When to Shoot a MTR in the Head & Abandon the Venture

[Brad Gibson]

I just converted a 2/1.5 townhome that has been a LTR for the last five years or so in my portfolio.

Renovated the place including kitchen, bathrooms, flooring, paint, & fixtures, cabinets, countertops, etc.  Re-did the unit with an eye toward traveling medical professionals. Upscale furnishings, great beds, high speed internet, flat screen TVs, etc. 

Great neighborhood. B+ to A. Super quiet. Very safe. Next to one medical facility and within 10 minute drive to two additional medical facilities. Unemployment rate in the market is less than 2.8% and falling. 

Before the conversion, I could get , $1,600-$1,700 for the place unfurnished and with no utilities paid by landlord. 

Placed the unit in service a couple of weeks ago. Furnished finder. Zillow, Trulia, Hotpads. Had it placed on the MLS as well.

It is competitively priced $2475. That’s $25 less than other units of comparable size and makeup. Same neighborhood. My unit is objectively higher quality in furnishings, style, & finishes. I figured we would start lower and build a quality rep & a book of former customers for repeat business. 

No bites in two consecutive weeks. No inquiries. No showings. No matches in furnished finder. 

Reduced the listing price to $2,350 today.  We will see what happens over the next couple of weeks. 

This is in no way close to the double or triple revenue above the rate for this unit as an LTR that has been cited as pretty standard return on forums and podcasts about MTR’s. 

Any lower and I’d run the risk of being upside down when someone runs the HVAC at 50 degrees during the Texas summer versus what I’d make off of an LTR. 

Need some advice or suggestions. Either this MTR thing is horse **** or I must be doing something wrong. 

[Bonnie Low]

There are definitely more people moving into the MTR space every day so we're seeing more supply than demand in many areas - a lot like STRs. Many of those new MTRs are basically just failed STRs and they're trying to salvage what they can. It really seems like the product you're offering just does not fit your customer base. If you intend to keep it as an MTR you're going to have to adjust either the product itself (make it more durable and priced accordingly for your oil field workers IF they want the type of property you're offering) or find another customer type to market it to like insurance placements, families relocating or corporate rentals. Or, pivot back to LTR but it sounds like those numbers don't work for you, either. MTR is just no different than any other type of real estate investing. You have to do your research, do good underwriting, make sure you have multiple exit strategies and make sure the demand is there for your product before you launch.