Seeking STR Strategy Advice - host, rent, or sell?

Question

Hi All, seeking some advice on my townhome/condo in Old Orchard Beach Maine, a seasonal beachfront destination.

2bd/1.5 bath
1061 sf
2 deeded parking spaces

Based on AirDNA it seems to be a $300-350 per night, $2k-2.25k per week, $20k offseason, $30k total annual rental which is a good yield on existing basis.

Wondering after 5 years if its better to exit or move to nightly vs. weekly.

Any advice appreciated - thank you.

Dave Foster · Answer

@Shawn Smith, I agree with @Bryan Coll . If you think you could deploy your equity into something with some better cash flow and appreciation potential, or you want to scale larger investment real estate, then a 1031 could be a good way to use the deferred tax. This would give you the additional capital to reinvest wherever you please. There's no sense in selling a solid performing property just for the sake of deferring the tax if it doesn't align with your goals; ultimately, just make sure the juice is worth the squeeze.

Bryan Coll · Answer

The strategy likely depends on your long term goals.

Are you looking to hold as many cash flowing properties as you can or are you looking to move into larger buildings? If you want cash flowing properties, you may want to hold it & do a cash out refinance. Or you can sell it & do a 1031 exchange if you are looking to get into bigger buildings.

As for the nightly vs weekly, as a consumer, I wouldn't want to be hamstrung into renting for an entire week. Especially if I am only visiting Maine for a couple days on a week long vacation to the NE.

Weekly would work for those renters that are looking to stay in Maine the whole time, but you would lose out on those renters that are only looking for a night or 2.

Derek D. · Answer

Hey @Shawn Smith, @Bryan Coll asked a great question as that determines a lot.

I will say that a lot can happen in 5 years so the best you can do now is plan and prepare for your goals but be prepared to change or adapt them. Old Orchard Beach is a very strong vacation rental market and I believe it will continue to be for decades so I think nightly and weekly will always yield great results if you do a good job running the STR.

A good portion of our portfolio is in Old Orchard Beach so feel free to reach out and I'll be happy to help however I can.

Lastly, Airdna is a great tool but don't rely fully on it. Like I mentioned, if you wanted to reach out I can run some numbers for you and get to know the property more and provide a more accurate figure but also some proper expecations based on a few things.

Hope that helps!

Jason Malabute · Answer

If you're thinking about selling and want to redeploy that equity into something with better cash flow or scale up into a larger property, a 1031 exchange is worth considering — it lets you defer the tax on the gain and put the full proceeds to work in the next deal. That said, if the property is performing well and you don't have a clear plan for where that capital would go, there's no reason to sell just for the sake of deferring taxes. Make sure the move actually makes sense for your overall goals before pulling the trigger.

Dan Weber · Answer

Hey @Shawn Smith, have you calculated your Return on Equity? That's always my go-to when I'm trying to determine if it is the right time to sell. If you purchased in 2020 and saw a lot of appreciation, your projected cash flow / current equity might show that the ROE is actually pretty low and you could get a better ROI if you sold it and deployed the capital into a different investment. However, if it is an easy lift from a management perspective as a STR for you, then there's nothing wrong with holding onto it and letting it ride as well. I agree with the others, always helpful to let your 1 year, 3 year and 5 year goals help you determine the best course of action.

Shawn Smith · Answer

I appreciate everyone's replies.

To be clear I am moving into year 6 of ownership and after five its always a good time to reassess, IMO. But that is my commercial real estate experience - not STR.

This is certainly a property that I can monetize but it was always an afterthought and more of a vacation property that supplemented income and tax basis.

So, moving it into a refi at current rates at a 2020 basis (which is obviously much lower than current) and going full time Air BNB / Winter Rental is not off the table, but it might be best to just cash the chips out and rebalance the portfolio - any tips or tricks at finding good quality investors in the space would be helpful as I explore that latter option.

-Shawn

Seeking STR Strategy Advice - host, rent, or sell?

Seeking STR Strategy Advice - host, rent, or sell?

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