How would you take down this STR deal?

Question

Hi gang. So I'm a real estate broker and STR owner/operator. 16 years and 5 years respectively. I also manage 7 listings for other owners. I bought my first deal on seller financing. It was a vacant house which I did a bit of work to, completely furnished it from the ground up, and went through the whole permitting process with the city from scratch. Managed to negotiate 5% down payment and 4% interest for 10 years. Absolute home run deal.

Since doing that one I actively ask listing agents of newly listed homes if the sellers are able and willing to offer seller financing. Well, I found another one. This one has been operating as an STR for 6 years now and the STR permit happens to be transferable to the next owner whereas most do NOT. You'd have to get in line with the city and the wait times are like 2+ years right now. The sellers own it free and clear and have expressed that they are willing to entertain seller-financed offers.

This would be operable from day 1 with built-in bookings. Nothing MUST be done to it right away, but a few things SHOULD be done like some touching up of interior and exterior paint, replacing pretty much all of the fencing, and swapping out some of the furniture for more modern furniture.

The listing has been on the market for nearly 6 months with no price reductions. Ideally, I would like to not have to come out of pocket at all aside from the minimal closing costs. I would just contribute my would-be commission of around $20k and call that my down payment to the sellers.

My reason for posting is because I'd love to hear how some of you might approach this scenario with your offer.

I'm thinking about literally writing up two completely different offers to present to them at the same time. One assuming that the sales price is most important to them so I'd give them their full price, but at 0% financing for a year or two with balloon at the end. And one assuming they are fine with taking a little less on the sales price, but want to continue to see some return on their cash without the risk of maintenance/cap-ex so at a higher interest rate of maybe 5% or 6%, but reduced purchase price and longer term (say 5-7 years).

Let's hear how you'd take this thing down!

John Underwood · Answer

I make 3 offers when I'm buying. Sometimes people will surprise you and the pick the higher offer and give you 0% owner financing, even if its only for a few years. You could do a balloon payment to keep payments low for  few years to give you time to refinance.

Patrick McCandless · Answer

Yes I'm very active and educated on STR guidelines here. It's where I work as a full time broker and invest myself. My question for the thread was asking how you all might go about structuring an offer(s), not so much advice on things to look into regarding the STR guidelines. I pretty much know what I have in mind, but was curious about how everyone else would approach it.

Hampton Rogers · Answer

Patrick, the transferable STR permit jumped out at me as one of the most important facts in the deal. Before I put much weight on it financially, I'd want to verify directly with the city exactly what "transferable" means — whether it survives a change in owner/entity, whether there are any conditions attached to it, and whether anything about the property could jeopardize that status.

If all of that checks out, you’re not really comparing this with a normal STR purchase because you’re acquiring something a new buyer apparently can’t readily replicate.

Have you confirmed the transfer directly with the city yet, or is that currently coming from the seller/listing side?

Ashish Acharya · Answer

Patrick, the transferable STR permit is probably one of the most important pieces of this deal because it removes a major operational risk that a new buyer would otherwise face.

Since the sellers own the property free and clear and are already open to seller financing, I like your idea of presenting two materially different offers rather than negotiating only on price. One can maximize their sale price with lower financing cost and a shorter balloon, while the other gives them a stronger yield in exchange for a lower purchase price and longer term.

I’d just make sure both offers are underwritten from the property’s actual STR performance, not simply what you think it can do after improvements. I’d want the last 12 to 24 months of gross bookings, occupancy, ADR, cleaning, utilities, management, repairs, insurance, taxes, platform fees, and seasonality. The existing bookings and permit definitely add value, but the property still needs to support the seller-financed payment comfortably.

I’d also pressure-test the balloon. A 1 or 2 year balloon can look great today, but you’re effectively betting that conventional or DSCR financing will be available on acceptable terms when it comes due. I’d rather have enough runway that you’re not forced into a refinance at the wrong time.

From the seller’s tax side, seller financing may also be attractive because, if the transaction qualifies for the installment-sale method, the seller may be able to recognize portions of the gain as principal payments are received instead of recognizing the entire gain in the year of sale. That is something their CPA should model before they choose between your offers.

And on your side, once the STR is placed in service under your ownership, I’d evaluate the furnishings, improvements, cost segregation, average guest stay, and material participation together. STR tax treatment can be powerful, but the operating and tax facts need to line up.

One other point: if you’re planning to contribute your roughly $20K commission toward the deal, make sure the seller, title company, brokerage, and any eventual lender all document that correctly rather than just treating it informally as “cash down.”

Feel free to DM me. I’d be happy to send over a few resources that might help you compare the financing and STR tax sides.

Andrew Steffens · Answer

I am a fan of presenting multiple offers to the sellers.  I usually come in with 1 strong offer and then if I do not like the counter I present alternative options.

Michael Baum · Answer

Hey @Patrick McCandless , do you know the owners? Did you try and feel out the both prospects with the listing agent?

Divin Kanyama · Answer

Your two-offer strategy is how I’d approach it, @Patrick McCandless . First, find out whether the sellers care most about price, monthly income, or payoff timing. Offer full price with your commission as the down payment, favorable terms, and a defined balloon; then offer a lower price with 5%–6% interest and a longer term. Verify the permit and bookings in writing, underwrite from actual operating statements, and budget for improvements, seasonality, insurance, and reserves. I wouldn’t close with zero liquidity—let the cash flow, not the asking price, set your maximum terms.

JD Martin · Answer

I don't think I've ever done 3 but I've done 2 before and the higher price was always picked. If I'm the seller, without a complete picture of your finances I pick offer #1 every time between those 2 options because a lot can happen in 5-7 years.

How would you take down this STR deal?

How would you take down this STR deal?

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