All Forum Posts by: AJ Wong

Here's a hack you won't find on social media (maybe because it's wrong): Converting a boutique hotel to STRs. NOTE: This post is intended for input from CPAs and Tax PROS as I would like to verify some details as have some relevant properties coming to market..

I've written about boutique motels/hotels being the next forefront for STR investors and operators. With most densely saturated and populated areas tightening nightly rental rules & regulations - an area of growing emphasis will be cottage cluster boutique motel/hotels (often at $100K-) per unit that are zoned and intended for high-density usages.

Many smaller (sub 10-15 keys) owner or self-operated boutique motels or hotels are just that - operated the by the same team and the same way for eons. The units are often not on AirBNB or branded (from this century) and in many cases the complete opposite of AirBNB's. There are often managers living on site and a desk check in. In most tourist areas I travel - there are examples of properties that have been transitioned and re-invested, re-branded, designed and essentially converted into individual listings on AirBNB and generally perform well. Think of it like a micro STR portfolio but the units are all on the same property..

The angle I propose is:  provided the new owner operator does not have on site manager (remote?) and the primary participator is the investor or spouse (guests, pricing, cleaning, marketing) and operated more like a cluster of STRs than a larger hospitality business AND with stays that average less than 7 days...accelerated depreciation is possible? Per Google - you could perform a cost segregation study that separates the different property components and then take the bonus depreciation?

If that is the case - this is further confirmation that this asset class is currently overlooked for experienced vacation rental investors and primed for growth.

Commercial lending is often not as difficult (although more involved) as investors anticipate. Depending on the scale and location of the property, many local credit unions or even the seller themselves will offer terms with 25-35-50% down (depending on the cash flow) and even higher LTV's with well qualified buyers on SBA or business loans.

Any TAX related insight into this theoretical strategy is greatly appreciated! THX. 

 You deserve it! Last minute RUSH. Looking forward to another burst around FEB/MARCH when CPAs start delivering the great (and not so great) news and investors want to get ahead for 2026! 

Magic 8 Ball says: No. But the Crystal one has been finicky lately..

For my STR investor friends living under rocks - or have had a failed offer or transaction on the vacation rental investment they were waiting for..don't lose faith and there is still material participation hope!

In just the past few weeks we've helped several investors (looking for a very long time!) identify, assess and get into contract on properties that have a realistic opportunity to close and comfortably participate for 2025. There are several property prospect characteristics and transactional tips to look for and apply that can solidify eligibility and ensure the investment intentions are achieved. 

- Seek active, turn-key STRs with transferrable permits or a very straightforward permitting process. NOTE - just because a listing describes STR activity or the listing broker represents it can maintain usages does not mean that it can be re-permitted, launched and rented in what will amount to 4-5 weeks (including holidays). Our number one STR investment advice (anywhere) is permitting..permitting and permitting. When the timeline is condensed with little to no margin for error - it is essential that investors or their professional representatives verify and validate not only STR permit/license eligibility but that they have a clear understanding of the process, procedure and timeline post closing. Many STR permits/licenses do not transfer outright..and even if eligible must be reapplied for. Investors will want to verify before an offer is made, during their contingency period and one more time for good luck that the procedural process executable within 2-3-4 weeks of closing..MAX. For example: a most recent STR transaction we have pending, the STR permit does not transfer outright, but we verified with the planner directly that if the client submits the single page application on Monday - the permit will be issued by Friday.

- HARD PreQualification and SOLID mortgage broker or loan officer. Time kills deals..and nothing jeopardizes a closing like failed financing. I work with a very tight team of experienced and reputable mortgage brokers that I can rely on to answer difficult calls and questions..every single time I call, text or email. Mortgages are hard, especially large ones on short timelines - things can and will be delayed or go wrong..the key is: COMMUNICATION. So long as the borrowers, brokers, sellers and title team are on the page, delays can be negotiated and resolved. When parties assume - they doom. Work with a lender that has a proven reputation, organization and optimally experience with your broker or area. 

- Insurance for STRs can be more difficult to issue than a general policy. Depending on where the property is located (flood zone - GOV shutdown) its best to provide a buffer and get on the insurance policy quotes as soon as you have an executed contract. Lenders are also getting more stringent on what the policy actually covers - and how - so optimally provide to your lender the actual quote for binding within a week or two of agreement.  

- Inspections & Follow up estimates for repair. Rushing a real estate deal - is rarely a good one! But, if you have to execute efficiently (like in a 1031X) due diligence is NON-negotiable. The majority of my time is not in fact spent identifying quality STRs (we do that intuitively & scientifically :) - it's validating, re-validating and ensuring that they are! Inspection reports ALWAYS reveal items or conditions that were not known at the time of offer (that is the entire point of a contingency period) - for the buyer to validate what they are buying. The mechanics are typically: 1. Inspection. 2. Notable items are independently inspected by the related: contractor, plumber, electrician... and a written estimate is provided. 3. Through transparency - parties resolve via repairs, concession, price reduction and/or compromise. 4. Or they don't - and terminate. The point of emphasis for buyers is that they can have confidence and compensation in resolution and the best way to support the position is with real, hard estimates and insight from a related licensed professional. NOTE: A hard or quick NO is as valuable as a YES. Many investors have lost more than they returned by forcing a transaction. When in doubt? DELAY! Via a written extension to get as much validation as required for a smart investment. Smart sellers will acquiesce. 

- Order your Appraisal ASAP. Believe it or not the STR market is HOT. If you can wait until you get through your contingencies great, but otherwise just order the appraisal as soon as your loan is locked. Depending on where - scheduling can take a week or so and there is a 50/50 chance of an item of note or change the appraiser needs to make to the report. If you're just getting the report close to closing, you're asking for a need to delay and probably upset your post closing schedule. You waited this long to get into contract - don't wait on paying for the appraisal (maybe even pay $50 extra) to get them there ASAP and bonus - it is a check and balance on terms. If it's short - there is usually an opportunity to re-negotiate.

- Post closing team coordination and execution. Now that the contingency period has ended - closing is right around the corner and guess what? You're sorta on your own to get the listing live. Hopefully you have your new photos scheduled (if necessary) a few personalization items in your Amazon cart and your beginning your local interviews for cleaners, handyman and emergency contacts. Your RE Pro and title team should be able to provide some references, but another helpful resource has been Angi's list (in remote areas) or go to references from other clients your team has helped. The general theme is to hire the best, pay the best and have a back up plan for just in case. Particularly for out of state or area investors, properties have unexpected hiccups that will need attention. A good game plan is that when you revisit your new home post closing, spend an extra day or two familiarizing yourself with the attractions that will draw your guests. Make friends. Become a 'local,' and ask for references. 

WHAT NOT TO DO

- Force a purchase in 2025. Accelerated depreciation is a bonus, not a basis. If you've been dreaming of a coastal cottage or second mountain cabin for years - the next two years offer the same asset reallocation opportunity. Remember: the deduction is one year, the mortgage and property taxes are 'forever'. 

- Overpay or overcommit. It might be really difficult to say NO or walk away from a home that online checked ALL the boxes but you know what is worse? Making an investment to 'save' that quickly devolves into a bleeding liability. There is no amount of tax deductions (which by the way are only occurring because of HIGH INCOME) that is worth the headache. The STRLH is optimized for high wage earners, earning enough that they can usually qualify and afford to purchase the property regardless of the tax benefits or proposed income. It isn't absolutely necessary to use participation now...so make sure the investment absolutely is. 

- Overextend your buy box. For the reasons above - the pressure to perform can be emotionally distracting. STAY FOCUSED. You can look wide and far for reference, but don't get delusional. Narrow your prospect list and spreadsheet to the top ten, top five and top three with a 4A and 4B. Schedule the showing and visit and re-visit the most eligible prospect. If it doesn't check or work on BUYERS terms. Move on..possibly to next year or refresh the process on Monday. Not the same day. Let yourself and the market breathe. Maybe that prospect comes back to market - unexpectedly...but you're now better prepared to act due to your effort and energy. 

- Not enjoy the process. Smart asset or not, if it's too stressful to begin with - what are the chances it won't be for the life of the loan or ownership? Nobody can win a championship or perform surgery on their own. They need a great team to succeed. Slow down... to go faster. Get your (Oregon) ducks in row! Budget/Financing. Broker/Prospects. Boots on the ground. There is no magic STR recipe but hopefully here are some ingredients to make sure it is at least investable.

Anything to add? Good luck! 

 Thanks Andrew! 

The US dollar is doomed and the best way to hedge against inflation and the inevitable loss in purchasing power is to convert your hard earned savings into: Real Estate, Gold, Silver, Land, Lead & tangible commodities. 

We have been bullish and stacking gold since $300/oz, silver since $10/oz and Oregon Coast property since SFR's were $85K.

This is not a boast, it is a reiteration of the facts. The US dollar's value (a reflection of the strength of the empire) is in dramatic decline. 10% this year - and 97% since the debasement from the gold standard. 

Gold & Silver are elements. The composition is eternal and cannot change. Precious metals are finite, difficult to get out of the ground and should be much more difficult to ascertain.  If the chemical composition and quantity cannot change, what changes is the denominator or the exchange rate of the currency. 

Gold is up 50% THIS YEAR and in our opinion well on its way to $10K/oz. Silver is up even more and our target is $250/oz. 

What happens to real estate values? The same thing that has been occurring. In the future - it will take more dollars to trade for the same asset. Think Europe and the astronomical prices of housing in most developed cities for a flat. 

The US housing market is spoiled. McMansions should be the exception - like everywhere else on Earth - not the norm. For any qualified buyer (and if they're not qualified there is a program that will do so) there is achievable financing available - often with as little as 3% down for primary residence purchases. Every $100K in increased purchase price is theoretically an additional $3K down..if more down payment were required, values would be more restricted. Seven years ago when I first moved to Oregon my theory was: "If you own a home and land anywhere desirable in America in twenty years you'll be considered the exception." Here we are. 

The exponential increase in equity and digital asset prices is exacerbating inequality. Those with meaningful assets are experiencing a rapid wealth multiplier that enables second, third and fifth home purchases - while those without investments are attempting to compete for their first property. 

The K shaped economy (a diversification of have's and have not's) will accelerate. The Billionaire class in America has seen their wealth increase from $4TRILLION to $7TRILLION during the past four years -  or the equivalent share of 50% of the bottom least affluent Americans. All driven by the explosion in equity valuations of the AI BUBBLE (more on this later). 

Our advice is smart diversification and fast. As borrowing rates come down, asset prices will go up and wealth (DOLLARS) will continue to be originated at an astronomical rate. Trillionaires will be minted and the effect is such an over-concentration and overabundance of currency that it will become worth-less. 

What will preserve value (regardless or the reserve currency) are commodities - essentials that cannot be artificially reproduced or replicated digitally. 

Good luck. 

With our twelfth STR closed or under contract including several prime luxury STRs on the Oregon Coast this year - I thought it would be prudent to share some answers to common questions regarding LLC Closings or transferring properties to an LLC or Trust post closing as we approach the close the window on material participation for 2025.

Note* There are certainly exceptions and exclusions to some of the guidelines noted - always check with your lender, broker, title agent, CPA or tax professional to confirm change of ownership & tax implications! 

- In general a conventional (full income, asset, credit verification) loan CANNOT be closed in an LLC or a trust. If the personal income, credit and assets are being utilized to qualify it title, note and deed need to be recorded in the individual's name.

- Can the note/deed be transferred to an LLC or Trust after closing? For conventional financing - most lenders have a 'due on sale clause' that could theoretically call the note (balance due on demand). In practice, so long as the obligations are being met on time, they do not... however for most investors this is a chance they are unwilling to take. On a positive there are a handful of national lenders that permit the transfer of ownership after closing.

- DSCR or debt-service coverage ratio loans are underwritten utilizing established or proposed long or short term rental income with minimums of 15-20% down. As a result the majority of DSCR lenders will permit the actual closing to occur in an LLC or Trust. The borrower must provide the Articles of Incorporation or Trust for review - it is best to do this at the time of pre-qualification. The downside is..higher rates, prepayment penalties are discretionary rental projections based on an appraisal or acceptable STR projection.

- NON-QM mortgages (alternative income documentation) or lenders also usually permit the closing in an LLC directly. The draw back is that terms are often slightly more expensive in either terms or cost and typically incorporate a pre-payment penalty (depending on state) and borrowers preference. '

The actual process of transferring a property from an individual to LLC is generally the same process for most states - it involves the drawing and filing/recording of a new deed. Many title companies can per-arrange this for recording post closing. Other experienced title agents or real estate attorneys can draw the new deed and the property owner can actually record by mailing or filing a notarized copy to the county to record. Out go-to title partner will provide this as a courtesy - otherwise anticipate costs of $125-250 plus recording fees (usually +/- $100).

For investors that want to verify there is no lender risk in transferring their property to an LLC - they will want to fully disclose their intentions to their licensed mortgage broker or loan officer and ensure they verify the lender will allow, the general process and that the loan is priced accurately with that lender.

Often - the rock bottom terms available (full income, credit, asset, prime credit) are not necessarily provided by lenders that will permit a transitions to an LLC. In recent transactions - there has been about an 1/8th (.125%) or a few thousand dollars in difference between the 'best' rate and those priced specifically for transfer to an LLC. Although this can vary case by case.

Some recent investment property 30 year fixed financing transactional examples :

- 20% down conforming Jumbo at 6.625% with .25% in lender costs and a lender credit - $7500 seller concession 

- 20% down conforming Jumbo at 6.875%. with 1% in lender costs and a lender credit - $15K seller concession 

- 20% down conforming townhome at 6.375% with .5% lender costs and a lender credit - 2% seller concession

- 15% down non conforming at 6.875% no PMI with 1% lender costs and a lender credit + 1 year PPP

 -10% down conforming jumbo second home loan* at 6.75% with .75% lender costs and lender credit  

- 50% down confirming at 5.625% with .5% lender costs and lender credit - $5K seller concession 

- 20% down conforming super jumbo at 6.875% with 2% lender costs and small lender credit - 2% seller concession 

In the majority of investment property transactions his year we have been able to negotiate seller concession of 1-2% to cover all or the majority of closing costs and prepaid items. 

As a mortgage broker of 20+ years my best advice for qualifying a mortgage broker is reputation, references and transparency. Even with 'AI' lending is still nuanced and an experienced loan officer can help you identify potential pitfalls or conversely eligibility or programs that could make the investment difference. For example - with interest rates expected to decline, more borrowers are exploring ARM products with lower rate incentives as well as interest only repayment options or extended amortization schedules.

Feel free to share any insight with your transfer experience or note any differences. 

 Great advice. The key to STRs: Permitting. Permitting. Permitting. 

 Definitely not accurate. Just sold a $1.1M new construction luxury gem with Wander management that will generate $180K. Another for $537,500 generating $70K 

First one probably shouldn't have. Second two - offers I could not refuse. Last one - flipped to a completely paid off STR in Mexico and our dream property and eventual riverfront STR. I've since learned for myself and from mentors that you only sell to purchase a better/greater opportunity that you couldn't purchase without the sales proceeds. Essentially transferring equity to an investment with higher potential or that achieves goals. IE: selling a 600SF cottage near its maximum potential for a riverfront cabin on two acres with nearly unlimited upside.