House hack through COVID in a STR destination

12 Replies

[Note: I'm a long-time lurker, first-time poster]

Hello BiggerPockets,

My wife and I moved to San Francisco (from the east coast) at the end of last year for work and were excited to explore a new city/state/coast (even if it meant sky-high rent), then COVID hit. Like everyone else, our life looks quite a bit different now; working from home, limiting our trips out of the house, and just generally debating what the future holds. We planned to purchase an investment property early next year, but the current environment as well as our personal situation has left me wondering what the best RE investment strategy will be. 

A few contributing factors: (1) my wife already worked remote pre-COVID and my employer is WFH until at least early next year, (2) we're paying an ungodly amount in rent for a tiny apartment without any of the original benefits of living in the city, and (3) we plan to spend the next 3-5 yrs on the west coast before eventually moving back east.

The current strategy I'm debating is two-fold. Buy a single-family property (at least 3/2) in a vacation-oriented destination (think outdoor activities as the main attraction) to live in full-time. When (if?) the world starts returning to normal (vaccine/therapeutic is available, my office opens back up, etc.), we would move out and transition the property to a STR. I've done some high-level research on AirDNA and like Sonoma county (Russian River Valley area), Tahoe (although it's probably out of budget and local regs are not STR-friendly), or NorCal / Southern Oregon coast. All are "drive-to" destinations from the Bay Area and seem profitable for STR.

Thoughts? I'm a newbie, so what am I not taking into consideration?

Thanks,

Brenton

I'm in SF and have a couple of STRs (one in Sonoma near the town). The main thing to think through is the regulations in the area, which is seems like you have already (most of Tahoe is pretty STR friendly i believe and only some parts are not).

The other thing to think about is a lot of the places you're talking about are highly seasonal, so might not be very profitable when you turn them into fulltime STRs. For example, the Russian River isn't that great in the winter (and is only really busy in the summer). Tahoe is dead in the spring and the fall. In the summer it's only busy if you're near the lake (expensive) and in the winter hard to book out the weekdays. A lot of the best locations no longer give our STR permits but there some rare exceptions.

But there is definitely something to your idea, you just need to think hard about finding the right location for the property. Or maybe you don't cashflow much but the property appreciates a lot. Or you buy a place with an in-law apartment you can rent to tourists while you live there (in Tahoe this might work great and there are occasionally places like that).

One other place to consider might the Nevada side of Tahoe in Incline Village which is awesome and then you get the benefit of no state incomes taxes!

I'd like to echo what Rohin Dhar said above and add a lot of this depends on your budget.  How much were you paying in rent v how much are you willing to pay for the mortgage for a few years?  If you're willing to pay $3000-$4000 in rent, the multi-family properties in Sonoma are within reach for STR.  Especially once you move out and can rent all the units for a mix of LTR and STR.  The numbers are here if you have the capital and don't mind transferring your SF rent to a Sonoma Mortgage payment. 


Also how much do you pay to vacation ?  Sonoma is quieter and more personal in the off-season making it a beautiful and sweet place to vacation once you move away.

Thanks @Rohin Dhar , seasonality is a great point and I'm not sure AirDNA fully represents the highs and lows you describe. For the Russian River area (Guerneville, specifically), AirDNA forecasts an annual 55% occupancy rate (peaking at 90% in May, and hitting a low of 42% in December). The annual revenue forecasts are quite substantial though, $50-60k for several single-family properties currently on the market under $500k.

I also like your Tahoe suggestion of crossing the state line over to NV, although inventory looks sparse (honestly, it's a thin market for the greater Tahoe area). Will research more!

Are all of your properties in CA or do you have some experience with NV?

Thanks @Joseph Schommer ! We're paying ~$4k in rent right now, so part of the goal with this strategy is to cut monthly expenses; I've been looking at purchase prices in the ~$500k range. I definitely like the idea of multi-family, but that would require a budget increase and a slightly different investment strategy. It certainly helps mitigate some of the downside, but putting that type of deal together would be more complex. 

Do you have any experience with multi-family in Sonoma? Any sage advice?

As an incline Village NV resident & Realtor @Brenton Ricketts , I can tell you we're receiving an influx of folks doing what you're considering and inventory is quite low for that reason! People have learned that if they are working from home they may as well live in a place like Lake Tahoe! And while South Lake Tahoe has restricted STR‘s, they're still prominent in the north although Covid has put restrictions on them and as referenced above, guest passes for the private beach, etc., or not being honored so many tourists are cancelling their plans. I imagine that may change once Covid regulations are lifted, however, nothing is for sure anymore. Pricewise, you can still pick up a 2-3 bedroom condo for under $500K but if you're looking for a single-family home set your budget at $1M +. good Luck!

@Brenton Ricketts. I'd dig in a bit deeper and talk to folks with homes in Guerneville to verify the Airdna numbers for the winter. There's a huge number of rentals and not much demand in the winter so I'd make sure you're confident on those numbers.

No properties in Nevada, though we go up to tahoe a lot and I've stayed in Incline Village many times and it's a great spot b/c it's also near the lake so gets summer demand. Haven't found a way to make the rental income numbers work on Tahoe yet, but the appreciation in the market has been strong, especially at the moment with everyone in the the bay area wanting to move there. And if you save 9% on state income taxes, the house could essentially be "free."

Our places are in Sonoma and Kauai and we're currently under contract on a place in Taos, NM.

Thanks @Marian Huish ! I wasn't aware of the COVID restrictions on beach access, etc. The greater Tahoe area has done a good job of mitigating virus risk by closing things down, but the financial impact would be tough if I were a property owner there right now.

Also agree with your point on budget. I like condos from the perspective of not worrying about some maintenance, but I can't get the numbers to work once you factor in the monthly HOA dues. It's too much of a seller's market there right now, and I'm not rich enough. (:

Thanks for your perspective!

@Rohin Dhar you're absolutely right on the number of rentals available in the Guerneville area - the competition might be fierce. I'll do some more digging.

Curious how you ended up looking at Taos? Gorgeous area, but more remote than your other properties. Do you plan to STR or LTR?

@Brenton Ricketts Taos is kind of random. I've been researching lots of different markets and struck up a relationship with an agent there that sent me an off market deal. I wasn't really thinking it was a prudent time for us to buy another place since the world is influx, but it fit all the criteria I've been looking and is a really special place. The deal hasn't closed yet, but when it does i'll post more about. Don't want to jinx it!

Hi Brenton,

It sounds like you are headed in the right direction. The biggest thing now is to take action! As Brandon & David always say, your first one probably wont be a home run, but just get started by hitting a single and gaining some experience! Feel free to DM me with other questions you have about house hacking or getting approved for a loan in Southern Oregon/NorCal. I have house-hacked 3 times in 3 years now here in OR and work as a Loan Officer at Academy Mortgage licensed in OR, WA, CA, AZ. I am always happy to help people like you get started in the real estate game. Have a great Independence Day Weekend!

Best,

Grant Schroeder

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