All Forum Posts by: Aaron Dubois

Quote from @Chris Seveney:

@Aaron Dubois

First and foremost - make sure you don’t get yourself in trouble by taking on additional risk.

Based on your numbers your mom brings home a little less than $60k a year but to keep it simple we will work with the $105k number

A good rule of thumb is 10% meaning to make $105k you need to have $1,050,000. Having $200k and trying to get over a 50% return to start in this economic environment is going to be extremely challenging but even more risky

Besides replacing income look to other areas where you can reduce costs

Hi Chris, thanks for the reply.

She will be able to reduce her expenses significantly. She can eliminate her house payment, a HELOC payment, and more. She will also be able to draw on her retirement accounts once she is medically retired.

In the short term rental business there seems to be a wide range of different types of rentals that are apples to oranges, especially from a financial perspective. An $800,000 Single Family home with an 8% interest rate earning $300 a night with an occupancy rate of 60% isn't even close to profitable once you factor in every other expense, and yet there are Geodomes that, if you want to be generous with the construction cost, might cost $100,000 each that are earning $200 - $250 in the right area, with the right management.

Even within the Geodome niche itself there is a wide range of possible cost. You can go high-end and spend $100K, or you can go mid range and still spend $100K because you needed to build a large deck on a steep slope with lumber costs at it's 2021 peak. There are DIY tents/domes that can cost $5K on one end of the spectrum and the peak "Glamping" experience on the other end. I see specific opportunities to significantly reduce costs without compromising on the experience that seems to attract that higher nightly rate.

I don't have any experience in construction, property management or managing a project like this. I am in over my head and it's sink or swim. I do have experience in web development, search engine optimization, writing copy, advertising, design, and user experience.

With the rough numbers that I have so far, replacing and exceeding her income appears viable - Of course this is with financing, and a trusted friend joining as a partner.

 
I appreciate every response, every bit of advice, every word of caution. I know that we're not choosing the "safe" route, but I know that if my mom doesn't replace her income and tries to go back to her job she will have a second stroke within a few years, and the consequences of that will be permanent and life altering, if it doesn't kill her. I am going to lose my mom if I don't find a way to ensure that she never returns to that job again.

STRs are not the only option we are considering, and she may be able to reduce most of her expenses. I am going to find a way to make this work. I have resources that I can leverage, I just need to get creative.

Quote from @Mark S.:

Have you done any detailed research on land availability near Sedona, regulatory issues, builders for the type of property you are contemplating, conservative revenue forecasts based on actual comps, cost of a support network (cleaners, maintenance, etc), cost of utilities?

Only the basics so far. I'm aware that as we learn more our plans - which are more ideas than plans - will shift to align with reality. We're not expecting to be able to jump into this and pull six figures, but there should still be options.

We're in the early stages. We don't have specific ideas yet and the ideas that we do have can change. One day we're looking at building tiny homes in Moab, and the next we're looking at Geodomes in Sedona. There are hundreds of thousands of Short Term Rental owners. Even when you exclude the ones who are simply renting out their own spaces - second homes, pre-existing ADUs, spare bedrooms, or their RVs, the number of people that started with less than we have is likely still significant.

The trouble isn't getting started with the capital that we have - it's the need to replace an entire income in such a short amount of time.

I am open to suggestions, and very much welcome feedback. I'll try to present a basic plan with some napkin math soon.

Quote from @Ko Kashiwagi:

Hi Aaron,

Happy to clear your concerns regarding the DSCR financing. What was she specifically ally worried about?

She's just not sure that she'll be approved for a loan, given that she is only a few weeks away from running out of her sick time. She won't have an income from her job and with a normal loan banks won't lend based on Worker's Compensation income.

Quote from @Jon Martin:

Very noble pursuit . . . Although you are talking about a lot of startup capital and a long time before you have a property ready to list. Especially if you have never managed an STR before and don't have contacts in the area.

Much safer bet would be to buy an existing home with a view in a nice neighborhood. More exit and pivot options as well. 

I've looked into this but I don't see how we could make the numbers work. Anything halfway decent in this market - view not included - is going to cost $800K+ and from the comps I've seen they don't seem to rent for all that much more than Geodomes or other unique structure done right. The nicer domes in the areas I've looked at are netting $200 - $250 a night in areas with a 60-70% occupancy rate. That's the same as a lot of single family homes. Nice homes that I can only guess would be in the 1.5 - 2M range are going for $450+ a night. 

The Geodomes and other smaller structures seem to be the more cost effective strategy. The area I'm looking at seems to have high demand without being overly saturated yet, at least compared to Joshua Tree, Gatlinburg, Moab, and other hotspots.

I'm still crunching numbers though, and if anyone can point out a flaw in my reasoning I would be grateful. I came here for the deep well of knowledge and experience that members of this community have.

Maybe once I can get more specific numbers and plans I can lay those out to be critiqued.

We can do some of the legwork ourselves to cut cost - we have flipped houses and built two new homes before but we had the misfortune of starting in 2005 and ending very abruptly in 2008. 

Quote from @Monique P.:

Hey Aaron ... just wanted to say i wish the best for you and your mom.  I'm sure the brilliant minds here at BP will be able to provide you some creative ideas!

Thank you Monique. I guess at the moment there isn't much more that anyone can do than to provide resources and general advice. There are no specific plans developed at this point that anyone can offer advice on - I'm just overwhelmed and I feel like we're on a bit of a time crunch to get something going.

My mom had a stroke in April which has eliminated any possibility of her ever returning to her extremely stressful 7 job. She is still technically employed and earning an income while she still has sick hours, and she may get Worker's Compensation, but she may not.

Before her stroke I was actively investing on her behalf in an attempt to allow her to retire. She has been sick for the past 4 years and we all knew that she needed to be able to retire quickly, or something like this could happen. Unfortunately I was not able to build up quite as much capital as we would have liked before her stroke forced her into an early retirement.

So now we're rushing into an idea that we've had for a while: Short-term rentals.

We do not have the capital to go at this alone, so we're trying to come up with creative financing solutions while also figuring out "Can we even make this work to begin with?".

Her pre-tax income just hit $105,000. She lives in Oregon, and after taxes and other things taken out of her check she brings in $4,800 a month. So that's the number that I'm aiming to replace. There are of course ways to reduce her expenses. Within the next month she should have about $200,000 in investments that she can pull out.

The basic idea for the short term rentals is a mix of Geodomes and other structures all placed somewhat close together on a single property with a view in the Sedona, Arizona area. A very rough estimate puts the cost at around $800,000, not including the land.

For the land, which we figure will be in the $300,000 - $400,000 area, we're floating the idea of having a friend finance the land and lease it to us, with the right to purchase the land within a certain amount of time.

I'm not an expert in any of this. This is all very new to me - I'm trying to work out a lot of estimates and figures for things that I don't know how to estimate.

I really need help refining these ideas into something that is workable, and of course none of this is workable if we can't get a DSCR loan, which she's worried about.

Between dealing with the symptoms of the stroke, trying to apply for workers comp and medical retirement, worrying about her sick time running out, and worrying about how she's going to replace her income she really can't deal with this, and I'm pretty stressed too. We thought she would be able to retire when she was ready, maybe in the next two years or so, but not like this.