How do you analyze deals for MTR?

Question

Nicole Heasley Beitenman · Answer

I do and I don't. I primarily focus on running the numbers as an LTR because, short of selling, that's my ultimate exit strategy. If it works as an LTR, any additional profits that are possible as an MTR are cherries on the sundae. I do run a quick analysis with the additional expenses (cleaning, utilities, etc) and the most conservative monthly MTR rents I can expect just to be safe, but my focus is really on that LTR analysis.

Bonnie Low · Answer

Hi, Eric. Expenses are going to vary based on the unit size and configuration, how many people are staying there and what their usage of the property is. For example, a 1/1 occupied by a travel nurse who is gone 12+ hours/day will have much lower utility expenses than a 3/2 occupied by a family with one WFH spouse who is there all day. This might be pointing out the obvious, but MTRs vary so broadly that it seems worth pointing out. You're going to have a fixed cost for WiFi. A fixed cost for landscaping if you have a yard. Fixed costs for trash service. Water and sewer will vary a little by usage in most jurisdictions. And then you have all the expenses of stocking your place. I wish I had kept track of my initial costs to fully stock my units. I just wasn't experienced enough at the time to know I'd need that. I mean, it's there in my receipts for taxes but I've never had the time to look backwards and assemble it. That said, I spend about $80 on each turn re-stocking items like paper towels, dish soap, shampoo and the welcome basket I put out. Not everything has to be restocked every time. These re-stocking costs also vary based on how you operate your place and what you provide. These are all of the operating costs I deal with regularly. The biggest driver of operational expenses is always utilities. You can put a cap on utility expenses in your lease agreement so you can turn that into a fixed cost rather than a variable - more and more people are doing that to discourage the guest who runs the heater with the windows open because you're paying the utilities. Also, I no longer include utilities in my longer leases. For a 3 month or less lease, I will include utilities. 6+ months and I want them to put the utilities in their own name. (It's rare for me to get someone who wants to book for 4-5 months. That scenario is almost always a lease extension from an initial 3-month lease). Anyway, at 6 months it's worth it for the tenant to open a utility account. Less than that and it's probably more hassle for them than it's worth.

Just some things to think about. Hope this helps!

Andrew Bosco · Answer

Hey there,

It can be a complicated question. More of an art, than a science.

Try this out: underwriting standards.

https://docs.google.com/document/d/1Tk9Uxt7Q0_HJV8KL7F_GBm13...

Consider seasonality, off season vs. in season. etc. Always run numbers as LTR. Combo STR/MTR for a big win.

Joseph Beilke · Answer

STR,MTR or LTR are all the same for the most part.   It's total income for the year minus ALL expenses and hold backs.

Of course you want to make sure you make enough in occupied months to cover vacant months.  But the overall ROI is based on the year.  That's how the tax man see it.

Eric Walters · Answer

Thank you, Bonnie! This is very helpful as we continue underwriting to find our first MTR.

Eric Walters · Answer

Thanks, Andrew! I would agree that there seems to be a fair bit of art behind MTR. One of our markets has a cap on the number of STR licenses with a huge waiting list and very few licenses changing hands over the last few years, so that doesn’t appear to be an option for us in the short run.

Eric Walters · Answer

What does everyone find MTR expenses running as a percentage of monthly income? There seem to be general standards for multifamily properties, but I haven’t been able to find anything on MTR. We’d really like to get into the space but are struggling with how to analyze the expenses. We have LTRs currently and are looking to diversify the portfolio.

Scott E. · Answer

You need to start by determining what your annual gross income potential is. Use Furnished Finder to study comps, and talk to some local property managers to see if they can help you get an idea.

Once you have the gross income potential number, take that and back out all of your expenses. Mortgage, taxes, insurance, utilities if applicable (although this can be passed onto the tenants), etc.

Eliott Elias · Answer

Same way you analyze a STR. Turnover and expenses will be lower.

How do you analyze deals for MTR?

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