High Yielding STR w/ Tons Of Equity + Lots of Renos/Reparis - KEEP OR SELL?

Question

Hi -
Looking for advice. I have a home that is an STR in a highly desirable tourist destination. It does VERY well with STRS and has a ton of equity as I bought it in 2015 and the value has skyrocketed. It is also very big and requires constant reno/repairs.

My tax returns are laugh worthy to conventional lenders and I have 2 other properties so my debt to income ratio looks ridiculous to the average underwriter... but the cash flow is definitely there.

Wondering what other creative ways there might be to keep the property and buy more units to do the same with or should I be cashing out on the ton of equity I have and use those funds to buy outright and chill on the cash flow?

This property grosses about 250k/year and has $1.8mil-ish in equity...

Anyone care to weigh in? It may just be a matter of what kind of lifestyle I'd like... but wondering if there are more lending options to use that equity that I don't know about/creative financing that may make it more interesting to hang on to.

I would definitely like to purchase more STR's and/or fix/flip into STR's so it would be nice to have access to more funds

Thank You!
Courtney

Thank You!Courtney

Jake Baker · Answer

@Courtney Mercier

That is a 13-14% return on equity. If you feel you can do better, then it may be time to sell or 1031.

It depends on what you plan to do with the money. If you want to flip or do more short term projects, then a HELOC may be a good idea if you can find a lender for that and you can keep your likely low rate.

Dave Foster · Answer

@Courtney Mercier,Be careful with the seductress known as "gross income".  To evaluate your situation you need to get a handle on the expense side of the equation.  $250K of gross income is a nice start.  But what about all of those costs?  Those could easily decimate your NOI number.  And the reality is that a million dollar property with 0 expenses making $100K a year.  Is better than a $2 million dollar property making $150K a year.  Maybe bigger properties are better in your market.  Or maybe you'll make more per property by doing a 1031 exchange and buying a couple smaller properties.

Let the market and your expense spread sheet speak to you.

Jacob Sherman · Answer

Keep and cashflow . If you need funds do a cashout refi and access the funds

Chris Barrett · Answer

Can you afford to give up that income that you are netting from the STR? If so, then you can analyze what potential income you can receive using that equity amount by purchasing a different property. There are different metrics you can use:

Net cash flow dollar amount, important if you need the income to live

Cash on Cash return: % of net returns / amount invested.

Return on Equity: net income / equity in property

Internal Rate of Return: percentage rate earned on each dollar invested for each period it is invested.

In your case if you don't need the income to live on, I'd look at the ROE and determine if you can do better with less work. You can make this look better by using a HELOC or 2nd mortgage, you don't necessarily have to sell.

Courtney Mercier · Answer

Thanks so much for this intel. Interestingly enough I am looking to spend more time and move back to San Diego - I noticed thats where you're from.  I've been looking at properties casually but would want to use this money to buy something in need of TLC and either fix/flip or keep as an STR depending on the properties that come available.  Also to cash out some funds and start a build in Cabo... Do you do any investing in raw land that is sub dividable?  I just made a post in that category as well that I'd like to learn about buying lots that are R-2/R-3 and splitting them and selling off all but one to build on personally... I don't know anything about this process as well as California laws which are, im sure, entirely different than the ones in Vermont.

Courtney Mercier · Answer

The home is located in Stowe, Vermont.  I would definitely be interested in learning more about those types of loans.  I have two other homes that I do rent out as well, and another property that I used to and then sold after STR with nice returns and nice appreciation -  so there is plenty of history. It would be nice to know what my options are, in full, so I can make the most informed decision possible. Thank you!

Simmy Ahluwalia · Answer

@Courtney Mercier - congrats with the STR.  What's is the location?  You're in a good position.  You can easily qualify for a dscr (no tax return, no dti, no proof of income) loan, cash-out, use that equity for down-payment on other STR's.

With these loans, we really underwrite the rental performance of the asset vs. the borrower, although credit does play a big factor, along with experience.

Reach out if you want to discuss further.

High Yielding STR w/ Tons Of Equity + Lots of Renos/Reparis - KEEP OR SELL?

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