons
    Investor 路 Sammamish, WA 路 Member since 2013 路 94 posts 路 84 votes
    1y

    Congrats on those solid numbers! A $107k NOI with a 43% expense ratio is impressive, even with rising costs like taxes, insurance, and utilities. Experienced investors typically value properties like yours by analyzing cap rates, cash-on-cash returns, and income growth potential. As a property management company in Washington, we help owners navigate these challenges and optimize profitability if they want assistance analyzing their property or planning future strategies.

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  • Morgan Leiviska
    tacoma, WA 路 Member since 2024 路 18 posts 路 6 votes
    1y

    Cool thread, lots of interesting views, thanks for sharing everyone!

    Forgive my ignorance here, but is there a way to change the highest and best use of the property to something else and sell it for more? What made the current strategy the best? 

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