All Forum Posts by: Alex Scattareggia

Lol I have somehow missed out on this very entertaining thread.  

As a fellow international investor, I can promise you that there are much lower risk options, with substantially higher yield, closer to the States.... where you actually own the asset.  

To weigh in on the lease vs own option; My primary market had a several areas which were exclusively leaseholds when I started out. Be very leery of any promise of appreciation on these kinds of deals.    I have no prior experience with any Asian market but the idea that these can be sold at a profit are in my experience untrue.  Every year the property will depreciate in correspondence with the length of the lease.  Yes, this might be somewhat offset by inflation, market appreciation. but what you are buying is the hope of cash flow.  The majority of RE ownership benefits are generally not a part of lease deals. 

Quote from @Steve K.:

In fairness to OP, he only quoted PIT not PITI lol.

I am going to go out on a limb and guess OP isn´t paying insurance being as he has ignored the question three times.

Wow, blast from the past. I grew up fishing/bike riding Lake Hodges.  I can imagine with the proper marketing that you could do quite well. Really focusing on what makes the area unique (quiet getaway, the lake, Hernandez Hideaway, the quaint part of SD etc.)  

As a lot of people have already mentioned, in California especially, being up to date on regulations will be your biggest concern. But using a really conservative income formula you will be able to determine if going the STR route is worth it vs. any other investment strategy.

Also, as someone who moved out of San Diego and has never looked back, it is incredible to be able to go back and visit SD (it really is one of the best cities in the world). But equally nice is earning income, paying taxes, and living in a different part of the world. 

Very open-ended question, which will be entirely dependent on how you value your time. 

If you wanted to dive into the business and be hands on, the con would be that you are giving up 20-30% of your revenue for something that can absolutely be done by yourself. 

If you do the calculus and your time is worth giving up that 20-30% than you will be quite happy you went with a managed approach. 

People love to talk about passive income, but the only way to make a STR truly 100% passive is through a PM. Your time contribution is basically the hour or two a month to go over the financial statement that they give you and make sure that everything is penciling out.

The real key factor will be in selecting a good PM that has a solid track record in your market and asset class.  

If you are looking for a big generalization across the American market you have slightly higher demand, more listings, lower occupancy, slightly lower ADR. The misconception is that there is a bubble. Demand is staying strong, it is simply a much more saturated space now which drives occupancy down. 

If you run the numbers 2023 against 2019 you would see a large leap in demand and listings.

As mentioned above these numbers are not super relevant to any one individual purchasing decision. So much of your success/failure will be specific to your market and its saturation and your ability to stand out in it.  Good luck 

Quote from @Michael Baum:

Ok @Alex Scattareggia, I hear what you are saying. Do you have an example where you paid more than the going value for a place because it was a STR?

I would love to see that personally. If you are getting a conventional mortgage, I don't see how you would be able to get the potential value increase in the appraisal.

If every comp says the house is worth 400k, that is what it is worth. It may be pulling in 40k a year right now as a STR but that doesn't make it worth 450k or 500k.

There is absolutely no guarantee that the new owner will be successful as a STR owner. They could tank that properties listing in short order killing any extra value that would have been ascribed to the SFH.

STR revenue is certainly not 100% stable. There are literally hundreds of people who have bought STRs and paid top dollar. They are staring down a dark hole of negative cash flow and forced to sell. If they can. You see that all over the place right now. Just read the forums and you will get a tiny cross section.

They counted on the revenue staying the same or increasing from 2021-2022. That just hasn't been the case in a lot of markets. The exact opposite is true.

You can't substantiate STR income with certainty. A LTR will rent. People need a place to live. People don't need a place to vacation. The market is narrow for LTR. People live near where they work. The STR market is the whole world. People can go anywhere they want to vacation.

Past performance is no guarantee of future success.

I am not really arguing with you. Some DSCR loans take into account AirDNA estimates as a way to approve the loan, but I don't see them approving 500k on a 400k house.

I may have misunderstood your first post. I am not saying overpay for a property because it is an STR. I think I have a pretty clear viewpoint on this forum about that specific subject. What I objected to is the quote where you said a STR doesn't add value to the home. The fact that so many people have grossly overpaid based on STR comps and income from the last few years would be the obvious counter to that point.

Of course there is no guarantee that the next owner will operate as successfully. The same way that buying a historically high growth stock doesn't guarantee that it will continue to grow at the same pace. Investing is subject to the whims of human emotion which creates inefficiencies. The fact that people think they will make a killing on their STR investment and are willing to pay top dollar for it means that there is inherent value if you (or your market as a whole) can produce positive cash flowing STR numbers.

FWIW we may be saying the same thing but talking about opposite sides of the transaction. 

My family and I are a little more than halfway through a few months vacationing in Europe and we´ve stayed in two STR´s so far. We rented a house in Tuscany for 2 weeks, an apartment in Rome and a house in Villefranche Sur Mer. Both houses were excellent, the apartment not as much even though it had an incredible view. My takeaways from being on the client side for a while were the following, (Most of these are pretty basic and just personal preference stuff, and experienced hosts already know it, but it was fun to be on the other side of the equation for once)

1. Cleanliness mattered more than anything else on first impression.  The Tuscany place offered a maid service at our disposal for $200 euro and we took advantage of it a few times.  It was a nice option to have, especially for a bigger place.  The Rome apartment was clean but had hairs on the pillow, residue in the bathroom etc.  (these are things that I sometimes roll my eyes at on the host side, thinking people are looking for discounts etc. but were actually pretty gross on the client side)

2.  I would take a functional coffee maker and plenty of coffee over almost any other amenity. 

3. We would have been totally content with 6 towels, they left out 12 in a 3 bedroom, and sure enough all 12 got used (I am traveling with my wife and two daughters).  Whatever is offered will get used. 

4. Location over amenities for us, especially in a walking destination.

5. Even as hosts who like to automate as much as possible, I liked having a physical book of recs, phone numbers, maps etc. vs a purely digital version. 

6. Tuscany had a wall of books, with a really diverse selection.  It was a cool benefit and probably not all that expensive, especially in a place where they get longer reservations and people have more time to kill.  My kiddos actually read unprompted which is something that is a rarity at home.

7. Self-check much preferred over guided check in.  Just easier and more time efficient. 

8. We happily paid a small markup for certain things in exchange for connivence.  The best example was car rental in Tuscany where the host had some sort of deal worked out with the car rental agency (a smaller local operator), where we booked the car directly through a contact they provided and they brought the car to us.  It worked out to about $40 euro more per day but was well worth it.  I am sure they get a small commission from that and the host didn't have to lift a finger, it was all done through the car rental agency.  Really convenient touch that probably adds a few 100$ to their bottom line per month. 

9. Speed in response time is huge.  I am very conscious of hosts/managers time and really try not to bug, but we had a few incidents with the water heater in Rome.  That was a professional manager with 350 units and they had a 4 hour lag time on responding.  Yikes.  

We usually prefer hotels over STRs just because of the service but this trip is changing my mind a bit and it might be hard to give up the space in the future especially traveling with the kiddos. FWIW the STR market here is cranking, just a preliminary glance when booking this stuff showed really high occupancy numbers and great rates, especially in the city centers. Anyways, it was cool to be on the other side of the coin, I know most of this is basic but maybe there's some value in there for a newer host!

Billing taxes and fees as part of the commission is not only not standard practice, but also illogical and pretty slimy. Nobody counts these taxes and fees in their revenue, meaning it should not be included in the PM fee which should be exclusively derived from revenue. 

The 20/30% debate is really based on the market, how effective/comprehensive the PM offerings are, and how you value your time.  I have less of a problem with the commission amount and way more with the structure.  

If they don't have a really compelling explanation AND stop the practice I would look for another PM. 

Quote from @Michael Baum:

Hey @Kyle A., so a STR doesn't add value to the home. It is worth what every other comp is worth.

I get what you are saying. You pay the lowest price you can get for the property but try and value the possible revenue from the STR operation.

Seeing as you appear to be a pretty experienced investor, I am saying this for others who are reading.

Don't overpay for a property based on possible revenue. A working STR is worth what any other house comp is worth.

This is pretty clearly not the case. The contradiction is right there within the above statement.  

Obviously a SFH doesn't appraise like commercial, so the income isn't factored directly into the appraisal, and it will be more comps based. 
But if you think that having a proven successful STR doesn't add value to the sales price, I think we need to look at the last few years.  The fact that you are advising people not to buy based on possible revenue proves that.  

STRs will appraise as SFHs do, however being able to substantiate rental income will get the home owner a premium over comps, especially if selling to someone who is going to STR the home.

Quote from @Brooklyn McCarty:

VRBO will let you transfer 

Airbnb best way is get the guests phone numbers and tell then what’s happening and send them your site once it’s live to rebook. 

But honestly - you don’t want their bookings anyways. 

You definitely want their bookings.

It gives you a huge head start.  You will lose some of the bookings if you transfer them over to a new listing, (some people will just book a different place, some people will think it's something sketchy and not want to take the risk etc.) However as mentioned above if the existing host explains that they are transferring ownership AND provides the new link, you will reduce the churn.  It takes a little cooperation on their behalf but you can offer them a 5% finders fee or some incentive if they seem unwilling to do it. 

The OTA´s do not let you transfer the listing from one to another unless you completely change the personal information of the host.  Easier to make your own.