🏨 Boutique Motel STR Loophole Hack - Is Depreciation Possible if Owner Operated?

[AJ Wong]

Here's a hack you won't find on social media (maybe because it's wrong): Converting a boutique hotel to STRs. NOTE: This post is intended for input from CPAs and Tax PROS as I would like to verify some details as have some relevant properties coming to market..

I've written about boutique motels/hotels being the next forefront for STR investors and operators. With most densely saturated and populated areas tightening nightly rental rules & regulations - an area of growing emphasis will be cottage cluster boutique motel/hotels (often at $100K-) per unit that are zoned and intended for high-density usages.

Many smaller (sub 10-15 keys) owner or self-operated boutique motels or hotels are just that - operated the by the same team and the same way for eons. The units are often not on AirBNB or branded (from this century) and in many cases the complete opposite of AirBNB's. There are often managers living on site and a desk check in. In most tourist areas I travel - there are examples of properties that have been transitioned and re-invested, re-branded, designed and essentially converted into individual listings on AirBNB and generally perform well. Think of it like a micro STR portfolio but the units are all on the same property..

The angle I propose is:  provided the new owner operator does not have on site manager (remote?) and the primary participator is the investor or spouse (guests, pricing, cleaning, marketing) and operated more like a cluster of STRs than a larger hospitality business AND with stays that average less than 7 days...accelerated depreciation is possible? Per Google - you could perform a cost segregation study that separates the different property components and then take the bonus depreciation?

If that is the case - this is further confirmation that this asset class is currently overlooked for experienced vacation rental investors and primed for growth.

Commercial lending is often not as difficult (although more involved) as investors anticipate. Depending on the scale and location of the property, many local credit unions or even the seller themselves will offer terms with 25-35-50% down (depending on the cash flow) and even higher LTV's with well qualified buyers on SBA or business loans.

Any TAX related insight into this theoretical strategy is greatly appreciated! THX.