My wife and I came across an inexpensive property, in a pretty popular vacation destination in the mountains, that we would enjoy for ourselves. Around $70k. This property is a cabin, but doesn't qualify for traditional lending, as it's a sort of tiny home /park model built on a chassis, however we would own the lot.
The current owner states 2019 rents were about $10k (via VRBO, AirBnB, etc). I will verify before purchase.
We have the ability to purchase the property with all cash, but would like to hear from those with short term rental experience on if you think it would be better to tie all cash in this one property, or possibly take a HELOC for a portion to keep the liquid funds for a potential additional investment, should one come up.
Considering income potential vs purchaser price, both options have attractive qualities.
@Kevin Horton, you didn't give us enough information to know if it is a good deal or bad, I understand you want advice about pay cash or use a HELOC. My 2 cents is use cash. here is why. You pay interest on a HELOC when you use it. It is an added cost and you wont get anywhere near the rate from a savings account or a CD. When you find something else you want later then use the HELOC. It also keeps your DTI in better shape.
Do your due diligence on the unit and on the property. Obviously make sure the title is clear etcetera.
What's going on with sewage and is the water potable?
Forget what he says it does. And do considerable research On what you were likely to earn. 10000 on a 70000 investment is subpar for short-term rentals. You can make considerably less your first year. His reviews are unlikely to carry over to you unless perhaps it is in an LLC or something.
My wife and I came across an inexpensive property, in a pretty popular vacation destination in the mountains, that we would enjoy for ourselves. Around $70k. This property is a cabin, but doesn't qualify for traditional lending, as it's a sort of tiny home /park model built on a chassis, however we would own the lot.
The current owner states 2019 rents were about $10k (via VRBO, AirBnB, etc). I will verify before purchase.
We have the ability to purchase the property with all cash, but would like to hear from those with short term rental experience on if you think it would be better to tie all cash in this one property, or possibly take a HELOC for a portion to keep the liquid funds for a potential additional investment, should one come up.
Considering income potential vs purchaser price, both options have attractive qualities.
What are your thoughts?
Thanks
Just study your neighbors and figure out how much it’ll make. If those numbers work for you buy it! Simple as that :)
@Kevin Horton Is your question regarding the STR type or around what financing option to take? I feel like you have 2 questions here so I will give my 2 cents on each (which is all it's probably worth since every STR and owner is different).
I would first figure out why the current owner wants to sell, why is he/she jumping ship (too much maintenance, upcoming STR regulations, poor returns, etc.). If it's a place you and family would enjoy and can pay for itself then it's worth probably going for it assuming there are no hidden liabilities you have yet to uncover. Be sure to run full analysis (operating expenses most importantly) to see how much that $10k actually nets in the end.
I wouldn't personally use a HELOC for long term debt, I would use it as an acquisition (bridge financing) tool and then refinance once stabilized to get better and longer terms. I'm not sure what a refinance looks like though tiny/chasis home so could be the reason the existing person is trying jump ship as well.
Sorry, not sure if that helps, just shooting from the hip here but I would tread cautiously on this one to be safe. Remember the opportunity cost of investing in this unknown versus using the same money for something that is much more predictable.
I'm not sure what market you're in, but $10k seems low for a popular destination. My advice is to get nightly rental comps by going on Airbnb, VRBO, and whatever other platforms you might use. Look at only the listings that have lots of reviews, preferably SuperHosts. Look at their calendar and the nightly rate, keeping in mind that both of these might not give you the whole picture, but it will give you a general idea of how well they are renting and at what nightly rate. Keep in mind that the listed nightly rate is usually the lowest nightly rate (for example, a weekday in the slow season) and weekends and holidays could be much higher.
That research will get you an idea of what others are making, which is important to know. However, the success and income potential of your STR is very much dependent on how YOU furnish, decorate, photograph, and market your STR. It's possible that the proper operator could double or triple the income of a previous operator if done right (or if they were doing it wrong).
Creativity is rewarded in the STR world, especially in vacation destination markets.
@Kevin Horton, you didn't give us enough information to know if it is a good deal or bad, I understand you want advice about pay cash or use a HELOC. My 2 cents is use cash. here is why. You pay interest on a HELOC when you use it. It is an added cost and you wont get anywhere near the rate from a savings account or a CD. When you find something else you want later then use the HELOC. It also keeps your DTI in better shape.
Hey @Kevin Horton, like others have said, we need more info. Where is the property located? How big is it? Does it have all utilities like water, sewer etc? Is there a view? Skiing? The list is pretty long.
I think that if it is a tiny home on a trailer or something like that, financing will be tough other than a HELOC. I would just do cash if it is possible.
10k seems very low, but if the place is little more than a travel trailer, this could be realistic. $40 a night? Find out the nightly and the occupancy for the last year.