Just starting out with a short term rental, 2nd home.

32 Replies

I am just now purchasing a 2nd home zoned for short term rentals in St. Augustine with a great STR rental history. It's exciting and nerve wracking at the same time. I would like to keep moving in this direction with a 5-10 year plan to acquire more as long as I find the right ones that are also able to rent long term if laws change. I am very very new to this, looking for guidance on what pace to keep and are you able to finance more than a few homes? I've been reading a lot of posts on here and just trying to absorb as much information as I can. Thank you in advance.

You won’t get more than 1 10% down second home in your current market. If you didn’t put 10% down not much reason to do a second home loan because you’ll only get one 10%er might as well have done an investment loan. Questions to ask your lender. If your lender doesn’t own any property get rid of them. And yes, it’s ok to ask them how many doors they own. 

Best piece of advice.... even if you lose money it’s worth it. You have to dive in. 

Congratulations on jumping in, @Mike Monisky ! I hope you'll be able to both keep up that great STR performance and learn from the experience at the same time. Full disclosure: STRs are addictive. Once you've got that one cash flowing, you'll want to roll that cash into another... and another... or at least that's what happened to me. :) Once you feel comfortable with your first one, start looking around to see if you want to stay in St. Augustine or if you might want to branch out to another market. I bought four STRs in ~14 months in two markets, zero regrets. Quit my W-2 off the cash flow and my only regret is now I'm living off the cash flow instead of using it to buy another STR.

Best of luck!

@Lucas Carl thank you for the advice! This isn’t something I would have known to ask. Yes we put 10% down. How much do the investment loans typically require down?

@Julie McCoy

Thanks Julie! Wow you move fast! Picked St Augustine due to the location next to the downtown tourist area and it's STR history of the condo. Do you finance all of your properties or use/save the cash flow for your next investment?

Originally posted by @Mike Monisky :

I am just now purchasing a 2nd home zoned for short term rentals in St. Augustine with a great STR rental history. It's exciting and nerve wracking at the same time. I would like to keep moving in this direction with a 5-10 year plan to acquire more as long as I find the right ones that are also able to rent long term if laws change. I am very very new to this, looking for guidance on what pace to keep and are you able to finance more than a few homes? I've been reading a lot of posts on here and just trying to absorb as much information as I can. Thank you in advance.

 Have you ever thought about scaling faster with rental arbitrage? Might be able to cut that down to a 2-5 year plan.

@Mike Monisky wait a minute you got 10% down on a condo? That's not possible in an STR friendly building. STR Condos are non warrantable.

Don’t listen to @Jason Allen  arbitrage is not a good idea. Sounds like he’s copying Brian Page’s Airbnb method. 

@Julie McCoy rules 

Originally posted by @Lucas Carl:

@Mike Monisky wait a minute you got 10% down on a condo? That's not possible in an STR friendly building. STR Condos are non warrantable.

Don’t listen to @Jason Allen that’s a terrible idea 

@Julie McCoy rules 

Please explain? or do you just not like money...

 

Congratulations on the purchase.  I am fairly new, too, and just have my first 5 reviews on AirBnb last week, and have my first VRBO guest staying this week.  I am really enjoying the STR side of things, though it is a bit of a learning curve. 
Originally posted by @Lance Alotti:

There isnt a property on planet earth that if does well as STR will also do well as a long term rental.

This is literally the most insane thing I have read in weeks. Every one of my properties can be converted to an LTR in every market we are in. 

 

Congratulations on you first VR. It is always fun to own a VR someplace where you would like to take a vacation. Your 5 year goal looks very attainable. You will learn alot after a couple years of doing this. 

Investment property generally requires 20% down. You got a 2nd hine with 10% and likely are paying PMI.

You might be able to find owner financing or an owner willing to carry a 2nd to pay for most or all of the 20% down on the next one. Never hurts to ask.

Originally posted by @Jason Allen :
Originally posted by @Lucas Carl:

@Mike Monisky wait a minute you got 10% down on a condo? That's not possible in an STR friendly building. STR Condos are non warrantable.

Don’t listen to @Jason Allen that’s a terrible idea 

@Julie McCoy rules 

Please explain? or do you just not like money...

 

Jason, I wanted to give you a heads up that Airbnb will sue you over your website name. I own several Airbnb domain names and the lawyer letters are coming fast and furious. Just an FYI 

 

@Mike Monisky One was a cash buy, just so I could snag it, but I'm about to begin the process of financing it now (interest rates are so low, I'm gonna finance at fixed rates for as long as I can).  All but one are conventional investor loans, one I have a second home loan on.  I self-manage my properties, so I'm in the clear on the second home rider.

Rereading your question, the implication seems to be that either I finance them OR I cash flow. I assure you - I finance AND I cash flow very well. I have no plans to keep my cash locked up in equity when I could be deploying it into new properties! :) (latest one, closing this fall, is an STR condo in Nashville, which will be my first venture into portfolio lending, as - like @Lucas Carl mentioned - it's not warrantable)

Originally posted by @Eric A. :
Originally posted by @Lance Alotti:

There isnt a property on planet earth that if does well as STR will also do well as a long term rental.

This is literally the most insane thing I have read in weeks. Every one of my properties can be converted to an LTR in every market we are in. 

 

Same here.

 

@Julie McCoy thanks for the great information Julie! Do you have a preferred lender for non warrantable condos? We are new to this and after getting feedback from my post and asking my lender if our condo is non warrantable, they will not finance it. A very disappointing morning but I am so happy that I posted and every great person on here commented so that we didn’t find this out after going through the entire process. We still love the condo and want to pursue it, if it’s affordable. But on the other hand is this something we should reconsider?

@Mike Monisky You picked a hot area. It's a huge tourist market, it's near the beach, it's drivable to a large portion of the US and the laws are favorable. If the condo doesn't work out, set our sites of a SFH. It's all good. Where is the condo?

I second this. Avoid the Arbitrage  is better crowd.  For most people is a rotten idea. For newbies, potentially disaster. 

Originally posted by @Jason Allen :
Originally posted by @Lucas Carl:

Don’t listen to @Jason Allen that’s a terrible idea 

@Julie McCoy rules 

Please explain? or do you just not like money...

 

 

Originally posted by @Ken Latchers :
I second this. Avoid the Arbitrage  is better crowd.  For most people is a rotten idea. For newbies, potentially disaster. 

Originally posted by @Jason Allen:
Originally posted by @Lucas Carl:

Don’t listen to @Jason Allen that’s a terrible idea 

@Julie McCoy rules 

Please explain? or do you just not like money...

 

Spend the next 5 years saving up enough money for a down payment, closing costs, commissions and fees. Buy one house to put on Airbnb/VRBO/etc. Find out that your market has shifted and now you're stuck with a liability you need to fire sale or hold onto. Net gain = zero 

Arbitrage = get your first property in a few months. Start making cashflow immediately. Take that cashflow and reinvest it into 3-5 more properties in the next 12-24 months. Net gain = making 4-6k per month cashflow...

Can't fix stupid...

Good luck 

LOL, the ANTI arbitrage crowd, while correct in some of its positions on the risks and pitfalls of the STR arbitrage model, is, IMO, neglectful in not giving credit for a proven business model. The PRO arbitrage crowd, while also correct that STR arbitrage can be profitable, is equally neglectful in omitting the risks, difficulties, and capital needed to succeed in this business.

STR arbitrage is a BUSINESS, not an investment. As a business, the time needed is significantly greater than whats needed for an investment; the ability to borrow money greatly reduced from that of an investment, and the chance of failure significantly higher. This applies in general to most businesses vs real estate investments.

Can someone with right skill set, abilities, knowledge and luck built a very profitable STR arbitrage business? Of course! Does that person need a higher level of commitment, time, knowledge and experience than the investor airbnbing a couple of his own rental properties? No doubt.

Some of the anti arbitrage criticism is actually criticism of "a business model" by proponents of "an investor model".

Nothing wrong with owning a business.  However, the time commitment, the skill set, the risks, and the hassle is usually far greater than being an active real estate investor. But much of the decision is driven by personal financial capacity, as well as knowledge, experience, and skills.

@Jason Allen Dude first of all Arbitrage has nothing to do with getting your first property. It's someone else's property. 

And second, telling people they're stupid on the internet is no way to get ANYONE to subscribe to your Brian Page rip off website. 

Where is @Paul Sandhu when you need him

@Lucas Carl

Income is income. As long as it’s legal, moral and ethical who cares where it come from. And that comment was in reference to the model of buying homes for airbnb in general. Which I believe is beyond stupid.

Open your mind and let go of old models. The world is changing and the methods of investing and becoming successful are changing with it. If you’re on a journey of 10,000 miles why not hitch a ride?

Good luck.