Business Model for STRs

Investor · Providence, RI · Member since 2019 · 51 posts · 16 votes

Hi,

I'm considering launching a STR investment business and I am hoping for some feedback.

This is the gist of the model:

- I help people identify and purchase a good STR home that can double as both their vacation home and an investment property.
- They finance 100% of the purchase.
- I manage the property as a STR.
- I am a 10% equity partner.
- My property management fee is 5% of NOI.

Background: I currently own and manage five STR properties, one of which I own with partners and the agreement is set up similar to what I've described above. Now I'm looking to scale those types of deals.

QUESTIONS:

How would you structure my exit clause?

Do you see this as a fair agreement?

Overall thoughts?

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
3y
Quote from @Tyler Rowley:

Hi,
I'm considering launching a STR investment business and I am hoping for some feedback.
This is the gist of the model:
- I help people identify and purchase a good STR home that can double as both their vacation home and an investment property.
- They finance 100% of the purchase.
- I manage the property as a STR.
- I am a 10% equity partner.
- My property management fee is 5% of NOI.
Background: I currently own and manage five STR properties, one of which I own with partners and the agreement is set up similar to what I've described above. Now I'm looking to scale those types of deals.
QUESTIONS:
How would you structure my exit clause?
Do you see this as a fair agreement?

Overall thoughts?
Arguably you will need the following to be compliant with Federal and state regulations
1. Real estate license in state where you’re purchasing property, since your representing buyer
2. SEC private offering rules since investors are passive
3. Property manager’s license if required by state or municipality

Smaller one off deals can be structured to legally bypass the above; however, if scaling then by way of both marketing for investors and structuring deals you probably won’t be able to bypass the above. I won’t go into specific details because that’s another post.

As for the likelihood of being able to scale, you would be in a better position to judge than most of us since you’ve done it. I do not see anything excessive about receiving 10% ownership as a promote on a relatively small deal. I don’t know why you’re concerned about the buyers financing 100% of purchase price - there are many buyers who don’t want debt at all, are willing to forgo the benefits of leverage for the safety of no debt, or just have a bundle of cash and not many places to invest it.

If you have a verifiable track record, which you indicate you do, then I myself am interested in investing with you.
Private Mortgage Financing Partners, LLC
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Tyler RowleyPro Member
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Investor · Providence, RI · Member since 2019 · 51 posts · 16 votes
3y
@Don Konipol, thanks for that thoughtful response. I hadn’t considered getting my real estate license but that could be a helpful piece.
I didn’t mean that the buyer needs to purchase the house 100% cash; rather I’m saying they finance it on their own, whether that means a cash purchase or a loan.

However they choose to acquire the house, the goal is to help them *at least* break even every month through STRs.
I’d like to discuss this type of deal with you whenever you’re ready.

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