Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
My STR market has appreciated significantly due to Covid and I am trying to evaluate the best way to move forward. I bought a STR in January 2020 for $170k. Since Covid, the area has exploded in STR rentals and home values since it close to several major cities. We did $60k in revenue in the first year and are happy with the monthly cashflow. Our goal was to continue to save to purchase another one in the community, but not at these current market top prices. Since it is more of a vacation area, the prices have sky rocketed (bidding wars,etc) and units identical to mine (townhouses all connected) have been selling around $350k - my realtor thinks we might be able to push it to $400k. I'm a bit torn because these prices are unsustainable, but I don't know what the next move should be. Take the money and wait/go to another area or stick with the cashflow and see the prices come back closer to value.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
5y
@Matthew Malley if you do sell what will you do with the capital? What next? You can Consider a 1031 if you have your next market/acquisition planned so you don’t give the government a big chunk of your profit. And a cash out refi is always an option. Of course if you sell you lock in a great gain but imo prices will continue to rise in 2021. Good luck with whatever you decide!
@Erik B. Thanks Erik - regulations and ordinances are not an issue. Were in the Jackson township which already implemented their ordinance. We essentially pay a hotel tax.
Interested in the HELOC - how would this be more beneficial in our situation to a cash out refi?
Apologies I meant using a HELOC to pull out equity instead of selling the property off. Get access to your equity AND keep the producing asset.
I believe HELOC is less expensive access to your equity instead of a refi but should def talk to your lender to clarify.
2. For how long will these prices remain at these unsustainable levels?
3. What is my return on investment criteria?
One should never try to time the market, but there is such a thing as selling, pocketing your profits, investing in something liquid, and then reinvesting in real estate in your area once prices decline. Cash flow is great, but if you lose a big chunk of the value of your current property in the process, it can take a long time to make up that loss.
Run your numbers, including the costs of selling and then buying real estate. Look at your alternative investments and estimate their performance. Estimate your potential losses/foregone opportunities. Then make your decision to ride it out, sell, do a cash out refinance (if you are going to hold for a long time being underwater in the near future for a while won't matter to you), or whatever.
BTW -- HELOCs can disappear if values crash. You might even get a call to pay back some HELOC withdrawals ahead of schedule. Mortgages are forever. It's your call.
@Patrick McCabe great to hear! Are you staying with STR or going in another direction?
I definitely want to stay STR...one because I enjoy it so much and two because it's the only real estate investing I have experience in... However, I am having trouble finding other markets that will work for me so I am keeping my options open.
Interior Decorator · Miami FL · Member since 2016 · 26 posts · 25 votes
5y
My suggestion:
Conver mortgage to HELOC so you can reduce the balance monthly use to calculate interest
Paydown loan with revenue in less than 3 years.
Use the HELOC with 0 balance as downpayment for new properties.
Forget a 30 year mortgage. HELOCs are cheaper to close on. So what if the HELOC interst rate is floating you are paying down the loan balance aggressively.
Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
5y
Originally posted by @Account Closed:
My suggestion:
Conver mortgage to HELOC so you can reduce the balance monthly use to calculate interest
Paydown loan with revenue in less than 3 years.
Use the HELOC with 0 balance as downpayment for new properties.
Forget a 30 year mortgage. HELOCs are cheaper to close on. So what if the HELOC interst rate is floating you are paying down the loan balance aggressively.
Thanks, John. I'll definitely do some digging and a comparison between the HELOC and a cashout refi.
Realtor · Branson, MO · Member since 2018 · 274 posts · 283 votes
5y
Poconos is ultra hot right now, but it's also a great market for what you've set up. I'd continue to hold onto it and maybe do a heloc to get a separate one. Just because the values for your property might be juicy to offload it, it still sounds like a good asset that will remain in high demand. When I did nationwide consulting, I said Gatlinburg, Branson and Poconos were the top 3 destinations for this real estate niche and that really hasn't changed too much in the past couple of years other than more people flocking to these markets in massive droves driving prices up. There are up and comers but the fundamentals for market tourism, regulations, ADR/occupancy curve, property prices could potentially just be a set of different pros and cons. I'd keep it personally from the sounds of it.
Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
5y
@William Beck great perspective and insights here. We’re going to hold on to the property and look at the heloc vs. cash out refi option. In the meantime, we’ll keep an eye out for another place in the Poconos but with prices so high we’re going to evaluate some other markets, as well.
Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
5y
@William Beck do you have any suggestions for other areas that might be a good buying opportunity? I've been researching the Disney area since Covid has negatively impacted the STRs there. I hear "over saturated" used a lot for that area but I think the same can be said for the Poconos.
Investor · Ann Arbor, MI · Member since 2013 · 178 posts · 225 votes
5y
I would recommend doing a cash out refinance, that way you get some cash to purchase your next property while retaining the existing property and its income.
Realtor · Branson, MO · Member since 2018 · 274 posts · 283 votes
5y
@Matthew Malley I'll message you and we can connect to chat further. The Disney play would maybe work if you purchased a certain type of property in very close proximity to the park but the rumors of saturation worries are indeed true and something to be very aware of.
Realtor · Pigeon Forge, TN · Member since 2018 · 230 posts · 111 votes
5y
Just FYI Heloc will create a situation and lower your credit score. My mom @Rhonda Blue did a heloc and took a hit of 15 points a month until it was paid back in full. It shows similar as a credit card that is maxed out when you use the cash. She talks about it all the time as a smart option is you need fast money but can pay it back quickly to keep the balance down.
We use the strategy to cash out refinance to keep the money rolling into the next investment. With the uptick in the market right now and low interest rates. We have refinanced all our holdings. AS long as the numbers still work for cash flow.
We bought the STR in the Poconos because of the influx of companies that are investing in the area and the potential of all year round rentals. Large companies don't pour billions of dollars into an area if they think it's not going to produce. Camelback, Khalahari, Vail, KSL Resorts, Pocono Springs (coming soon) - we're trying to eat their crumbs - 2 hours from NYC & Philly. Ultimately it's up to you to manage and run your STR for it to be successful.
Get a STR real estate agent in the area to navigate the regulation/ordinances and find the right property, in the right area, for you.
Curious how you chose/identified Poconos as a potential market to begin with? And then how you determined that there are large companies investing in the area?
Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
5y
@Steve W. Im from NY and I went to college near the Poconos so I had a basic understanding of the area. I knew tri-state people went to the Poconos. But I was doing STR research mainly on southern areas since the Poconos wasn't really on many "best place to STR lists" - but it was on one list which prompted me to really look into it. The more I dove into the area and the numbers, the more it made sense to me. That was all just basic google research. I liked that it was 2 hours away and I could use it - I'm here now actually!
I found out about the companies coming to the area from my real estate agent who is in the know in the community. She understood the ordinances and knew where we might find the most success.
Cant emphasize enough the importance of doing your research and then finding a real estate agent who specializes in STR - eveb better if they manage one themselves. Then go and don more research and verify the agents info. Trust but verify.
Bethel, PA · Member since 2014 · 32 posts · 9 votes
5y
What would be the best websites/forums to do that research? I also see that some townships require a permit to operate a short term rental. What step of that process do you get the permit?... before you start getting it ready to rent out or do you get the permit when it's completely ready to rent? Thanks.
Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
5y
@Becky Haag Most of the research was google based and reading articles from local newspapers and then trying to connect with Real Estate agents from the area. The permit is something that you can get at any time with the township.
To update the forum, we actually just doubled down and bought another unit in the Poconos. The Covid market really turned into just hyper supply and demand. Weird!
@Becky Haag Most of the research was google based and reading articles from local newspapers and then trying to connect with Real Estate agents from the area. The permit is something that you can get at any time with the township.
To update the forum, we actually just doubled down and bought another unit in the Poconos. The Covid market really turned into just hyper supply and demand. Weird!
I wouldn't sell. You are in a great market for STRs! Enjoy the ride for now and use your equity wisely and you may have did that on your second purchase. HELOC or re-fi and buy another STR in the same market or a new one to offset any risk of regulation or bust. Some places grandfather current STRs, making you part of the short supply in a hot demand market. Maybe look into a 1030 and split your appreciation into two STRs in other markets or one really nice one in south FL?
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
5y
I have heard from multiple respected professionals that this is the new normal not a market top.
You have an asset that will keep appreciating and is cash flowing. Plus where can you put the money if you sold to keep making the money you are already making?
Rental Property Investor · Wantagh, NY · Member since 2019 · 30 posts · 8 votes
5y
@John Underwood as the market unfolded it definitely became clear that this is the new normal and not just a Covid spark. Limited housing supply and 30+ offers on houses, it certainly isn’t going to just slow down.
We didn't sell and actually bought another STR unit in the same village. This was a very helpful forum and i appreciate all the great insights.