All Forum Posts by: AJ Wong

There are not many markets where seller carried financing is a feasible or an available options for buyers or sellers. 

Very rarely do owner carried transactions occur in more densely populated and competitive markets like San Diego, San Francisco or Los Angeles. This can be due to a variety of factors, including the seller's original base cost (often very high) or there is no necessity as investors and developers have access to the capital to purchase without financing or a third party lender as generally the re-development potential typically outweighs the risks for experienced investors and builders.

In Oregon and specifically on the Oregon Coast, seller carried Transactions are more common. In the past four years I have successfully helped myself, friends, buyers and sellers utilize mutually beneficial terms, often for properties that were either not financeable or the cost of financing was too prohibitive for buyers to be incentivized. 

A seller carried transaction is one in which the seller acts as lender. Instead of a third-party (bank, lender or hard money) qualifying the borrower, assessing the property and essentially dictating terms, with owner financing the current owner holds the note or borrower's mortgage. 

For certain properties; older manufactured homes (not conventionally financeable), properties with deferred maintenance, commercial properties or even vacant land, owner carried transactions can be incredibly useful and profitable for both sides. 

For example: Let's look at a transaction for a MFH on acreage in Bandon Oregon last year, from the perspective of both buyer and seller.

Buyer: Excellent credit, income and down payment. The challenge was she was unable to verify the continuation of her income beyond 36 months and was ineligible for conventional financing and private or 'hard' money loans are incredibly prohibitive for long term plans. For example a hard money loan can typically run 3-4-5% in Points or closings costs and typically 10-12% interest. For a purchase price of plus or minus $375k, even with 25% down, that could equal monthly payments of at $25-2800 per month or more. 

Seller: $400k asking price for older MFH that will be difficult at best to finance. The seller's base is essentially $0, purchased twenty years ago, has provided stable and accelerating rental income for the duration and has considerable other investments, which minimizes the need for total property proceeds and would face tax consequences on gains should he received the entire balance at closing. 

In this example, both parties have mutual interest. Tough for the buyer to obtain workable borrowing terms and a seller that has made his return on the asset many times over and would have difficulty re-investing the capital safely in a higher yielding or more familiar asset. 

The process went like this...

-Would the seller consider an incentivizing or friendly owner carry for a 2-3-5 year balloon? 

-Buyer & Seller analysis - What makes 'cents' for both parties? 

-Proposed Terms.

Ultimately the agreed upon terms were $385k with $85k down and a owner carried note of $300k @ 5% interest only ($1250/mo) on a 3 year balloon with the option to extend for another year at 6% interest only ($1500/mo). 

Buyer: Puts less down, lower monthly payment, reserves to make improvements, saves on appraisal, closing costs, time and hassle. 

Seller: Receives equivalent of 5 years of previous rental income up front. Holds $300k lien on familiar property. Defers capital gains. Earns $15,000/yr interest income (times minimum of 3/yrs = $45,000) PLUS his original $385k or $430k TOTAL for a property that was originally listed for $400k. 

The owner carry eliminates the intermediary, accelerates transactional efficiency and provides buyers and sellers considerable room for price and down payment compromise as the seller earns lower taxed interest income and often can sustain the income the property produced as a rental while transferring ownership and responsibility. 

Just to be clear, once the property is sold and the deed records, the new buyer owns the home. The seller has no entitlement to the property, they only hold a lien or note against the property (just like a 'regular' mortgage) that must be satisfied or paid off prior to property sale or transfer. 

Owner financing provides real estate investors options that can make a deal work much more favorably and conveniently and are particularly useful for developers looking to minimize capital commitment or sellers that have a difficult property to finance. 

Seemingly the biggest challenge at present to the market is horrendous or unattractive financing terms, particularly on commercial, multi family or luxury purchases. Rates are prohibitive but conversely interest rates to depositors are a joke. Banks are charging 6-7-8% for mortgages and remitting .05% to depositors in monthly interest. Even the highest yielding CD's are not outpacing inflation at 4-5%'s. 

A safer bet would be for sellers to hold onto the assets that have produced and they are familiar with. Transfer ownership and responsibility to a new party, but maintain an interest, in actual interest. Why should banks make the MOST from our assets? 

Sellers can also sell their note at any time and likewise buyers and sellers have an open door of communication should terms need to be mutually tweaked. It's not like the bank, it's better :) 

Oregon is friendly to seller carried transactions and has standard forms for terms. 

I would strongly advise always using a third party intermediary to collect, remit and account for payments between buyers and sellers. 

Typically a third party title company will administer or 'service' the loan, sending tax statements and payment histories to each party and advising each when the note is coming due. Once satisfied (through payment, sale or refinance) the seller's note would be satisfied and due the full balance. 

Have you had any successful seller carry experiences? Please share! 

From 2003-2009 I was 20 years old and had my first real job and taste of Real Estate for a mortgage company at HomeBridge Mortgage Bankers in south Florida.

It was a crazy market and a crazier place to work, but I learned from a great salesman, who 'learned' under the tutelage of Jordan Belfort how to sell and 'do' mortgages. 

For those of you too young to remember (I was 21) this is pre housing 'boom' when creative financing solutions reigned supreme and ANYONE could qualify. We won't get into the nuances of mortgage banking here, but I wanted to highlight an option that is slowly creeping onto the real estate lending and investor radar, interest only ARM's and payment options.

Let's call a spade a spade, and accept that rates are 'high.' At the time of writing a 30 year fixed mortgage for a prime borrower, primary home with 20%+ down is in the high 6%'s-7%. Investment properties with less capital commitments are trending in the low to mid 7%'s in a best case scenario. I just had two local Oregon credit unions price several investment loans for AAA borrower's with 25%++ down and the terms were prohibitive to say the least. How's 8% on a $1M loan...on an ARM?

In twenty years of mortgage madness and relevant real estate experience, I'm actually in the camp that in historical terms, mortgage rates are not that bad..I certainly would not lend you my money, for one much less 30 years at less than 10%. Is that not the golden ratio for cash on cash returns? 

However, when you factor in recent price appreciation and inflation, at current interest rate levels, there is good financial reason (that particularly on the higher end of the market) sales demand and competition has dropped precipitously. 

The cost of borrowing is simply too high and the numbers, or return on investment do not crunch. 

Clearly there is still very strong demand, many prime properties that are appropriately priced on the Oregon Coast still have several offers to consider within hours of listing. However, often high valuation buyers are 'bye' passing lenders as it is estimated that nearly a third of all sales are still cash transactions.* 

If purchasing a primary, long term residence, at some point one has to buy, but at some point you can refinance. Primary home buyer(s) might not have the the same luxury as investors of 'waiting' until interest rates drop to make an investment, because investors don't want to make a losing investment. 

When payments go up, and prices stay the same (or go up) cash flow is reduced. The options are to counter balance the sales price or amount borrowed or committed OR improve the lending conditions in order to enhance invest-ability. I have written repeatedly about rising rates being a double edged sword. On the one side, it is harder to pinpoint properties which positively project (say that ten times fast!) because the rents are too low and protected by housing laws OR the payments are too darn high. 

What investors miss is that opportunity costs are also at play. On paper the number might not work BUT if the client intends to utilize the property as a second home..uh..vacation rental..and plan personal usage on the Oregon Coast, that savings needs to be factored. For example an ocean front Oregon Coast Vacation Rental north of Florence to Lincoln City or Cannon Beach will run you anywhere from $500-1500 per night depending on caliber, availability accommodations. If a family spends, or intends to spend two months per year utilizing the property personally, that's in a best case scenario $30k per YEAR in rental payments, that will be better utilized (and likely cover) the entire down payment or investment over an extended forecast. 

The reason to invest, is not to rent, and in the case of short term vacation rentals, invest where it is difficult to rent. I have a client in town this July 4th weekend staying at an STR on the Oregon Coast and they have a large family, and a large bill, $1400/night for four nights.

They visit annually, for years and would do so more frequently if they could avoid the cost and inconvenience of booking an AirBnB each time, and arrive to their own HOME without packing on short notice. 

When analyzing potential performance of any real estate investment it's important to consider the external costs of ownership, perhaps most notably, at least in a more remote area, particularly as a absentee or out of state investor is Property Management Costs. On the Oregon Coast, quality service is going to cost you, around 25-30% depending on the size of the home and specific geographical location. We can discuss what optimal qualities and unorthodox things and perspectives to consider when searching for an STR later, but one thing is for sure. You will need a reliable team to keep the business operating.

Make no mistake. Owning a successful AirBnB is a business. It IS a hotel. Hence the barrier to entry in finding a local jurisdiction and area that will allow you to have a high transitory volume of guests and services. 

If investors think they can buy a house, without making it a home, they are very mistaken. To provide comparable hospitality services as a high quality hotel, takes a high quality hospitality team. The cost of this is apparently a 1/3 of the income produced. My question is, are hotels paying 25-30-35% on hospitality services? No they are not. I have analyzed many hotels and have one of the most successful coming up as a listing before year's end. 

Their secret sauce is long term insight and attention to details and customer satisfaction. When the original owner and builder of thirty years was showing me around the property their was a blade of grass on the floor of one of the units that he picked up off the floor. 

That is what makes his hospitality business successful. The owner, and extraordinarily successful businessman of three decades, who bought and built his ten room hotel in downtown Florence, noticed a flake of dirt and removed it. Nobody will care for your business like you, and I'm sorry but no management company deserves a third of your business. Maybe if they put down 33% of the deposit and absorb 33% of the risk and costs, they still don't get to use it 33% of the time, but they can have a third of the profits then!

Anyhow, the point is most STR's generate roughly, roughly, 10% of the sales price. So a $1.3M oceanfront (permittable) STR on the Oregon Coast will generate $10k per month in gross annual average income. $120-130k.

This is absurd. Truly. 10% cash on cash. Minus operating expenses. Well most taxes, insurance, utilities and maintenance average slightly over 1-1.25% of the valuation per annum or put another way in our $1.3M example...$13-16k...$1333 TOTAL monthly. Let's keep in mind that one night in a comparable property runs that...

$10k per month in gross revenue minus $1300 should leave us plenty of room to breathe, but many investors are leveraging or utilizing financing (as they often should) to make 'things work.'

Full circle back to financing, and even with 25% down ($325k) plus closing costs (2%+/-) a purchaser would require a jumbo loan of $975k at a floor rate of +/- 6.99% (before potential seller concessions or interest rate buy downs) with P&I (principal and interest) payments of $6480.15 and a full income documentation qualifying income of $15kish monthly. 

$10k-$12k minus $8k is $2k-4k per month net. Well not if 25-35% goes to silent partner.. but $24k on $325k for oceanfront property ain't bad, considering the projected rise in demand, population and popularity on the Oregon Coast, as well as the comparable UNDERvaluation (more on that later) but also one could finance such property with as little as 10-20% down but also that there is an enjoyment and personal usage opportunity cost of OWNING a HOME. 

Life comes fast. We had a client earlier this year that purchased a turnkey vacant TRIPLEX with 10% net down ($50k) and projected to return as a mixed use of LTR and a single STR unit at $15-17k PER year. Yes you read that correctly. A cash on cash return in three years. More importantly within one month of closing the buyers received notice that their current rental (primary) was sold and they had two weeks to move. Low and behold they owned a property with one vacant one and moved to their own property and saved their new mortgage payment in rent payments. Side note they were introduced to me on via DM here on Bigger Pockets and will now be ready to purchase their next investment/primary nearly a year before schedule**

Point is that things happen outside of our control and owning property can often solve those unexpected 'life events.' Real Estate investors have the best of both worlds! They get REAL assets, using fiat money, at (cheaper than auto loan rates) and it typically cots more to physically duplicate a replicate asset. You can't sleep in, on or with your money. Well you could, but it would get weird..There is intangible real value to real estate, and if location really does mean anything, I'm unfamiliar with something more precious and valuable for the foreseeable future than oceanfront real estate that one can use, as they wish, with 10% down. If you can afford a million dollar rental, you can afford a million dollar mortgage. Making it a deal depends on your due diligence, insight, goals, resources and options. 

One of the most useful and valuable an investor can have is a professional team. Organizations are as good as their weakest link. Great ones are certainly captained by valuable leaders, but like all great leaders, value investors have the advantage of good data and information from their crew. The properties don't really change, it's what, when, how, why or who you know, more so than anything else that separates real estate investors. It's a free market. At least here in 'Merica. 

In this market, nothing really matters more than the cost of property management  borrowing. Jordan Belfort didn't sell stocks. He sold greed. 

We didn't sell 0% down No Doc Loans in pre 2008. We sold payments. 

Buy today. Equity tomorrow. Refi and take cash out. Why? Total up all the credit card and even auto payments. The bank will give pay off your $50k in CC debt and $50k cash to buy your next home and go on vacation...in two weeks for the same housing payment and save you $2500 per total!

How? Interest only payments. 

I already know what you're thinking...I don't want to do that. Well I have news for you, you're already doing it. 

I'm not talking about short term adjustable rate loans, I typed interest only mortgage payments, and you're already doing it. 

Let me explain: 

In Oregon, or all of America for that matter, 15-20-30 year fixed rate full amortized mortgages are paid over 180-240-360 payments. Each payment includes Principal & Interest Portions. On our example loan of $975k @ 6.99% the cost of interest (assuming a borrower were to stay in THAT SAME LOAN) for 30 years is $1,357,847.12 And the total amount of 360 payments equals $6480/mo or $2,332,857. Keep in mind, today's borrowers (assuming rates reduce) will not be in the same loans, even if they are in the same homes, for greater than the next 1-2-5 years. I believe the average for ALL borrowers is 6-7 years, I'm not familiar with the data on investors, but please feel free to fact check me or active reputable lenders, please comment below...

On the same amortization schedule one will notice that of the initial $6480 P&I payment, the Interest portion of the payment is $5679.38 and the principal portion of the payment is $800.77 CENTS. In case you are wondering (I WAS) $975k at 3.375% (the rate I purchase my last STR for in late 2020) equals $4310/mo and $2742 INTEREST and $1568 principal. So don't sell me these garbage bank bailouts were necessary and struggling BECAUSE rates were 0%?? THEY WERE MAKING BETTER LOANS FOR THEM! Safer loans. Bigger margins. Now who pays the price? Consumers?? Also absurd. lol

Anyway. In one year of ($77,760) P&I payments borrowers would have paid down..(drumroll please...............) $9,924.79 in principal...OR 12% of the total (less than two actual monthly payments) towards principal?? The math is right but that doesn't make it any less dumbfounding. 

At 3 years it certainly doesn't get any better....$233,280 in hard payments...Roughly $32k towards principal. 

We really should not apply for another loan until these lenders restructure to simple interest terms, like most other nations, but I already have 3 other posts to write..j/k

Where were we, interest only options..

Just recently one of my Florida lenders (no relation) brought to my attention the reemergence of interest only payment options. It is truly just that. The option to pay interest. Typically (or back in the day at least) interest only loans were roughly .25-375% higher than the principal and interest options. In our example an interest only option would cost 7.25-7.375% depending on specifics. And the qualifying rate and payment for income purposes might be based on the (Fully amortized) proposed principal and interest payments..

So they are harder to qualify but on higher loan amounts, when available, worth consideration. Here's why:

The payment on $975k at 7.25% is $5,890. OR $70,687.50 in interest per year OR a difference of $7072 ($589 per month). Note- this is at a higher proposed note rate, (if it was apples to apple total amount of interest paid would be identical.)

Thus, borrowers payments are reduced by the exact amount they would pay towards principal anyway. Amortization tables don't really take off (start paying towards principal until year 8-9-10) and most likely, even if you own the same home, you won't be in the same loan. 

Remember, way back when, I said interest only is the option to pay interest? There's no more penalty for borrowers paying towards the principal than there is on a 'conventional' principal and interest amortization schedule. Pre payment Penalties aside, (now uncommon or incentivizing) borrowers simply have the option to pay principal. Clearly there is money to be made for banks and lenders, why not take one of the only options they're beginning to give? 

Rates are high enough, but borrowers will not pay anything meaningful towards principal on a fully amortized loan anyway..especially with current rates, these loans won't last forever. More importantly you know what happens when you make 13 mortgage payments per year (on a 30 year loan) the loan is paid off many years sooner**

How? Well do the math. Even at 7% $6500x23 years is $150k. The initial balance was $975k. There's more than that in INTEREST. $150k of $975k is 15% of the loan balance, that you don't have to pay 7% interest on for 30 years. It's a whole other investment, and less than the down payment but saves $500k+ in payments. You're welcome :) 

Going back..to the future..$600-700 (at these levels) is significant (not as significant as the $2500-3000 per month that could be reduced by hiring a FULL time cleaner and ambitious entrepreneurial teenager looking for work) but nonetheless is sufficient to cover ALL of the electricity, water, sewer, trash and internet that vacation rentals require. At least they're not asking to be a silent partner..

The bank isn't exactly losing out here..they still get almost $6k per month in interest, or $70k for lending $975k..per YEAR. Borrowers are taking most of the risk. Oceanfront property for $975k if an investor defaults on their $70k in interest per year, am I missing something? 

As business owners, with all the supposed risk and responsibility, you won't net that! BUT for $250-325k down..you will own an oceanfront vacation rental that now NETS $40k per year..less management fees..Or $40k per year if you can hire a reliable cleaner and reinvest in your asset regularly. 

Call it $25k per year. That's ten years to essentially get your investment back. 10% Cash on Cash return. I forget.. isn't that the golden investing rule? Long term. Safe. Hard. Oceanfront. Undervalued today..

Where can investors earn that type of protection and potential for appreciation, with something that they ALSO can actually create memories and a legacy with, within 30 days or less? 

Oceanfront vacation rentals, or any rental income producing property for that matter. 

Interest only investment mortgages are an option. Investing in real estate is an option for capital, leaving your assets in a bank are an option. What, where and when is an option. But the returns the bank offers are not an option. 

At last glance, most checking accounts were offers a few basis points and even the most attractive CD's do not cover the loss of purchasing power to inflation.  

Investors have the choice to use it or lose it. If their investment portfolio is significant enough to qualify for a $1M+ property they have more incentive than ever to take advantage of seller (and apparently lender leverage) concessions. Or give their hard earned assets and capital some options. 

Or somewhere to sleep for the night.. Maybe find a safe space to bury it buy the beach for the next thirty years... 

Cheers. 

There is no place like home and no where like the Oregon Coast to invest in an Oceanfront property. 

This wonderland is not for everyone, but for those that visit for the first time, if they aren't impressed by the impressiveness of the rugged and natural environment, it is not the place for them to purchase or invest in property. 

For the rest of us, owning an Oregon coastal STR or vacation rental, beach home or beach cottage or moving to the majestic coast permanently, is a goal or dream come true.

Who among us has not envisioned the precipice of Real Estate ownership, an oceanfront home? 

Yes, we all have slightly different paths to 'making it' but we can all agree that location is essential, and there is limited oceanfront land and homes to go around. 

In fact, I'd estimate that along the entirety of the less than 400 mile Oregon Coast there are merely 10's of oceanfront property available in Oregon on any given day, in comparison to our northern and southern neighbor border states, which combined average 100's-1000's. 

Certainly there are reasons for this, the OR Coast is incredibly sparsely populated. The largest population center is Coos Bay/North Bend with a combined 15-20k people that balloons in summertime. 

The entire Oregon Coast combined has only hundreds of thousands of full time residents. That's it. The size of a small CA or WA city, spread across the entire coastline. 

The Coast is isolated and difficult to reach, it's raw, rugged and disinviting, until you arrive. 

Small town feel, big time lifestyle. Very very few places offer the lifestyle and outdoor amenities of the Coast. Fishing, crabbing, surfing, kayaking, hiking, boating, dune-ing and did I mention fishing??

In most towns, there are rivers, mountains and ocean in the same photo! 

Unfortunately the secret is out.  What used to be a hidden gem, is still a gem, just not so hidden. 

Partially due to the Pandemic, but also due to the state of the real estate market. Valuations have exploded across the US. In Washington and California they were already very elevated, but today most investors are priced out of any opportunities in ore densely populated regions. 

The vast majority of my clients are out of town-ers that likely could invest in their respective local markets, but probably not in a property that is comparable, certainly not utilizing the same capital or leverage..

Every. Single. Day. I speak with clients looking to earn more bang for their buck, or more ROI. Not to mention a major bonus of getting out of where-ever they're coming from. That's not an insult to LA, SD, Seattle or anywhere else for that matter, it's just that no matter where they're moving from, it's not the Oregon Coast. Meaning, there is no comparison in valuation, investment options or genuine potential.

One of the absolute best examples I can offer is Oregon Coastal Oceanfront home and land. I will not go into the costs of oceanfront property ownership in California. From SD, LA, Malibu, Carmel, Big Sur...the astronomical valuations are sometimes difficult to FATHOM.. $10-20-100M is 'normal.'

Conversely, there is oceanfront land in the $300-400-500k range and oceanfront homes from $350-1000/SF in Oregon from $500k-700-1M. 

Don't get me wrong, Cannon Beach is not Malibu, but for the relative costs and investment potential and lifestyle, that maybe a great thing. 

Even if you were enlightened enough to have benefited from the unFATHOMable returns, where could you profitably invest those returns locally in LA county? Sure, you could invest, but it would not go nearly as far as it did when you originally purchased the real asset in California 10-20-30-40 years ago. 

Just decades ago many investors could not have imagined what Malibu or other Prime California coastal towns would become or the values they would reach...I get that same FOMO with Oregon Coast Oceanfront property and oceanfront STR vacation rentals.

Yes, local valuations have also climbed, but still $800-900-1.5M for some of these properties is notable. In most instances one cannot purchase the vacant land, install utilities, design and permit and construct the square footage for the same price. That's value. Especially considering that one can leverage with often as little as 10%!? down.  

A key metric is that the demographics and desirability of the Oregon Coast is exponentially improving. According to Yahoo the #1 county in the Pacific North West that is going to see livability IMPROVE due to climate change is CURRY COUNTY OREGON. Just south of Bandon Dunes golf course, comprised of my favoritest town, Port Orford in and around Langlois and the Gold Beach area. 

Politics aside..it's getting hotter elsewhere, but less rainy on the Oregon Coast and more hospitable year round. Fast forward 20-30-40 years and the Oregon Coast might just be a similar climate to parts of California. And it definitely won't be anything like LA County :) Major bonus, there will be water..

What will the Oceanfront Oregon Coastal real estate market look like then?

For my money, I think even the most expensive homes in Brookings, Gold Beach, Florence, Lincoln City or Cannon Beach are probably a bit undervalued. Not just in terms of their prices, but in what they provide, replacement costs and future development cost. Values are going up but so are the costs of contractions or duplication. Building a very large one 4-5K SF+ isn't often necessary for most buyer's and increasingly difficult to execute as material and labor costs rise. 

Also somewhat of a unique opportunity in Oregon is the potential to still secure a permitted or licensed Oceanfront STR that will generate very positive returns with considerable upside potential forecast.

High level overview, a $1M oceanfront home eligible for STR will generate roughly 10% (gross annual revenue) of valuation. I've reviewed many formal financials for oceanfront vacation rentals in Oregon and typically the production is highly consistent and between $120k-220k gross annually for properties valued at $1.2-2M. There are also 'recession' proof. The travelers that can afford a $500-700-1400/night oceanfront rental, will always be able to afford it, but they won't always be able to purchase it.

Why? They aren't making any more oceanfront land or oceanfront vacation homes on the Oregon Coast. 

If you or family, friend or clients are seeking an Oceanfront Property on the Westside..maybe consider the Oregon Coast. It's no longer so 'hidden' but more of an investment gem than ever. 

Cheers. 

By sheer force I've learned the hard way where you can, cannot and should consider purchasing a permittable vacation rental on the Oregon Coast. 

Partially by circumstance, albeit those that I created, I will confidently say that I am the amongst the very few local Real Estate Professionals that are as intimately familiar with the rules, regulations and requirements to reliably invest in a permittable vacation rental property ANYWHERE on the Oregon AND California Coast's. 

For context, in 2018 I purchased my first Oregon home (specifically intended for STR usage) and moved from LA to Port Orford. I did so because at the time to purchase the property was about half the cost of renting, and there were no STR regulations in Curry County or really beyond..

I recognized early that the regulations that quickly developed to restrict my BNB business in Los Angeles were likely to reach other areas and by being ahead of the curve, could own a long term vacation rental, in a land I wanted to be anyway, before there were rules that would prevent that goal. 

Moving forward, in early 2020 I came across a Vacasa card after staying at a Vacasa managed property in Kauai. I was curious about who and what they were and eventually joined their RE division as a broker and worked with our wonderful team from 2020-2023. For those that are unfamiliar, Vacasa is primarily a STR Property Management company. They are founded in Oregon and as a result also had a strong conventional RE division that supported buyers and sellers of Vacasa managed properties. As a result, my primary duties were to determine (often through specific communication with the direct local municipality or planning individual) whether a property could be utilized as a vacation rental.

Anyone that has ever read or communicated with a city, county or public regulatory authority can attest to the often frustrating and unclear answers that are received (think DMV) but multiply it by twelve when it has to do with sometimes illogical or biased short term rental permissions. 

It should be said that despite all the resistance and discourse surrounding STR's (which we won't get into here) it's important to remember that this is still a relatively new area for real estate. Many communities (like those on the OR Coast) are small and have genuine housing shortages and challenges. Similar to ride sharing and UBER, this technology is disruptive and can have profound effects if not closely monitored. There should be rules. There needs to be. We can discuss the how, where and when and pros and cons at another time..

Investing is all about certainty. One cannot invest confidently in property, if they cannot assuredly utilize the real estate for its intended use. That's like buying a lot to build a gas station, but it's zoned residential currently...but maybe you can get a permit. 

Well maybe you can't? Even if it's a nice home, without being able to produce the income your expecting, it's likely going to be a losing investment. 

As such, due diligence on precisely if and when a property is eligible for short term rental usage in a given area is the most paramount qualification there is. Since eligibilty is often hyper specific to a particular board, it is essential to get direct validation from that entity prior to even touring a property. 

This is tedious, cumbersome and annoying, but a better use of time and energy then analyzing a property, seeing it, speaking with the listing broker or getting a pre qualification. It's numero uno. Why?

Because nobody, and I do mean nobody actually knows the rules. Seriously. 

Have you ever played the game telephone? How does it end? 

Inaccurately. 

My BEST advice and the truest advice of any REAL estate professional is to confirm for yourself. Directly. From the source. 

Ask you RE broker for an email to the direct planning or vacation board in the city or county you are interested. 

Pick up the phone, dial the number, ask them what you need to know. 

Send them an email. Type the question. Say thank you. 

That's it. Five minutes. These are tiny municipalities. They will answer the phone. Their job is to help their community. 

BUT keep in mind if you are buying a vacation rental in their small community, that it's not just about dollars and cents. 

You're investing there, paying taxes, making friends, bringing your friends and hoping to create a safe space for others to visit where the people on the other end of the line live full time. 

Vacation rentals work on the OR Coast because it's one of the most beautiful and unique places in the world to vacation. 

Those that live their year round don't want to be anywhere else. Or put another way, there is no where else to be. 

Tourists are willing and able to spend $1500/night or more for the experience. For one night in paradise. That's a month's rent or mortgage for most people.

It's also an experience that wasn't really an option a decade ago. At least, not on an app, by phone. 

Certainly it was not an investor experience, unless you were a hotel or ACTUAL BED & BREAKFAST OWNER. 

So have some patience with your search. These communities are entitled to (no offense intended) keep these 'Californians and Washingtonians' from buying the available housing and renting it to their friends. Obviously that's not the full story...I'm Canadian/Floridan by WAY of California..just kidding 

The reality is that the value of the Oregon Coast is enticing whether the intended use is for STR or not. Most of my clients are absentee, but more often from other parts of Oregon than out of state. Also they're not looking just to make money, well some of them are, but MOST are looking for a second home for their families and children to grow up with the same summer and holiday experiences they had as a child.

The STR is often a way to supplement the cost of ownership. If they can own their dream escape, eliminate the costs and annoyance of booking a rental every time and carry most of some of the costs by house sharing with someone else, that's good enough for them.

They want the community of the coast. They want to know and help their neighbor. They just might not want to be there or pay for it full time.

There are two sides to the street. Likewise there are many ways to occupy a house. 

Modern investors can get fixated on the necessity for an STR license and they hear all about 'how much' their friends made on BNB.

You can make a LOT. Still. But running a short term rental is a small business. Just like an UBER driver is a taxi driver. An AirBnB is a Bed and Breakfast. You can earn a high return, because there is a real service provided. 

You need to be on point and most of the work is not rewarding work. Keeping even a very small accommodation five star clean is dirty work. Doing it well and on time for the next booking is HARD work. If you can afford to invest in a STR you probably can't afford the time it will take (unless you work at home) or have a spouse or partner that can. If you can't self mange (the most profitable way to operate) you can hire a full time PM like Vacasa.

Effective solution, (especially for absentee owners) but you get what you pay for. Usually you will pay 20-35% of gross income. 

Let's say 30%. A property that grosses $50,000 in annual income would yield $35,000 less utilities, carrying costs and never be accessible when booked. 

A popular and profitable alternative is medium term rentals or 30+day stays. These are NEVER restricted by eligibility of an STR license, some HOA's might have different rules.

But generally you can rent anywhere for 30+ days AKA a seasonal rental or MTR. 

You know, the way that it was done before house sharing? 

You stayed for a month.

Besides no rules..and huge savings..and accessibility..seasonal rentals reduce property wear and tear. Instead of twelve families per month you might have one for three months. 

Now will you 'make the same?' That depends on the data inputs. 

Let's look at a recent example in Rockaway Beach Oregon. 2/2 home. Close to the beach. Furnished. Licensed STR with $45k gross income in 2021 & 2022.

$3750 Gross. 70% = $2625 minus utilizes, repairs, licensing costs..$2100 net monthly income sound fair? 

Can you rent an equivalent home or hotel for less than $100 on AIRBNB? Anywhere on the Oregon Coast? 

No. But you can rent your entire property, furnished, with utilities, on AIRBNB, for a minimum stay of 30 days and allow pets for $25-2750+ 

No management, no property destruction. Block it off when you want, with a tenant that can afford $750/week and afford to be on vacation. 

I mentioned a housing shortage...the Coast still has Dr's, nurses, everyday residents and a major influx of buyers that are waiting, building and looking for a dwelling. But don't believe me..look for a rental on Zillow or Craigslist on the Oregon Coast..

Investors can reliably invest in the usability of a property, often more profitably and reliably, without the necessity of the permission of others. 

Vacation rental permits are not the end all be all for successful investment, but fortunately, for the moment, there are sanctuaries still available. 

So...even when not utilized, securing a vacation rental permit, while still an option, is an excellent and worthwhile struggle and investment. 

We went on a bit of a detour but fast forward five years later and there are very few areas investors and buyers can reliable still secure a vacation rental permit on the Oregon Coast. 

Since the information is difficult to find, comprehend or contradictory, I'll provide some insight into the areas that are the most problematic, some of my experience, suggestions and the most accurate information currently available. Please note, buyers and sellers and brokers need to do their own diligence. This post is for informational purposes only and for context as rules a regulations are always subject to change...and do. DO NOT RELY ON ANYONE. Double and triple check. Often it's not intentional, it's that without regularity and familiarity, the target moves. 

The elephant in the Coastal OR room is Lincoln City. What a mess! My oversimplified and overgeneralized advice is to forget it**

Roughly speaking there are 400 Active STR's in Lincoln City/County. The current guidelines reduce to 50%+/- and there are the equivalent on the waitlist. The list does move, but realistically this could be a 3-4-5 year wait, presuming nothing else changes in the proposed wait period. Five years ago there were no rules..

That's not to say, it is impossible to get a vacation rental license in Lincoln County or Lincoln City Oregon. You can!? Very specific areas are not subject to the waitlist, or zoned intentionally for their use. Existing permits will not transfer but some can reliably be granted within months or just post closing. This is a needle in a haystack and generally comes with competition and valuation premium, as well as lost opportunity and memory making costs.. 

Your best bet is to keep a pulse on the area and fresh listings, but to otherwise venture just north or south.

Focus on the areas that are more inviting and often even more monetizing, if you want to improve your chances for a short term rental permit on the Oregon Coast. 

Other areas to conscientiously avoid are Newport, Waldport, Yachats and Depoe Bay. Why? Lincoln County. There are exceptions, such as existing rentals in commercial zones that transfer, but do your research! 

Further north there are some options, like Rockaway Beach. Within the city limits there are essentially no regulations and one can reliably obtain a permit with some due diligence, however as a result the geography is saturated with active vacation rentals. 

Beyond that, Tillamook County Oregon vacation and short term rental permits was supposed to end their multi year moratorium on new short term rental licenses July 1st 2023. That has since been extended until September 1st with no clear indication of processes or procedures or potential issuance. 

Within Tillamook county, properties that are currently licensed as active STR's can sometimes transfer the license, one time, to the new buyer, at least for now...

Cannon Beach is a PRIME Pacific Destination, the regulations for vacation rentals are also quite restrictive. There are two STR license types available, one is a limited use, maximum of 30 days per calendar year, and the other is unlimited but recently the full allowable quantity of proposed licenses have been issued.

Seaside Oregon is an option for an STR permit on the west side of town. Pockets of Pacific City are also eligible for a new OR coastal vacation rental permit.

I won't cover all of the eligible and ineligible areas here... for sake of an already too long post..

I will add that NOTHING is impossible. Things evolve and change very rapidly in this space. DO YOUR DUE DILIGENCE and you will be appropriately rewarded. Contact your local planning department for validation. Their job is to answer your questions, consult with a professional (broker, attorney, title company) when you don't know what, who or how to ask :) 

The central and south coast does offer quite a bit fewer hurdles to permit, more on that later... 

Cheers. 

 Thank you Don. Particularly nowadays we all should be earning our dues. If we can't add considerable value to transactions or for our clients, we will be replaced or unnecessary. I began investing in the coast, partially because I noticed a the lack of intensity and competition for prime real estate and the perceived future demand of saw assets. I believe my reputation and business has expanded exponentially because the resources buyers require to execute confidently and efficiently is often lacking in certain rural areas serviced by 'established' and 'comfortable' local brokers and professionals. 

Also the current rate environment has caused many buyers to pause, so there is opportunity for buyers to present without the distraction of multiple offers or competition. 

 Wow. Could not have said it better myself! Thank you!! After I posted this I had two offers accepted utilizing concessions and the seller's broker counter included the wrong math.. Excellent tool, nothing new under the sun. 

To be fair, I'm posting this as much for investors as I am for other Realtors. Partly because in times like these (or any market really) seller concessions can be an excellent tool for improving buyer conditions, but also because when I write offers inclusive of a concession I'd like the Realtor's on the receiving end to know how to present them to their sellers effectively. 

That's not necessarily a knock on other real estate brokers, seller concessions are difficult to digest but Realtor's on the 'other side' sometimes treat an offer with a concession like it's the "boogeyman." Yes, there is math, and other elements that can can easily effect one's full comprehension about how they 'work' and the NET result to each party, but when properly utilized, concessions offer buyers incentives, and sellers huge space for compromise. 

In a nut shell, a seller concession is usually a percentage of the sales price or fixed dollar amount, that the seller contributes towards the buyers expenses (closing costs, pre-paids or interest rate buy down) that can essentially be financed. Typically 2-3% but on certain property types and lending programs as high as 6-9%!* 

So for example:

Listing price is $105k and the seller receives an offer for a $100k Sales Price with a 3% seller concession. 

This means that the the sales price will be $100k WITH 97% of $100k, OR $97k is DUE SELLER.

HOWEVER, the buyer's financing is based on the SALES price. So..let's say buyer A is putting 10% down. 10% of what? $100k (The sales price) OR $10k down. The loan amount will be based on 90% of the $100k sales price. Or a Loan Amount of $90k.

So where does the 3% of $100k go? Toward's the buyer's closing costs. Usually towards title charges, prepaids (taxes and insurance), loan costs or prepaid interest in the form of an interest rate buy down. 

Hopefully it's clear why a buyer would do this, they want to reduce the cash to close or capital investment. By financing the costs of the transactions buyers or investors can keep their capital requirements closer to the true down payment percentage of their loan terms. In this example instead of being closer to 13-14-15% of $100k, the buyer would likely be at a true 10% down. 

Why would a seller do this? Because if the property has not sold at or over asking for sometime.. it's probably not going to. Most sellers are somewhat negotiable within reason. If a property priced at $105k has been on the market or maybe had a price reduction already, what's it going to sell for? If the net result is $97k to seller, what do they care how much the buyer is financing? It's their money, let them do what they want with it. 

There are reasons buyers would not or cannot take this option, For example they could just offer a more aggressive offer, at a lower sales price, but some concessions MUST be seller paid. 

Some seller concessions may not be in the best interest of the seller..for example if there are multiple equivalent strong or cash offers and do not include a seller concession, apples to apples and net result to seller, I would advise a seller to accept the offer with no concession. Why? Appraisals.

 A property still needs to appraise for the sales price, not the loan amount. So if from our previous example, the property only appraises for $98k, our concession was based on a percentage (3%) of the sales price. Loan amounts are ALWAYS based on the LESSER of the sales price OR appraised value. In the case of a reduced appraisal valuation,  97% of $98k is $95,060 DUE SELLER. So if nothing were to change, the net result to the seller would be the difference between the initial $97K DUE SELLER less $95,060 OR $1,940. Now, there is always room for negotiation. One can potentially reduce the concession, depending on circumstances, but remember our original listing price was $105k, if the appraisal came in low.. it's because that's what the property is likely worth. 

Seller receives $95k (less RE commissions and seller closing costs) instead of full appraised value (in most markets actual sold at 97% of appraised value would be within reason and common) but ALSO the hard work is done and sellers can access the capital in a few days or weeks. What's the incentive for the seller? Just that. Opportunity cost. 

Someone wants to buy your asset. Make them a deal and get it sold. I don't understand this apprehension to creative negotiations and buyers and sellers treating any property like the Taj Mahal. You don't hear these wholesalers preaching all over this site preaching about how great the property is (usually the opposite.) They're talking about how great the DEAL IS. Usually not for the seller. 

This is one way that the seller can help dictate terms. It's almost like, "ZERO DOWN" for a car. A seller concession doesn't always mean the seller receives lower than the asking price. A buyer could offer $108,250 with 3% concession. Or 97% of $108,250, equivalent to $105,002 DUE SELLER. Assuming the property will appraise, to reiterate, it's the buyer's money. 

We're talking small percentages of the banks money. There are billion dollar deals getting done every day. We're spending days negotiating over fractional transactional costs on your 1978 property listing that has a dozen problems that nobody wants to deal with. SELL IT. Move on. Reinvest. Upgrade. Your seller is already up 300% in 12 years (not including rental income or usage) lol But really.. most negotiations fall apart even before due diligence, if there is a potential problem in the deal, the appraiser, lender, inspector, insurer, brokers or market will point it out and provide clarity on the primary variables during contingency.   

The point is, concessions provide additional options or middle ground for compromise. Options are good for buyers and a seller willing to offer a healthy concession is likely to have more buyers consider their property as an option.

Make cents? Then it can make $$$. On larger transactions sellers can also consider excluding commissions on the concession portion. Be sure to discuss all elements with your Realtor. All parties would need to likely agree. 

Professionally 2/3 of my current closings are utilizing a concession in some form or fashion: 

- One was a 3% concession towards primarily a 2/1 interest rate buy down. This is a required seller paid concession that typically runs in the 2.125-2.375% range of the sales price. It is not available on all property types but I believe primaries and second homes are eligible. It effectively reduces the buyers payment to 2% below the note rate year 1 and 1% below the note rate year 2. In other words instead of payments based on let's say; 6.75%, for the first twelve payments they are based on 4.75% and the next twelve payments at 5.75%. Year three (if the buyer has not sold or refinanced) the payments would be based at the note rate of 6.75%. To achieve this the lender essentially charges the interest up front, or the total in the difference in interest payment for first twenty four months at closing. They financed this amount (higher loan amount) and any non utilized portion is reduced from the principal balance. The property appraised above the agreed asking price and closes in July. 

- The second was a 2% concession at closing towards closing costs. At a purchase price of $300k+, this was $6k+ that a first time homebuyer didn't have to come up with. Similar to a car loan, a few dollars a month can go a long way towards making an investment work. Closing costs  this young man can use to installing his dream flooring. The seller received full asking price and a net amount (98%) that was likely above what they would have otherwise received..The owner had a tenant that was moving out. The Property appraised. And it closes the day after the tenant vacates. What is the cost of the owner having the property vacant and on the market a few more months, or longer? Opportunity costs. Closes Tuesday. 

There are cautions to concessions, in that buyers are still paying 'for it' one way or another. Those few dollars a month add up to a lot in the long run. It's essential to have a GREAT lender that can walk you through options and explain the advantages and costs of each option. 

Also, concessions can often make an offer less appealing to a seller (mainly because they haven't read this article) BUT also because it's a difficult concept to grasp (the true professionals in the lending community deserve a lot more credit and recognition than they get!) I joke that mortgage pros get all the tough but none of the love. I guess we sort of deserve it (I was a licensed broker for far too many years..mainly from 2004-2011 (I worked with a guy/mentor? that worked very closely with Jordan Belfort..let's just leave it at that..) but when you find a GREAT lender, keep them close! And ask them to better explain the mechanics than I or to provide loan estimates with and without seller paid concessions.  

Anyway, a seller concession can theoretically make your offer less attractive but with a clear understanding and presentation there is generally a way to account for one or at least a portion without adversely effecting the likelihood of a positive transactional outcome. I have not had a problem getting an executed offer that incorporated a seller concession closed. 

PRO TIP for stagnate properties or coming to market soon a seller can publicly offer a credit for a property (that is likely to appraise.) In coordination with a pre approved lender, this is one way to drive eyes and foot traffic with an incentive that displays seller consideration. Rates are high (well maybe not historically) but at least on the Oregon Coast, valuations are also heading higher.

So particularly on higher valued properties where high 6-7%'s can be disincentivizing for investors or for sellers in an area that might be softening, these are useful and meaningful tools to move the needle. 

Consult with your Realest Realtor and your Leading Lender. DM for references. These are tough concepts that I myself am still mastering, clearly..feel free to proof check or provide alternative perspective(s).  

Any creative concessions or innovative solutions you've utilized for yourself or buyers or sellers recently? This is a safe space. Share away. Always learning..

Cheers. 

Hi Dustin, there are HIGHLY attractive and productive options in the price range on the Oregon Coast, plus it's majestic..Cities have really limited where and how to get a permit but there are a handful that offer considerable value. We just recently helped a client purchase a wonderful STR, Oceanview, walking distance to State Beach. They were able to get it live in 1 week and had their first booking within minutes. Sales price was under $600k..They even launched their own direct booking website and branding! Really good reference for other BP STR investors here..they did an incredible job! https://oregoncoast.vacations Let me know if you'd like an email with our active and eligible Oregon STR Prospects :) 

Definitely more to lose by not investing. Dollars and savings are losing value. All about finding a great deal! No time like the present. 

This is a great question. I would speak to a real estate attorney and a good one. Will be well worth the investment. Have you considered a 1031 exchange? I'm not sure you can create a loss but you can definitely reinvest in a property with required capital improvements or potentially in an economic zone that will defer or reduce tax liability. The Single Family would definitely have to be a rental of some sort..maybe a vacation rental.